Employee Benefits Task Force. Report and Recommendations. December 22, 2014

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Employee Benefits Task Force

Report and Recommendations

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Background

1

The Employee Benefits Task Force (EBTF) was convened in April 2014 by

President Brown and Senior Vice President Klipp and asked to conduct a strategic

and comprehensive review of BU’s employee benefits programs

The EBTF was charged to review and make recommendations on four key

employee benefits: health insurance, retirement, long term disability and tuition

assistance

The overall objectives of this effort were to ensure that BU employee benefits:

• Support the recruitment and retention of high quality faculty and staff • Are competitive with peer institutions

• Are cost effective

• Are sustainable over the long-term

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EBTF Membership

The EBTF was comprised of a chair and 12 members who represent a

broad mix of faculty and staff:

 Bob Meenan, EBTF Chair, SPH Dean

 Stephen Brady, MED Professor & Vice Chair Faculty Council  Amy Bronson, DAR Director of Recruitment & Training

 Peter Fiedler, VP Administrative Services  Fred Foulkes, SMG Professor

 Nimet Gundogan, Executive Director of Benefits  Derek Howe, VP Budget & Capital Planning  Maria O’Brien Hylton, LAW Professor

 Natalie McKnight, CGS Dean

 Patricia O’Brien, Assistant Provost for Graduate Enrollment Management  Julie Sandell, Associate Provost for Faculty Affairs

 Diane Tucker, Chief HR Officer  Tom Tullius, CAS Professor

A number of EBTF participants had expertise in one or more benefit

areas

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EBTF Process

The EBTF met 14 times between April and December

The EBTF undertook the following major tasks:

Benchmarked BU benefits against higher education peers and general industry

Considered general trends in employee benefits design

Specified key principles for BU’s approach to employee benefits

Discussed issues and options in four key benefit programs

Developed preliminary recommendations for each of the four programs

Outlined a series of next steps leading to final recommendations

Towers Watson served as benefits consultants to the Task Force

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Benchmarking

The EBTF reviewed a 2013 Towers Watson benchmarking analysis of BU’s

employee benefit program relative to those of 18 higher education peers:

Boston College, Brown, Columbia, Emory, Fordham, George Washington, Harvard, Johns Hopkins, MIT, Miami, NYU, Northeastern, Northwestern, Syracuse, Tulane, Penn,

Rochester, USC

Schools were not individually identifiable

The key results were as follows:

Overall, BU faculty benefits ranked 7th and staff benefits ranked 12th

For health insurance, BU faculty ranked 6th and staff ranked 8th

For retirement, BU faculty ranked 3rd while staff ranked 15th

For long term disability, BU faculty ranked 2nd and staff also ranked 2nd

A separate analysis of tuition benefits showed that BU was roughly comparable to

its higher education peers with regard to eligibility standards and percent coverage

Comparisons with health services sector and general industry benefits showed that

BU benefits are relatively generous, ranking at the 75

th

and 66

th

percentiles,

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General Trends in Employee Benefits Design

Employee benefit costs continue to grow at a higher rate than salary increases and thus

constitute a steadily growing percentage of total employee compensation

A high percentage of organizations, including higher education institutions, are actively

engaged in reviewing and revising their employee benefit offerings

There is a strong trend away from defined benefit approaches and toward defined

contribution approaches to both health insurance and retirement benefits

Higher education tends to have more generous benefit plans than other sectors, and

higher education institutions are generally considering less aggressive plan changes

Employee benefits are governed by a complex set of administrative rules and tax

regulations, and the most efficient and effective benefits packages are designed with

those rules and regulations in mind

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Key Principles for BU’s Employee Benefit Design

The EBTF’s charge specified that BU’s employee benefits program should:

• Support the recruitment and retention of high quality faculty and staff • Be competitive with peer institutions

• Be cost effective

• Be sustainable over the long-term

The EBTF determined that BU’s employee benefits program should also:

