1. University of MissouriBoard of CuratorsCompensation & Human Resources Committee A Review of Salary and Benefit Programs August 2009 Betsy Rodriguez, Vice President for Human Resources and Mike Paden, Associate Vice President for Benefits

2. Total Compensation Overview

3. Compensation Philosophy Total Compensation Philosophy Attract and retain highly qualified employees through salary and benefits that are: Competitive (measured by peer comparisons) Cost effective (measured by national and regional benchmarks) Valuable (measured by employee surveys and peer comparisons)

4. University must manage and support its TALENT through programs and services that cover the employment and employee lifecycle. Note: Programs not traditionally considered part of total compensation include employee development and training, career progression opportunities, employee assistance programs, etc. and are not included in this presentation. Compensation Philosophy (continued)

5. Employees’ needs and values change throughout their employment and employee lifecycles … Compensation Philosophy (continued)

6. Lifecycle Events Employee demographics Average Age: 45 Turnover Rate: 13% per year (higher turnover for those < 5 years) Salary level: 50% employees make < $50,000 Average Length of Service: 9.8 years Other considerations Marital status Dependents Geographic location (rural vs. urban) Medical history

7. Workforce Demographics Benefits Eligible employees = 19,000

8. Workforce Trends Pending retirement of Baby Boomers (23% of UM population is 55 yrs and older) Smaller population to replace Baby Boomers (Labor shortage expected 2010-2016, especially in health care, info technology and education) Generational differences– different values and expectations from employees Increasing demand for work/life balance

9. Salary Overview

10. Salary Overview Most significant part of total compensation University spends $1 billion annually on benefits eligible salaries Lower public sector salaries are often viewed as counterbalanced by stability, job security, and substantial benefits package (especially retirement plans)

11. Salary Overview (continued) Initial Salary Job salary ranges based on: market, job level, job scope Individual salary based on: market and recruitment conditions, applicant skills and experience, and internal equity* Salary is not based on funding source Initial salary is critical given relatively minimal annual adjustments and career progression opportunities *New hire salaries often create significant internal equity issues.

12. Salary Overview (continued) Annual salary adjustments Adjusted in September, based on funds availability, within ‘pool’ established by board of curators Based on merit*, with available salary budgets distributed under locally administered processes Typically ‘base building’ Occasional market adjustments (e.g. Fall ’08) Annual adjustments may include promotion (e.g. academic progression) Supervisors are expected to complete annual performance evaluations *Assumes salaries are already at market

13. Salary Overview (continued) Salary Decisions Executive Order 6 – establishes delegated responsibility Access to market data (through Human Resources or website)

14. Salary Overview (continued) Other salary programs: Extra Compensation (360.010) - pay for duties outside or above the 'normal' duties Executive Compensation/Incentive (by incentive plan or individual contract) Summer appointments (360.020) - pay for 9-month faculty who elect to teach or conduct other academic work during the summer months Incentive compensation (360.150) - incentive pay plans About 40 plans across campuses Typically done for revenue generating areas (sales, dining halls, athletics) Require President approval

15. Salary DatabyEmployee Group

16. Salary Data: Faculty Faculty-Unranked Titles such as Lecturer, Instructor, Research Associate, Program Director, Extension Specialist Approximately 2,280 Term appointments (annual or no more than 3-year) Average salary = $47,940 (12-month)

17. Salary Data: Faculty Faculty-Ranked Assistant Professor, Associate Professor, Professor (including clinical/professional practice, research, teaching, and extension nontenure tracks) Approximately 3,200 Term appointments and continuous Average salary ranked faculty = $74,048 (9-month) (tenured/tenure track = $78,338) (nontenure track = $60,194)

19. Association of Public Land Grant Universities (APLU)

21. Salary Data: Faculty Salary Market Data – Faculty (Ranked) Data are focused on the contiguous states (and one state removed) Updated annually but typically lags about six months Medical school faculty are excluded from all disciplines due to the higher salaries associated with MD degrees University and market data are accessible online to department chairs, deans, and provosts –SEE SAMPLE

