The Cost of Your Retirement The Cost of Your Retirement Health - - PowerPoint PPT Presentation

Health Sciences Faculty Rights and Health Sciences Faculty Rights and Welfare Committee Welfare Committee University of California San Diego University of California San Diego

“ “The Cost of Your Retirement”

The Cost of Your Retirement”

Jim Jim Feramisco Feramisco Paul Friedman Paul Friedman Gary Gary Firestein Firestein Wilber Wilber Lew Lew Rick Lieber Rick Lieber Harry Powell Harry Powell Andy Andy Ries Ries ( (ex officio ex officio) ) Sam Ward ( Sam Ward (ad hoc ad hoc) )

Disclaimer: I study muscle! Disclaimer: I study muscle!

Purpose Purpose

• “

“Surround” the problem of 415m liability including Surround” the problem of 415m liability including such issues as: such issues as:

• Faculty hired pre

Faculty hired pre-

• and post

and post-

• 1994

1994

• APUs

APUs and academic rank and academic rank

• Years of service

Years of service

• Develop a mathematical model of the 415m

Develop a mathematical model of the 415m “problem.” “problem.”

• Suggest methods to recover 415m liability.

Suggest methods to recover 415m liability.

Review of the facts (as of 2005) Review of the facts (as of 2005)

• IRS limit on retirement system payouts =

IRS limit on retirement system payouts = $170,000. $170,000.

• UCRS maximum payout (<1994) = $315,000.

UCRS maximum payout (<1994) = $315,000.

• UCRS maximum payout (>1994) = $210,000.

UCRS maximum payout (>1994) = $210,000.

• Difference between IRS limits and UCRS payout

Difference between IRS limits and UCRS payout = 415m liability. = 415m liability.

“ “How do we get our arms How do we get our arms around the problem?” around the problem?”

Retirement Retirement Age? Age? Y e a r s

• f

Y e a r s

• f

S e r v i c e ? S e r v i c e ? Academic Academic Rank? Rank? Age at Hiring? Age at Hiring? APU? APU?

“ “What do we know?” What do we know?”

Final Scales Range Adjusted, effective 10/1/2002 - reflects adjustments at right FACULTY LADDER RANK SCALES Health Sciences Compensation Plan (Uni Plan)

ANNUAL RATES Scale 0 Scale 1 Scale 2 Scale 3 Scale 4 Scale 5 Scale 6 Scale 7 Scale 8 Scale 9 RANK STEP 1.0 1.1 1.2 1.3 1.4 1.5 1.65 1.8 2.0 2.25 Instructor $46,400 $51,000 $55,700 $60,300 $65,000 $69,600 $76,600 $83,500 $92,800 $104,400 Asst Prof I $53,900 $59,300 $64,700 $70,100 $75,500 $80,900 $88,900 $97,000 $107,800 $121,300 II $56,800 $62,500 $68,200 $73,800 $79,500 $85,200 $93,700 $102,200 $113,600 $127,800 III $59,900 $65,900 $71,900 $77,900 $83,900 $89,900 $98,800 $107,800 $119,800 $134,800 IV $63,200 $69,500 $75,800 $82,200 $88,500 $94,800 $104,300 $113,800 $126,400 $142,200 V $66,400 $73,000 $79,700 $86,300 $93,000 $99,600 $109,600 $119,500 $132,800 $149,400 VI $69,700 $76,700 $83,600 $90,600 $97,600 $104,600 $115,000 $125,500 $139,400 $156,800 Assoc Prof I $66,500 $73,200 $79,800 $86,500 $93,100 $99,800 $109,700 $119,700 $133,000 $149,600 II $69,800 $76,800 $83,800 $90,700 $97,700 $104,700 $115,200 $125,600 $139,600 $157,100 III $73,800 $81,200 $88,600 $95,900 $103,300 $110,700 $121,800 $132,800 $147,600 $166,100 IV $78,400 $86,200 $94,100 $101,900 $109,800 $117,600 $129,400 $141,100 $156,800 $176,400 V $84,100 $92,500 $100,900 $109,300 $117,700 $126,200 $138,800 $151,400 $168,200 $189,200 Professor I $78,500 $86,400 $94,200 $102,100 $109,900 $117,800 $129,500 $141,300 $157,000 $176,600 II $84,200 $92,600 $101,000 $109,500 $117,900 $126,300 $138,900 $151,600 $168,400 $189,500 III $91,300 $100,400 $109,600 $118,700 $127,800 $137,000 $150,600 $164,300 $182,600 $205,400 IV $99,000 $108,900 $118,800 $128,700 $138,600 $148,500 $163,400 $178,200 $198,000 $222,800 V $107,400 $118,100 $128,900 $139,600 $150,400 $161,100 $177,200 $193,300 $214,800 $241,700 VI $116,600 $128,300 $139,900 $151,600 $163,200 $174,900 $192,400 $209,900 $233,200 $262,400 VII $126,500 $139,200 $151,800 $164,500 $177,100 $189,800 $208,700 $227,700 $253,000 $284,600 VIII $137,000 $150,700 $164,400 $178,100 $191,800 $205,500 $226,100 $246,600 $274,000 $308,300 IX $148,800 $163,700 $178,600 $193,400 $208,300 $223,200 $245,500 $267,800 $297,600 $334,800