• Be compliant with current and upcoming government regulations

• Enhance tax benefits for employees and minimize tax penalties for the University • Promote greater equity between higher and lower paid employees

The EBTF also determined that with regard to program changes:

• BU should not be on the “bleeding edge” of benefit redesign

• “Grandfathering” of current employees should be kept to a minimum

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Considerations for Health Insurance Benefit

• While health cost trends have moderated with the recession they continue to be the greatest source of cost increase for employee benefit plans nationwide

• Health plans are increasingly moving away from HMO models and towards PPO models that use deductibles, co-payments and co-insurance to shift employee usage to lower cost/high quality providers and treatment options

• Given the very broad physician networks in Massachusetts, eliminating the HMO option is unlikely to result in employees losing access to their current physicians

• There is a strong trend toward employers offering only a high deductible plan to which they contribute a defined and fixed dollar amount

• The ACA (“Obamacare”) mandates a 40% excise tax on premiums above defined limits

• The tax is based solely on health plan premiums and is scheduled to go into effect in 2018 • The limits of $10,200 for individuals and $27,500 for family coverage are indexed to inflation • BU is at risk for this tax given its generous plan and location in a high cost city

• The ACA does not require employers to provide health insurance for spouses or to contribute to health insurance for dependents

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Summary of Health Program Recommendations

People

Continue to offer eligibility and premium contributions to employees, spouses and children

Plans

• Offer a Preferred Provider Organization (PPO) with the following major features:

• Individual and family deductibles for all subscribers

• BU partially or fully offsets employee deductible based on salary level • Cap on out-of-pocket spending

• Fixed-dollar copays on office visits with no co-pays for preventive care

• Tiered coinsurance to encourage the use of BMC and discourage the use of high-cost facilities • Tiered pharmacy co-payments to encourage use of generics and cost-effective brand medications

• Offer a Health Savings Plan –a high deductible health plan with a pre-tax account • Eliminate the HMO option

Premiums

• Reduce premium costs through the broader use of deductibles, copayments and coinsurance • Cover, on average, 75% of the cost of PPO premiums for employees working 75% -100% time • Cover, on average, 50% of the cost of PPO premiums for employees working 50%-74% time • Support the Health Savings Plan at the same dollar amount as the PPO

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Health Program Design Proposal

PPO High Deductible Health Plan

Deductible $200/$400

(Partially or fully offset based on employee salary level)

$1,500/$3,000

Member Coinsurance 0% (BMC) /10% (Other)

20% possible for high cost providers

10%

Out-of-pocket, including deductible $3,200/$6,400 $3,200/$6,400 Office visit • Preventive • PCP/mental health • Specialist Nothing $30 copay ($15 BU Physician) $40 copay ($15 BU Physician) Nothing

Deductible and coinsurance Deductible and coinsurance Emergency room

0% coinsurance for BMC 10% coinsurance low cost providers 20% coinsurance high cost providers

Deductible and coinsurance Inpatient hospital

Outpatient surgery

Imaging, lab, medical equipment Rx • Generic • Preferred Brand • Non-preferred Brand $8 copay 20% (min $40, max $60) 30% (min $60, max $80) 20% after deductible

Health account None $500/$1,000 seed (single/ family)

Changes from current designs are highlighted in red

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Proposed BU Allocation to PPO Deductible

Based on Employee Salary Level

Annual University Contribution to Employee Medical Flexible Spending Account

Base Salary Under $70,000 $70,000 to $99,999 $100,000 or more

Health Plan Coverage University

Contribution University Contribution University Contribution Single $200 $100 $0

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Considerations for Retirement Benefit

• BU recently made a number of changes to its retirement plan that were designed to clarify employee choices and reduce employee costs

• Retirement plan changes are increasingly focused on design elements that enhance

retirement planning for employees, including strong trends to auto-enrollment and to employer matching of basic employee contributions

• BU’s retirement plan for staff has a low peer ranking due to current design elements that disadvantage lower paid employees:

• A salary integration level of $36,300 (in 2014) and an additional 5% BU contribution on all salary above that level

• Three age levels with increasing contribution percentages at each level, resulting in a 5% to 9% spread in BU contributions across the three levels.

