University leaders have appointed a faculty-led committee to propose ways to reduce the cost of U-M’s retirement savings plan.
The Committee on Retirement Savings Plan and Retiree Health Benefits will use current market data as part of its work to develop recommendations that keep U-M’s benefits competitive while reducing university costs.
Leaders describe this work as part of the university’s overall and ongoing effort to contain costs and protect the ability to carry out the university’s core missions in education, research and patient care.
Since faculty and staff consider both their retirement savings balance and the availability of affordable health care when planning for retirement, the committee also will consider retiree health benefits, as the committee name indicates. But any recommendations for changes to eligibility or contributions toward retiree health benefits will apply only to future employees.
The university contributed $236.5 million to employee retirement savings accounts in 2012. That expense grows each time employee salaries increase since the university deposits a fixed percentage of employee wages into their retirement savings accounts each pay period.
“The dollar investment in this plan by the university is quite large, but we also know it’s an important benefit that’s fundamental to recruiting and to later financial well-being in retirement,” said Laurita Thomas, associate vice president for human resources. “That’s why we’ve charged some of the most capable experts in the country to make thoughtful recommendations that university leadership can consider.”
The committee’s recommendations are due by the end of the year and are expected to result in changes that would take effect in 2015. According to the charge document, the changes should result in minimum recurring annual savings of at least $5 million to the general fund, at least $8.5 million for U-M Hospitals and Health Centers and $8.7 million for other non-general fund sources.
“Cost containment at U-M is a comprehensive effort, and looking at large and growing expenses like benefits is vital to that process,” said Timothy P. Slottow, executive vice president and chief financial officer. “We’re taking a disciplined approach, utilizing expert faculty in the planning of these changes because we know these benefits are too important to the welfare of faculty and staff to do otherwise. But we know that changes need to be made.”
Dr. Ora Hirsch Pescovitz, executive vice president for medical affairs, explained that a separate benchmarking study was done for Hospitals and Health Centers.
“Indexing the HHC against other medical centers and health systems verified that our retirement savings costs are significantly higher than the average for the local and national health care markets,” said Pescovitz. “This is an opportunity for us to reduce HHC costs and stay competitive in the market for top talent.”
Matthew D. Shapiro, Lawrence R. Klein Collegiate Professor of Economics, chairs the committee. Other faculty experts and finance and benefits administrators are among the committee members (www.hr.umich.edu/retirementchanges/committee.html).
“We’ve been paying close attention to our health care costs for some time now, tracking them against the market and making adjustments. The one-year waiting period for newly hired faculty and staff that we implemented in 2010 was a modest change to the retirement savings plan, and we need a more comprehensive review,” said Martha E. Pollack, provost and executive vice president for academic affairs. “Without it, rising costs could restrict the availability of funds for other academic uses and put greater pressure on tuition.”
Plans are underway for a universitywide survey in early October to collect feedback and university community preferences about these benefits. The survey will be available to the university’s nearly 44,000 employees, and that data will go to the committee as part of its discovery process.
Once recommendations are finalized, the university’s executive vice presidents will consider them and changes that are accepted will be implemented starting in 2015.
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