SCALES FOR FACULTY SALARIES - July through September 2005

APU APU Rank Rank

YEARS SERVICE CREDIT AGE 50 1.10% AGE 51 1.24% AGE 52 1.38% AGE 53 1.38% AGE 54 1.66% AGE 55 1.80% AGE 56 1.94% AGE 57 2.08% AGE 58 2.22% AGE 59 2.36% AGE 60 2.50% AGE 61 2.50% AGE 62 2.50% AGE 63 2.50% AGE 64 2.50% AGE 65 2.50% 6 6.6 7.4 8.3 9.1 10.0 10.8 11.6 12.5 13.3 14.2 15.0 15.0 15.0 15.0 15.0 15.0 7 7.7 8.7 9.7 10.6 11.6 12.6 13.6 14.6 15.5 16.5 17.5 17.5 17.5 17.5 17.5 17.5 8 8.8 9.9 11.0 12.2 13.3 14.4 15.5 16.6 17.8 18.9 20.0 20.0 20.0 20.0 20.0 20.0 9 9.9 11.2 12.4 13.7 14.9 16.2 17.5 18.7 20.0 21.2 22.5 22.5 22.5 22.5 22.5 22.5 10 11.0 12.4 13.8 15.2 16.6 18.0 19.4 20.8 22.2 23.6 25.0 25.0 25.0 25.0 25.0 25.0 11 12.1 13.6 15.2 16.7 18.3 19.8 21.3 22.9 24.4 26.0 27.5 27.5 27.5 27.5 27.5 27.5 12 13.2 14.9 16.6 18.2 19.9 21.6 23.3 25.0 26.6 28.3 30.0 30.0 30.0 30.0 30.0 30.0 13 14.3 16.1 17.9 19.8 21.6 23.4 25.2 27.0 28.9 30.7 32.5 32.5 32.5 32.5 32.5 32.5 14 15.4 17.4 19.3 21.3 23.2 25.2 27.2 29.1 31.1 33.0 35.0 35.0 35.0 35.0 35.0 35.0 15 16.5 18.6 20.7 22.8 24.9 27.0 29.1 31.2 33.3 35.4 37.5 37.5 37.5 37.5 37.5 37.5 16 17.6 19.8 22.1 24.3 26.6 28.8 31.0 33.3 35.5 37.8 40.0 40.0 40.0 40.0 40.0 40.0 17 18.7 21.1 23.5 25.8 28.2 30.6 33.0 35.4 37.7 40.1 42.5 42.5 42.5 42.5 42.5 42.5 18 19.8 22.3 24.8 27.4 29.9 32.4 34.9 37.4 40.0 42.5 45.0 45.0 45.0 45.0 45.0 45.0 19 20.9 23.6 26.2 28.9 31.5 34.2 36.9 39.5 42.2 44.8 47.5 47.5 47.5 47.5 47.5 47.5 20 22.0 24.8 27.6 30.4 33.2 36.0 38.8 41.6 44.4 47.2 50.0 50.0 50.0 50.0 50.0 50.0 21 23.1 26.0 29.0 31.9 34.9 37.8 40.7 43.7 46.6 49.6 52.5 52.5 52.5 52.5 52.5 52.5 22 24.2 27.3 30.4 33.4 36.5 39.6 42.7 45.8 48.8 51.9 55.0 55.0 55.0 55.0 55.0 55.0 23 25.3 28.5 31.7 35.0 38.2 41.4 44.6 47.8 51.1 54.3 57.5 57.5 57.5 57.5 57.5 57.5 24 26.4 29.8 33.1 36.5 39.8 43.2 46.6 49.9 53.3 56.6 60.0 60.0 60.0 60.0 60.0 60.0 25 27.5 31.0 34.5 38.0 41.5 45.0 48.5 52.0 55.5 59.0 62.5 62.5 62.5 62.5 62.5 62.5 26 28.6 32.2 35.9 39.5 43.2 46.8 50.4 54.1 57.7 61.4 65.0 65.0 65.0 