22. Salary Data: Faculty Faculty market data are available online to all campus academic administrators, including department chairs See next slides for sample data by campus and selected disciplines

23. 11-Month Salaries Tenure and Tenure Track

24. 11-Month Salaries Tenure and Tenure Track

25. 11-Month Salaries Tenure and Tenure Track

26. 11-Month Salaries Tenure and Tenure Track

27. Peer Comparisons: Faculty Salaries Includes all ranked faculty per AAU definitions Chart shows percent growth in overall salary base, with an average salary Average salary ranges from $73k to $116.8k MU was only one of few schools with increase in 2008 With strategic investment in Fall 2008, MU remains next to last

28. Salary Peer Comparisons: Faculty

29. Salary Peer Comparisons: Faculty

30. Salary Peer Comparisons: Faculty

31. Salary Comparison Samples

32. Salary Data: Hourly Employees Hourly employees Total payroll $233 million + benefits $49.8 million Service/Maintenance& Skilled Trades Titles such as Police Officer, Child Care Assistant, Food Services, Custodians, Power Plant Operators, Electricians, Pipefitters Approximately 2,150 employees Majority are union eligible positions (about 20% are union members) Meet and confer for annual agreement, nonbinding Average hourly rate = $14.50 (range from $8 to $31)

33. Salary Data: Hourly Employees Hourly employees (continued) Office administration / Support Titles such as Administrative Assistant, Office Support Staff, Fiscal Assistant Approximately 3,320 employees Average hourly rate = $14.50 (range from $7.25 to $35.00) Technical Titles such as Research Technician, Optician Assistant, Broadcast Technician, Reactor Operator, Computer Operator, Hygienist Approximately 2,050 employees Average hourly rate = $16.75 (range from$8.00 to $39.50)

34. Salary Data: Hourly Employees Salary Market Data – Hourly Employees Compared to local/regional markets Note: Columbia IS the market for many positions Union salary structure is discussed during annual ‘meet and confer’ Union salary structure is a step system by which employees in same title with same length of service receive same hourly pay

35. Salary Data: Salaried Employees Salaried employees Total payroll $772 million + benefits $165 million Professional Titles such as Programmer / Analyst, Attorney, Psychologist, Accountant, Engineer, Chemist About 4,100 employees Average annual salary $50,400

36. Salary Data: Salaried Employees Salaried employees (continued) Administrative / Manager / Executive Titles such as Farm Supervisor, Ticket Manager, Admissions Director, Placement Director, Coach, Provost, Chancellor, President About 1,900 employees Average annual salary $79,000

37. Salary Data: Salaried Employees Salary Market Data – Professional, Administrators and Executives Sources: Salary.com and other purchased or generated market databases Administrative work varies across many industries (e.g., agriculture, entertainment, sports, retail, finance, print, power generation, restaurant, resource management, housing, research, healthcare, student services)

38. Salary Data: Salaried Employees Salary Market Data – Professional, Administrators and Executives (continued) Maintaining competitive pay across these industries is constant balancing act as each industry moves in response to economic conditions and labor markets Large salary differences across industries lead to issues of ‘fairness’ and ‘equity’ among university employees (e.g., typically student services have lower market salaries than finance) Assess markets and salary needs within Occupational Group(s) Exception: Senior Leadership and strategic valued position are often individually compared to market

39. Sample Staff Market Data: Salary.com Salary.com

40. Sample Staff Market Data: CUPA-HR

41. Salary Peer Comparisons: Staff Do not have complete data on every staff position compared to market Need to do significant work to develop accurate market comparisons (due to title inflation and other considerations) Selected 150 titles—salaried only for comparison

42. Salary Peer Comparisons: Staff Staff by Select Occupational Groups 69.5% of mkt 79.9% of mkt 89.7% of mkt 90.8% of mkt 91.9% of mkt UNIV MKT 79.6% of mkt