• BU’s current retirement plan fails IRS non-discrimination testing which results in contribution refunds to a number of employees and reduces the plan’s retirement savings effectiveness and tax-sheltering efficiency

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Summary of Retirement Program Recommendations

 Encourage more employees to save for their retirement

 Introduce auto-enrollment for all new and current employees

– Employees contribute 3% of pay

– Employees may opt out of enrollment or opt for a lower contribution percentage

 After a two year waiting period

– BU will match employee contributions 1-to-1 up to 3%

– All employees will be eligible for a BU core contribution

 Enhance plan equity for employees with lower incomes

 Raise salary integration level for BU core contribution from $36K to $75K  Provide a core benefit to all eligible BU employees

 Narrow range of core contribution percentages from 5%-14% to 7%-13% when core contributions are considered in

conjunction with the 1 to 1 matching contributions outlined above

 Provide transition contributions of $1,200 per year for 5 years to employees age 50 and over who earn less than $200,000

annually to cap the decrease in total employer contributions to 1.00% or less

 Improve the efficiency of the program by ensuring compliance with IRS nondiscrimination testing

 Adopt auto-enrollment and other recommendations

 Maximizing the tax sheltering of employee contributions at no cost to BU

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Retirement Program Design Proposal

Feature Current Proposed

Eligibility to make employee contributions Immediately upon hire Immediately upon hire

Automatic enrollment for employee

contributions No Yes; 3% of pay to be automatically withheld

Eligibility to receive University contributions

(core and matching contributions) 2 years 2 years

University core contribution

< 45 5% 45-49 7% 50+ 9% + 5% of pay over $36k < 45 4% 45+ 6% + 4% of pay over $75k

Required employee contribution in order to

receive University core contribution 3% of pay None

University matching contribution None 1 for 1 match up to 3% of pay

Tax advantaged salary deferral plan None 457(b) plan with $17,500 pre-tax savings

opportunity for eligible employees

Bridge contributions provided to key hires

during 2-year waiting period Provided in cash

Provided through 457(b) plan and/or in cash depending on facts and circumstances

Transition of current employees Not applicable

Temporary mitigation contribution of $1,200 per year provided for 5 years to employees over

age 50 at transition date and who are not eligible to voluntarily participate in the 457(b)

plan

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Considerations for Long Term Disability

• BU offers non-contributory long term disability (LTD) coverage to full-time employees who have completed three consecutive years of service

• BU has a salary continuation program that provide salary coverage for the first 6 months • BU’s LTD plan currently provides the following benefits after 6 months of disability:

• Coverage through age 65

• 60% income replacement which is the standard insurable level • Income benefit is increased 3% per year for 10 years

• Continues current retirement contributions if employee is participating • Continues current health plan coverage at no cost to the employee

• BU’s LTD benefits are quite generous, particularly the 10 years of 3% income benefit increases and the long term continuation of non-contributory health plan coverage • Individuals on LTD are:

• Eligible for Social Security Disability Income (SSDI) • Eligible for Medicare 24 months after SSDI approval • Not considered employees by the IRS

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Summary of Long-term Disability Program

Recommendations

Maintain the key features of BU’s long term disability plan:

 Income replacement at 60% of pre-disability income  BU contributions to the retirement plan

 Health plan eligibility

Reduce the waiting period for LTD coverage from three to two years of service

Adjust selected plan elements in response to benefit design trends, government

regulations and the availability of new health plan exchanges

 Shorten the 3% annual increase period for income replacement from ten years to five years  Continue BU’s core contribution under the retirement plan, but not the matchingcontribution

 As per IRS rules, cease core retirement contributions after five years unless individual approved for

SSDI

 Continue health care coverage for five years on a contributory basis at the same rates that active

employees pay

Do not apply any changes to those who are already in the LTD program

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LTD Program Proposal

Provision

Current Proposed Rationale

Waiting period Three years Two years Aligns with eligibility for

retirement plan and provides protection for more employees Income continuation 60% of pre-disability pay

increased at 3% annually for ten years

60% of pre-disability pay

increased at 3% annually for five years

Align indexing with retirement and health care benefits. Ten years is overly competitive. Retirement income BU and employee contribution

continue while on LTD.