65.0 65.0 65.0 27 29.7 33.5 37.3 41.0 44.8 48.6 52.4 56.2 59.9 63.7 67.5 67.5 67.5 67.5 67.5 67.5 28 30.8 34.7 38.6 42.6 46.5 50.4 54.3 58.2 62.2 66.1 70.0 70.0 70.0 70.0 70.0 70.0 29 31.9 36.0 40.0 44.1 48.1 52.2 56.3 60.3 64.4 68.4 72.5 72.5 72.5 72.5 72.5 72.5 30 33.0 37.2 41.4 45.6 49.8 54.0 58.2 62.4 66.6 70.8 75.0 75.0 75.0 75.0 75.0 75.0 31 34.1 38.4 42.8 47.1 51.5 55.8 60.1 64.5 68.8 73.2 77.5 77.5 77.5 77.5 77.5 77.5 32 35.2 39.7 44.2 48.6 53.1 57.6 62.1 66.6 71.0 75.5 80.0 80.0 80.0 80.0 80.0 80.0 33 36.3 40.9 45.5 50.2 54.8 59.4 64.0 68.6 73.3 77.9 82.5 82.5 82.5 82.5 82.5 82.5 34 37.4 42.2 46.9 51.7 56.4 61.2 66.0 70.7 75.5 80.2 85.0 85.0 85.0 85.0 85.0 85.0 35 38.5 43.4 48.3 53.2 58.1 63.0 67.9 72.8 77.7 82.6 87.5 87.5 87.5 87.5 87.5 87.5 36 39.6 44.6 49.7 54.7 59.8 64.8 69.8 74.9 79.9 85.0 90.0 90.0 90.0 90.0 90.0 90.0 37 40.7 45.9 51.1 56.2 61.4 66.6 71.8 77.0 82.1 87.3 92.5 92.5 92.5 92.5 92.5 92.5 38 41.8 47.1 52.4 57.8 63.1 68.4 73.7 79.0 84.4 89.7 95.0 95.0 95.0 95.0 95.0 95.0 39 42.9 48.4 53.8 59.3 64.7 70.2 75.7 81.1 86.6 92.0 97.5 97.5 97.5 97.5 97.5 97.5 40 44.0 49.6 55.2 60.8 66.4 72.0 77.6 83.2 88.8 94.4 100.0 100.0 100.0 100.0 100.0 100.0 41 45.1 50.8 56.6 62.3 68.1 73.8 79.5 85.3 91.0 96.8 100.0 100.0 100.0 100.0 100.0 100.0 42 46.2 52.1 58.0 63.8 69.7 75.6 81.5 87.4 93.2 99.1 100.0 100.0 100.0 100.0 100.0 100.0 43 47.3 53.3 59.3 65.4 71.4 77.4 83.4 89.4 95.5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 44 48.4 54.6 60.7 66.9 73.0 79.2 85.4 91.5 97.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 45 49.5 55.8 62.1 68.4 74.7 81.0 87.3 93.6 99.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0

RETIREMENT INCOME ESTIMATE TABLE (EXPRESSED AS A PERCENTAGE OF THREE CONSECUTIVE YEARS HIGHEST ANNUAL SALARY)

Basic Principles for 415m Liability Basic Principles for 415m Liability

• Liability for payment should be proportional to

Liability for payment should be proportional to the risk of becoming a 415m liability. the risk of becoming a 415m liability.