43. Salary Increase History: Faculty and Staff

44. Summary Observations of Salary UM salaries are below peers regardless of how data are analyzed We typically hire at lower end of range (which is below market) because of internal equity issues, but fall further behind quickly High turnover in the first 2-3 years is costly High turnover will be exacerbated as we reach workforce shortages Increasing market pressure on new hires creates salary ‘compression’ (new hires at or above longer term employees) Small annual merit pools have exacerbated market situation ‘Catch up’ will require strategic multi-year investment

45. Faculty & Staff Benefits August 20, 2009

46. UM Retirement and Staff Benefits Committee

47. UM Retirement & Staff Benefits Committee UM Retirement, Disability & Death Benefits Plan Rules and regulations for administration of the plan Interpretation and construction of the plan Rulings subject to review and final determination by Board of Curators Advisor to President on Benefits Issues Plan design and development New program offering Strategic planning

48. UM Retirement & Staff Benefits Committee Required Membership President of the University, Ex-Officio Chair – appointed by the President Other members – appointed by the President, with a majority being faculty

49. UM Faculty & Staff BenefitsAdministration

50. UM Faculty & Staff BenefitsOrganization and Responsibilities

51. BenchmarksHewitt Associates Benefits IndexRelative Value Study A Study of Comparative Benefit Values

52. Comparator Institution BenchmarksHewitt Associates Relative Value Study Indiana University Iowa State University Michigan State University Ohio State University Pennsylvania State University Purdue University Texas A&M University of Colorado University of Illinois The University of Iowa University of Kansas University of Michigan University of Minnesota University of Nebraska University of Texas

53. Comparator Institution BenchmarksHewitt Associates Relative Value Study Value vs. Cost – A Distinction Employer Value Index-Average=100 Total Value Index-Average=100 Employer Value Ranking Total Value Ranking Frequency-every 5 years

54. Comparator Institution BenchmarksHewitt Associates Relative Value Study *After 7/1/09 pension plan amendment

55. Benefit Eligibility

56. Employee Benefit Enrollment Eligibility Employees Eligible to Enroll 75% FTE Appointment duration of at least 9 months Employees Not Eligible to Enroll Students Part time Temporary

57. Dependent Enrollment Eligibility Legal Spouse (domestic partners not recognized) Surviving Spouse Children

58. Benefit Plans Offered Conventionally Insured, No UM Subsidy Conventionally Insured, UM Subsidy Self Insured, UM Subsidy Pension and Deferred Compensation Other Employer Sponsored Plans

59. Conventionally Insured, No UM Subsidy Health and Welfare Plans

60. Conventionally Insured, UM Subsidized Health and Welfare Plans

61. Self Insured, UM Subsidized Health and Welfare Plans

62. Retirement & Deferred Compensation Plans

63. Flexible Benefits Plans No UM Subsidy

64. Other Benefit Plans

65. Benefit Plans Contribution AnalysisBased on 2009 Contribution Rates

66. UM Dental Benefits Plan

67. UM Dental Benefits Plan Self Insured 50% UM Premium Subsidy

68. UM Dental Benefits Plan (cont.) $100 Deductible (not applicable to preventive care) Preventive Care = 100% coverage Other Care = 50% to 80% coverage levels Maximum Annual Benefit = $1,500

70. All other plans cover orthodontic

71. UM requires higher employee contribution percentage

72. UM Long Term Disability Plan

73. UM Long Term Disability Plan Self Insured Claims Payment – UM Faculty & Staff Benefits 3 year pre-existing condition period 5 month elimination period Integration with other plans Option A - 60% of salary benefit, no employee premium Option B - 67% of salary, employee premium required

75. Average maximum benefit per month - $10,000

76. 10 of 15 require employee contributions for base coverage

77. UM Death Benefit Coverage

78. Death Benefits Group Term Life Insurer – Minnesota Life Up to 2X Salary UM Subsidized Supplemental Term Life Insurer – Minnesota Life Up to 3X Salary No UM Subsidy

