University leaders have accepted the recommendations of two committees charged last fall with reviewing aspects of retirement savings, retiree health benefits and U-M Health System paid time off programs.

The Committee on Retirement Savings Plan and Retiree Health Benefits recommended a change to the types of income included when calculating retirement savings contributions.

That change takes effect on Jan. 1, 2015, and means that additional types of income — including administrative differentials, added-duties differentials, faculty honors, overtime, and the payout of unused vacation or paid time off when leaving employment — will not be included when calculating retirement savings contributions.

A second committee, charged with evaluating the U-M Health System Paid Time Off programs, recommended changes to UMHS rules regarding paid time off, eligibility requirements for extended sick time, the waiting period for extended sick leave pay, and the amounts of extended sick leave payments.

Additionally, the university contribution for HHC and select groups of health system employees will be capped at 9 percent of base pay, and employees will need to contribute 4.5 percent of base pay — down from the current 5 percent — to qualify. No change was made to the 2-to-1 match policy.

Leaders say both reviews were part of ongoing efforts to ensure that university benefit plans are competitive, of high value to faculty and staff and responsive to the financial climate for higher education and health care.

The Committee on Retirement Savings Plan and Retiree Health Benefits considered a range of possibilities, but recommended against a number of changes, including changes to U-M’s retiree health benefits that could have reduced the competitiveness of the university’s overall benefits program.

Although the committee recommended against a universitywide change to the 10 percent rate of university contributions to base pay to keep overall benefits at market-competitive levels for higher education, it recognized the U-M Health System had significantly more room for change.

A benchmarking study showed that UMHS’s retirement savings plan was more than 60 percent above market when compared to national and local health system peers.

“The U-M Health System is in a different competitive position from the rest of the university,” said Ora Pescovitz, executive vice president for medical affairs. “We have room to reduce costs while remaining competitive in the health care marketplace.”

UMHS leaders announced details of the additional changes in an email today to UMHS staff.

Executive Vice President and Chief Financial Officer Tim Slottow said the universitywide change to redefine the types of added income that qualify for retirement savings contributions is projected to save the university $4.4 million per year once the change becomes effective on Jan. 1, 2015.

“Cost containment at U-M is a comprehensive effort, and looking at large and growing expenses is vital to that process,” said Slottow. “We took a disciplined approach, utilizing expert faculty because we know a strong retirement savings program is crucial to the welfare of faculty and staff.”

The university spent more than $242 million last year on contributions to the employee retirement savings plan, and that expense grows each year as a fixed percentage of wages.

Associate Vice President for Human Resources Laurita Thomas said a universitywide survey of faculty and staff as well as a UMHS survey helped the process.

“By surveying faculty and staff throughout the university last fall, we learned a great deal,” said Thomas. “Although the dollar investment in this plan by the university is large, we also know it’s a plan that’s fundamental to recruiting and to financial health in retirement.”

More than 8,500 faculty and staff participated in the universitywide survey. UMHS faculty and staff participated in an additional survey about key components of their benefits package.

University leadership recognized the members of the Committee on Retirement Savings Plan and Retiree Health Benefits, chaired by Matthew D. Shapiro, Lawrence R. Klein Collegiate Professor of Economics; and the members of the UMHS Committee on Paid Time Off, chaired by UMHS Chief Human Resource Officer Deborah Childs and Orthopaedic Surgery Department Administrator Carolyn Cole-Brown, for thoughtful recommendations that reduce university costs, recognize significant market differences between campus and health system and keep retirement benefits competitive in both markets.

Provost and Executive Vice President Martha Pollack said the committees did an excellent job of analyzing the situation and understanding the university’s positions in both markets so that cost-savings could be achieved while keeping university plans competitive.

“We need to have compensation programs that allow us to continue to attract the very best faculty and staff, while also ensuring that we have sufficient resources for our missions and the containment of tuition growth,” said Pollack.