• Retirement age factors are “agreed

Retirement age factors are “agreed-

• upon”

upon” risk factors for high salary. Use whenever risk factors for high salary. Use whenever possible in modeling. possible in modeling.

• Reasonable measures must be taken to

Reasonable measures must be taken to avoid “pension spiking.” avoid “pension spiking.”

• e.g.,

e.g., dramatic APU increases in last 3 years of career. dramatic APU increases in last 3 years of career.

• Past 415m liability incurred by UC approval of

Past 415m liability incurred by UC approval of high retirement salaries should not be borne by high retirement salaries should not be borne by current faculty. current faculty.

• Unreasonable to “pay for” imminent retirees using a faculty

Unreasonable to “pay for” imminent retirees using a faculty taxation plan on current faculty. taxation plan on current faculty.

• Faculty had no role in approval of the plan.

Faculty had no role in approval of the plan.

Basic Principles (cont.) Basic Principles (cont.)

• Retirement age = 63 years.

Retirement age = 63 years.

• Years of service = 40.

Years of service = 40.

• APU and Academic Rank = variable

APU and Academic Rank = variable

• Hiring date = Pre

Hiring date = Pre-

• 1994 or Post

1994 or Post-

• 1994.

1994.

• Retirement pay received for 20 years.

Retirement pay received for 20 years.

Assumptions for “first pass” of calculations Assumptions for “first pass” of calculations

• Calculate 415m obligation.

Calculate 415m obligation.

• Divide by number of years remaining to

Divide by number of years remaining to retirement. retirement.

• Use standard “compound interest” equations to

Use standard “compound interest” equations to establish annual payment: establish annual payment:

Prospective paying of 415m obligation Prospective paying of 415m obligation

Payment = Rate × FutureValue 1+Rate

⎛ ⎝ ⎜ ⎜ ⎜ ⎞ ⎠ ⎟ ⎟ ⎟

n

−1

⎡ ⎣ ⎢ ⎢ ⎢ ⎢ ⎢ ⎢ ⎢ ⎢ ⎢ ⎢ ⎢ ⎢ ⎢ ⎤ ⎦ ⎥ ⎥ ⎥ ⎥ ⎥ ⎥ ⎥ ⎥ ⎥ ⎥ ⎥ ⎥ ⎥

(3.5%) (3.5%)

Faculty/Staff Retirement Salary Faculty/Staff Retirement Salary

Hired Prior to 1994 Hired After 1994

… …18% of faculty are a liability. 18% of faculty are a liability.

Hired Prior to 1994 Hired After 1994

415m Liability for 20 Years of Retirement 415m Liability for 20 Years of Retirement

Required Annual Contribution to Cover 415m Required Annual Contribution to Cover 415m

Hired Prior to 1994 Hired After 1994

Hired Prior to 1994 Hired After 1994

Percent Salary to Cover 415m Percent Salary to Cover 415m

… …other years of service options?

• ther years of service options?

40 Years 40 Years

18% of 18% of Faculty Faculty

25 Years 25 Years

7% of 7% of Faculty Faculty

Percentage of faculty with a 415m Liability Percentage of faculty with a 415m Liability

23 23 years years 45 45 years years

Health Sciences Faculty Rights and Health Sciences Faculty Rights and Welfare Committee Welfare Committee University of California San Diego University of California San Diego

“ “Modeling the 415m Problem”

Modeling the 415m Problem”

Richard L. Lieber Richard L. Lieber Samuel R. Ward Samuel R. Ward

…using …using real real data! data!

“ “Who are we as a faculty?” Who are we as a faculty?”