79. Death Benefits (cont.) Accidental Death & Dismemberment Insurer – Minnesota Life Up to $150,000 UM Retirement, Disability & Death Benefit Plan Vested Status Required Greater of 2X Salary or present value of future pension benefits UM Subsidized

81. UM Medical Benefits Plan

82. UM Medical Benefits Plan Choice Health Care Program (Point of Service) Catastrophic Health Care Program

83. UM Choice Health Care Program Self Insured Network Based Eligible Population – Active and Retired Employees Active Employee Premium Subsidy – 73% Design Objectives and Features

84. UM Catastrophic Health Care Program Self insured Eligible Population – Active and Retired Employees Active Employee Premium Subsidy – 66-2/3% Non Network Based Design Objectives and Features

87. Towers Perrin 2008 Health Care Performance Study UM actual costs were 16% below the benchmark in total UM actual costs fall below the 25th percentile UM overall program efficiency is 16% below the database. Translates into current savings of $23.9 million UM administration fees are competitive and fall below the 25th percentile

88. Healthy for Life: T.E. Atkins UM Wellness Program UMHS pilot began in 2004; extended to campuses 2007 Cost-Effectiveness: 524 employee volunteers; over 450 student volunteers per year; doctoral, masters, & undergraduate practicum students provide an array of program support Broad Penetration: 3,920 wellness fair employee attendees; 3,995 annual screenings; 2,333 pedometer program enrollees, 957 other physical activity program enrollees; 210 tobacco interventions Leveraging Resources: received grant to support the nation’s first use of self-management model for employee health & job satisfaction Benchmarking: data warehouse will aggregate & analyze data on health behavior, wellness program enrollment, sick leave, worker compensation/work injury, and claims experience Data-driven Planning: Goal to improve tools & incentives for annual health survey to monitor and mitigate emerging health risks

89. UM Pension and Deferred Compensation Plans

90. Deferred Compensation Program Alternatives

91. UM Retirement, Disability & Death Benefit Plan – A Hybrid Pension Plan Defined Benefit Plan 5 Year Vesting Benefit Formula: 2.2% X length of service X final average salary Final average salary – 5 highest consecutive Minimum Value Accumulation 5% of salary 7-1/2% interest rate

92. Deferred Vested Benefits Vested but not eligible for early retirement Lump sum distribution available Cash (taxable) Rollover non-taxable Reduced annuity benefits as early as age 55 Full annuity benefit at age 65

93. Early Retirement Benefits Reduced Benefits Age 55 = 10 years of service Age 60 = 5 years of service Reduction factor = 3-1/3% for each year retirement precedes age 65 Unreduced Benefits Age 62 = 25 years of service

94. Normal Retirement Benefits (unreduced) Age 65

95. UM Retirement, Disability & Death Benefit Plan

96. UM Retirement, Disability & Death Benefit PlanCurrent Benefit Recipients

97. History of Actual UM Contribution Rates % of payroll

98. UM Retirement Disability and Death Benefit PlanHistory of Major Amendments

99. Guaranteed Cost of Living Increase Employee Election Reduction in Initial Benefit 2% Option 4% Option

100. Comparison of CPI-W to UM Pension Ad Hoc Adjustments through September 2008

101. UM Retirement Disability and Death Benefit PlanRecent History of Pension Adjustments Awarded

102. UM Retirement, Disability & Death Benefit Plan Benchmark – Before 7/1/09 plan changes Benchmark – After 7/1/09 plan changes

103. Observations All institutions offer defined contribution pension plans 5 institutions also offer defined benefit plans Average employer contribution rate = 9.6% Average employee contribution rate = 5.75% Employer contribution rate range = 6.8% to 15% Low total value ranking is due to other plans requiring higher employer contribution

104. UM Post Employment Benefits

105. Other Post Employment Benefits Liabilities GASB 45 Annual Liability Accrual - $47.6 million Annual Funding Rate – 50%

106. UM Post Employment Benefits UM Subsidized Medical Benefits Dental Benefits Group Term Life Insurance (to age 70) • Long Term Disability Benefits Not UM Subsidized Supplemental Life Insurance Dependent Life Insurance Vision Benefits Accidental Death & Dismemberment Long Term Care

