Compensation and Benefits Update February 2009

1. Compensation and Benefits UpdateFebruary 2009 Betsy Rodriguez Vice President for Human Resources rodriguezea@umsystem.edu

2. Context – National Economy • Colleges and Universities are making drastic budget cuts due to: • Reduced investment earnings • Reduced state appropriations and other revenues • Budget cuts result in layoffs, furloughs, salary cuts, benefits reductions • See Chronicle article on university pension plans • It all happened very quickly!

3. Quote from President Forsee • “The worst thing that can happen is that we delay actions, that we wait for the perfect answer to come, and then we find out that we can’t execute (a plan) without doing something that would dramatically affect our mission.”

4. Board Actions February 2009 Board of Curators Meeting

5. Compensation Changes • Guiding principles for compensation changes: • Minimize current impact to employees whose annual salary is below $50,000 • Maintain competitive position within peer group

6. Delegated Authority: Transition Assistance • Authority to President to develop a procedure for employees who lose jobs due to budget reductions • Transition Assistance components: • Continued access to medical insurance • Severance pay based on years of university service, with cap • Available only to staff

7. Delegated Authority: Furloughs What is a furlough? • Unpaid time off, typically a few days per year • Gives university ability to reduce salary costs on a one-time basis • Complicated by need to keep essential functions • President required to have board discussion • President’s authority ends June 30, 2009

8. Overtime Calculation • Eliminate paid leave as part of overtime calculation – pay overtime only on actual hours worked • Most employers do NOT allow paid leave to count toward overtime • Results in annual savings of about $2m

9. Information Items: No Board action • No early retirement package • Too expensive (create long-term liability) • Disruptive to workplace • FY2010 Salary pool • No merit increases • Possible 1% pool (e.g., faculty promotions, mid year retention, and market adjustments)

10. Context for pension plan change • Actuarial study 10-1-08 • Investment projections • Peer group comparison

11. How do we compare to our peers– for benefits? Benefit Index Relative Value Study

12. Actuarial Value of Liabilities vs. Assets

13. History and Future UM Contribution Rates

14. Employee Contribution to Retirement Plan • Allows UM to continue commitment to support meaningful pension benefits • 1% up to $50,000 salary; 2% on all salary above $50,000 • Annual fiscal impact - $11.9 million (based on current salaries) • Employees will contribute on a pre-tax basis

15. Paycheck Examples Annual Benefit Eligible SalaryMonthly contribution (pre-tax) • $36,000 $30 • $50,000 $42 • $150,000 $208 Hourly WageBiweekly Contribution (pre-tax) • $10/hour $8 Note: Net impact on take home pay will be based on individual’s tax rate.

16. How Does the Money Flow? When UM share is greater than budget Total Required Contribution 2009 5.87% 2010 6.12% 2011 8.80% 2012 10.7% 2013 12.2%

17. How do we compare to our peers– for benefits? Benefit Index Relative Value Study

18. How do we compare to our peers—for salary? AAU Public Average Faculty Salaries10-Year Trend b

19. Questions? Comments? ‘Frequently Asked Questions’ on benefits web site: www.umsystem.edu/benefits or email your questions to: benefits@umsystem.edu