First things first… First things first…

Anesthesiology CMM Emergency medicine Medicine Neurosciences Opthamalogy Ortho Pathology Peds Pharmacology Primary Care Psych Radiology Reproductive Med Pharmacy Deans Surgery Family & Prev Med

100 200 300

Number of Faculty/Department Number of Faculty/Department

Number of Faculty Number of Faculty

Average APU by Department Average APU by Department

Academic Program Unit Academic Program Unit

Anesthesiology CMM Emergency medicine Medicine Neurosciences Opthamalogy Ortho Pathology Peds Pharmacology Primary Care Psych Radiology Reproductive Med Pharmacy Deans Surgery Family & Prev Med

1 2 3 4 5 6 7 8 9

Percentage of Faculty Percentage of Faculty > > APU 5 APU 5

Percentage of Department Percentage of Department

Anesthesiology CMM Emergency medicine Neurosciences Opthamalogy Ortho Pathology Peds Pharmacology Primary Care Psych Radiology Reproductive Med Pharmacy Deans Surgery Family & Prev Med Medicine

0% 50% 100%

Anesthesiology CMM Emergency medicine Neurosciences Opthamalogy Ortho Pathology Peds Pharmacology Primary Care Psych Radiology Reproductive Med Pharmacy DeansSurgery Family & Prev Med Medicine

5 10 15 20 25 Years of Service by Department

Years of Service by Department

Years of Service Years of Service

Anesthesiology CMM Emergency medicine Medicine Neurosciences Opthamalogy Ortho Pathology Peds Pharmacology Primary Care Psych Radiology Reproductive Med Pharmacy Deans Surgery Family & Prev Med

20 40 60

Number of Faculty Number of Faculty

Faculty with >20 years of service Faculty with >20 years of service

Medicine

60 60

“ “Where are we going?”

Where are we going?”

And now… And now…

• Retirement age = 65 years.

Retirement age = 65 years.

• Hiring date = Pre

Hiring date = Pre-

• 1994 or Post

1994 or Post-

• 1994.

1994.

• APU gain: 1 APU unit/10 years.

APU gain: 1 APU unit/10 years.

• Rank gain: Normal merit promotions.

Rank gain: Normal merit promotions.

• Retirement pay received for 20 years.

Retirement pay received for 20 years.

Assumptions for calculations Assumptions for calculations

Anesthesiology CMM Emergency medicine Medicine Neurosciences Ortho Pathology Peds Pharmacology Psych Radiology Reproductive Med Pharmacy Deans Surgery Family & Prev Med Opthamalogy Primary Care

5 10 15 20Future Liability: 75 faculty (9.2%)

Future Liability: 75 faculty (9.2%)

Number of Faculty Number of Faculty

$0 $500,000 $1,000,000 $1,500,000 $2,000,000

A n e s t h e s i

• l
• g

y C M M E m e r g e n c y M e d i c i n e F a m i l y & P r e v M e d M e d i c i n e N e u r

• s

c i e n c e s O p h t h a l m

• l
• g

y O r t h

• p

a e d i c s P a t h

• l
• g

y P e d i a t r i c s P h a r m a c

• l
• g

y P r i m a r y C a r e P s y c h i a t r y R a d i

• l
• g

y R e p r

• d

u c t i v e M e d S c h

• l
• f

P h a r m a c y S O M A c a d e m i c D e a n s S u r g e r y

Yearly Liability

Annual Predicted 415m Liability Annual Predicted 415m Liability

Why is Surgery hit so hard? Why is Surgery hit so hard?

• Many years of service remaining (30

Many years of service remaining (30 years!) years!)

• Consistently high

Consistently high APUs APUs

• Very high Academic Ranks (23% ≥

Very high Academic Ranks (23% ≥ Prof V) Prof V)

• 44%

44% will be will be 415m liability (highest of 415m liability (highest of any Department) any Department)

10 20 30

1 3 5 7 9 11 13 15 17 19 21

Frequency 10 20 30

1 3 5 7 9 11 13 15 17 19 21

Frequency

Radiology Radiology Surgery Surgery

Academic Rank Academic Rank

$0 $50,000 $100,000 $150,000 $200,000

A n e s t h e s i

• l
• g

y C M M E m e r g e n c y M e d i c i n e F a m i l y & P r e v M e d M e d i c i n e N e u r