107. Retiree Medical PlansUM Premium Subsidies Retired Prior to September 1, 1990 67% employee and spouse 33% surviving spouse Retired on or after September 1, 1990 Subsidy based on age + service Range for employee coverage = 33% to 73% (average 50%) Range for spouse coverage = 18% to 33% (average 25%)

108. UM Retiree Indemnity Medical Program Self Insured Eligible Population – Medicare Eligible Retirees Non Network Based Relationship to Medicare Design Objectives and Features

110. Above average coverage

111. More liberal eligibility requirements

112. 3 Universities provide access only coverage (no employer subsidy)

115. Summary Observations of Benefits In order to be competitive in the recruitment and retention of faculty and staff, UM benefit programs must at least be at the average of peer institutions UM offers a competitive array of benefit programs that are currently slightly below the average of its peer group UM, strategically, assumes risk through self-insurance when appropriate UM employees, through premiums/contributions bear a significant portion of the cost of providing UM benefit programs

116. Summary Observations of Benefits UM employees, at the time of purchasing health care services bear a significant portion of cost for services rendered Areas of significant deviation from the average of the peer group include: Above average Employer Paid Value of Long Term Disability Base Plan Employer Paid Value of Post Retirement/Pre 65 Medical Benefits Below Average Employer Paid Value and Total Value of Dental Benefits

117. Summary Observations of Benefits The 7/1/09 change that requires UM employees to contribute to the pension plan has resulted in a significant decrease in UM’s ranking among peer institutions in both the pension and overall categories The majority of peer institutions continue to offer subsidized post employment health care benefits UM is unique in offering a defined benefit plan as the primary pension plan avenue

118. Total Compensation: Salary and Benefits Compared to Peers

119. Total Compensation Compared to PeersRanked, Tenure-Track Faculty *22% of UM ranked faculty are on 9 month appointments salaries adjusted to 11 month basis for comparison purposes

120. Total Compensation Compared to PeersStaff Job Families

121. Total Compensation Compared to PeersStaff Job Families (cont.)

122. Total Compensation Conclusions Both salary and benefits (total compensation) are critical factors for recruitment and retention On average UM total compensation is lower than peers, especially for salary Less competitive total compensation will exacerbate the impact of projected workforce shortage and high turnover rates CORRECTION WILL REQUIRE MULTI YEAR STRATEGY AND INVESTMENT

123. COMPARING DEFINED BENEFIT ANDDEFINED CONTRIBUTIONS PLANS Impact on Contributions and Benefits of Implementinga Defined Contribution Plan for New Employees August 2009 Presented by: Howard Rog, FSA, MAAA, EASenior Vice President and Actuary This document has been prepared by The Segal Company for the benefit of the University of Missouri and is not complete without the presentation made to the University. This document should not be shared, copied or quoted, in whole or in part, without the consent of The Segal Company, except to the extent otherwise required by law. Copyright ©2009 by The Segal Group, Inc., parent of The Segal Company. All rights reserved.

124. 116 Definitions Defined Contribution Plan Fixed annual contributions, defined under the plan, accumulate with investment income to a lump sum available at retirement Can be annuitized Monthly annuity income depends on how much has been accumulated Defined Benefit Plan Provides a monthly pension calculated under a benefit formula “defined” under the plan The University's retirement plan is a defined benefit/“hybrid” plan

125. 117 Comparison of Accumulated Benefits UNDER THE UNIVERSITY’S PENSION PLAN VS. 10% OF PAY DEFINED CONTRIBUTION PLAN Early Retirement Subsidy

126. 118 Key Employee Advantages Defined Benefit Employer assumes investment risk Benefits determinable prior to retirement Final average pay plans responsive to pay increases Rewards long service Provides protection against inflation and disability Employee can’t outlive benefits Provides vehicle for early retirement benefits Provides survivor benefits Defined Contribution Benefits are more portable Simplicity Employee investment control Faster account build-up for younger employees Provides capital accumulation

127. 119 Key Employer Advantages Defined Benefit Favorable investment performance reduces costs Funding flexibility Design versatility Defined Contribution No investment risk Predictable budgeting Appreciation by younger workers Potential ease of administration depending upon number of investment choices

128. 120 Impact of Implementing a DefinedContribution Plan for New Employees Objectives of the Study Explore the impact of introducing a defined contribution plan for new employees Determine the future retirement contribution requirements and unfunded pension plan liability by performing 20-year stochastic projections Understand potential impact on participants’ future benefits using stochastic modeling

129. 121 Impact of Implementing a DefinedContribution Plan for New Employees continued Methodology Impact on Contributions and Unfunded Liability: Investment returns were projected using 1,000 Monte Carlo simulations The projections were performed under two alternatives The first was to assume that the pension plan continued to be open to new employees. The second was to assume that the pension plan would be limited to existing employees (“closed group”) and new employees would be covered by a new defined contribution plan The defined contribution plan’s projected contributions were based on an annual 10% of pay contribution from the University

130. 122 Impact of Implementing a DefinedContribution Plan for New Employees continued Methodology Impact on New Employees’ Benefits: Benefits for a new employee hired at an age of 30 were studied Assumed the employee would invest their accounts in a “life cycle” fund A life cycle fund is one in which the asset allocation between equities and fixed income changes over time as the employee ages Benefits at termination ages prior to age 55 were studied by comparing the defined contribution account balance to the Minimum Value Accumulation Account Benefits at retirement ages of 55 and over were studied using income replacement ratios. An income replacement ratio represents the percentage of the annual retirement benefits (payable as a life time annuity) to the employee’s last year’s salary

131. 123 Impact of Implementing a DefinedContribution Plan for New Employees continued Recent Events University’s Board of Curators approved a change to the Pension Plan which requires employee contributions to the plan to offset part of the University’s contribution requirement’s This change has not been reflected in this study

132. 124 Impact On Contribution Requirements of Implementinga Defined Contribution Plan for New Employees On the basis that new employees will have the defined contribution plan offered to them, below are the percentages of total payroll covered by the two retirement programs change over time % of Payroll Covered

134. There is a narrower range of total University retirement contributions with the introduction of a defined contribution plan for new employees.

136. There is a narrower range of total University retirement contributions with the introduction of a defined contribution plan for new employees.

138. 128 Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued Lump Sum Benefits prior to reaching early retirement eligibility (pre-age 55): The defined contribution plan provides for a 10% of pay contribution, while the Minimum Value Accumulation (“hybrid feature”) under the pension plan provides a 5% of pay credit The investment credit under the defined contribution plan is based on the actual market returns of the invested assets while the Minimum Value Accumulation in the pension plan provides a guaranteed investment credit of 7.5% annually At the 50th percentile, the lump sum paid to the employees prior to retirement eligibility is double what is paid from the pension plan There is a significant range of the lump sum payable from the defined contribution plan compared to that from the pension plan

139. 129 Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued PROJECTED ACCOUNT VALUE AS A PERCENT OF FINAL COMPENSATION Employee hired at age 30. Terminates prior to early retirement eligibility (pre age 55)

140. 130 Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued Retirement Income Benefits after reaching eligibility for retirement: At retirement age 65, approximately half of the time employees will be able to match or exceed the replacement ratio (RR) of the defined benefit plan: 50% of the future scenarios show the DC plan providing a RR of 76% or more But, in worst case scenarios, employees face a catastrophic replacement ratio with serious consequences on their retirement viability: 5% of simulations have a RR at age 65 equal to or less than 24% or approximately one third of the defined benefit plan At retirement ages prior to age 65, there is about a 40% probability that the defined contribution plan will provide equal or better benefits than the pension plan. At retirement age of 70, there is a 60% chance of it providing a greater benefit

141. 131 Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued INCOME REPLACEMENT RATIO ANALYSIS Employee hired at age 30

142. 132 Questions and Discussion