• s

c i e n c e s O p h t h a l m

• l
• g

y O r t h

• p

a e d i c s P a t h

• l
• g

y P e d i a t r i c s P h a r m a c

• l
• g

y P r i m a r y C a r e P s y c h i a t r y R a d i

• l
• g

y R e p r

• d

u c t i v e M e d S c h

• l
• f

P h a r m a c y S O M A c a d e m i c D e a n s S u r g e r y

Yearly Liability

Annual Predicted 415m Liability Annual Predicted 415m Liability

$1.4M $1.4M

No APU Gain No APU Gain

Yearly Dollars Needed to Pay Liability Yearly Dollars Needed to Pay Liability

$0 $50,000 $100,000 $150,000 $200,000

A n e s t h e s i

• l
• g

y C M M E m e r g e n c y M e d i c i n e F a m i l y & P r e v M e d M e d i c i n e N e u r

• s

c i e n c e s O p h t h a l m

• l
• g

y O r t h

• p

a e d i c s P a t h

• l
• g

y P e d i a t r i c s P h a r m a c

• l
• g

y P r i m a r y C a r e P s y c h i a t r y R a d i

• l
• g

y R e p r

• d

u c t i v e M e d S c h

• l
• f

P h a r m a c y S O M A c a d e m i c D e a n s S u r g e r y

Yearly Liability

$1.0M $1.0M

Percent Salary Contributed Percent Salary Contributed

0% 25% 50% 75% 100%

A n e s t h e s i

• l
• g

y C M M E m e r g e n c y M e d i c i n e F a m i l y & P r e v M e d M e d i c i n e N e u r

• s

c i e n c e s O p h t h a l m

• l
• g

y O r t h

• p

a e d i c s P a t h

• l
• g

y P e d i a t r i c s P h a r m a c

• l
• g

y P r i m a r y C a r e P s y c h i a t r y R a d i

• l
• g

y R e p r

• d

u c t i v e M e d S c h

• l
• f

P h a r m a c y S O M A c a d e m i c D e a n s S u r g e r y

Yearly Liability

Deal Breaker? Deal Breaker?

Summary Summary

• It is possible to quantify risk of 415m liability

It is possible to quantify risk of 415m liability based on actual data on a faculty member based on actual data on a faculty member-

• by

by-

• faculty member basis.

faculty member basis. Rank/YOS/APU Rank/YOS/APU alone do note provide accurate predictors. alone do note provide accurate predictors.

• Paying for 415m liability incurred in the future

Paying for 415m liability incurred in the future is relatively straightforward. is relatively straightforward.

• Future (>10 years) liability should be paid by those who

Future (>10 years) liability should be paid by those who will receive the benefits. will receive the benefits.

• Paying for current 415m liability is more

Paying for current 415m liability is more problematic. problematic.

• Current liability is an Office of the President obligation.

Current liability is an Office of the President obligation.

Possible 415m Solutions Possible 415m Solutions

1.

• 1. Every SOM faculty member pays a fixed

Every SOM faculty member pays a fixed fraction of the total liability ($3,073.58, not fraction of the total liability ($3,073.58, not including compound interest!). including compound interest!). 2.

• 2. Every faculty member pays a scaled

Every faculty member pays a scaled fraction of the total liability (~$1k fraction of the total liability (~$1k-

• $10k).

$10k). 3.

• 3. Everyone at risk pays a percentage based

Everyone at risk pays a percentage based

• n APU
• n APU and

and time of service remaining… time of service remaining…

Total liability = $2,501,897, thus… Total liability = $2,501,897, thus…

3.3%/APU 3.3%/APU

y = 0.0335x R2 = -0.0144 0% 20% 40% 60% 80% 100% 1 2 3 4 5 6 7 8 9 10 APU

2.5%/APU 2.5%/APU

y = 0.0251x R2 = -0.0287 0% 20% 40% 60% 80% 100% 1 2 3 4 5 6 7 8 9 10 APU y = 0.0145x R2 = -0.6632 y = 0.0145x R2 = -0.6632 0% 20% 40% 60% 80% 100% 1 2 3 4 5 6 7 8 9 10 APU

1.5%/APU 1.5%/APU Percent Contribution Percent Contribution

At Risk Contribution At Risk Contribution