Retirement benefit is increased at 3% for ten years. Employees not participating in retirement plan do not receive any benefits

BU core contribution ceases after five years unless individual is approved for Social Security Disability Income (SSDI)

• Update benefit to reflect retirement plan changes. • All employees will now receive

a retirement contribution. • Stopping retirement

contribution after five years if not approved for SSDI is compliant with updated guidance

Health care continuation

Health care coverage continued at no cost while on LTD

Continue health care coverage for 5 years with LTD beneficiary contributing at active employee cost

Health cover coverage is consistent with indexing and retirement income. This will also help reduce BU’s financial exposure under the self-funded plan. Coverage will be available to the individual through the Marketplace.

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Considerations for Tuition Assistance

The current tuition remission program is competitive with peers and offers the following:

Employees: The benefit is available for both undergraduate and graduate courses offered only at

BU and covers 100% of the first four credits plus 90% for an additional four credits per semester

Spouses: The benefit is available for both undergraduate and graduate courses offered only at BU

and covers 50% per semester

Dependent: The benefit is available for students enrolled in undergraduate degree program only at

BU and covers 90% per semester up to eight semester

Tuition remission exclusions include:

Courses offered through the School of Medicine and School of Dental Medicine All Executive Graduate Programs

• Online Courses

• Non-credit Courses or Courses awarding Continuing Education Units

• Courses offered for the Accelerated Master of Human Resources Education

BU also offers a tuition exchange benefit that certifies scholarships at a participating

institution for 10 dependents per year. Eligibility is based on employee seniority and the

scholarship value in 2014-2015 was $32,500

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Summary of Tuition Assistance Program

Recommendations

Maintain current tuition remission benefits

 Tuition remission continues to be a valuable and achievable benefit, with 66% of dependents who

apply for undergraduate admission gaining acceptance

 BU’s tuition remission benefits for employees, spouses and dependents are competitive  The definition of dependent for tuition remission eligibility is appropriate

Revise the tuition exchange benefit

 Continue to certify 10 BU dependents annually for enrollment as undergraduates at other

participating schools

 Maintain the annual benefit at the level set each year by the Tuition Exchange schools

 Change the eligibility approach from one based solely on employee years of service and seniority

as that leads to year-to-year fluctuations in eligibility:

– Set 15 years of employee service as the minimum for eligibility

– All employees meeting that minimum will be entered into a lottery from which 10 names will be selected 

Continue discussing whether to include online courses in the tuition assistance program

 It is difficult to estimate the demand and cost impacts of including on-line course enrollment as a

benefit

 The online course strategy of BU is evolving and should be determined before a benefit change is

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Impact of Proposed EBTF Recommendations

The proposed changes will address a number of specific issues with the current BU

employee benefits plan including:

• Modify the growth trend in health insurance costs

• Avoid the ACA “Cadillac tax” on high premium health plans

• Increase the value of BU’s retirement benefit for lower paid employees

• Enhance the potential tax benefits of BU’s retirement plan for higher paid employees

The aggregate financial impact of the multiple changes recommended in this report on

BU’s operating budget should be very close to neutral

The financial impact of the proposed recommendations on individual employees will

vary based on age, income, family situation and health status

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Projected Budget Impacts of Preliminary

Benefit Program Recommendations

Projected University Cost ($ in millions) FY 15 Estimate (12/14) FY 17 Status Quo FY 17 New Program FY 17 Cost Savings (Increase) Medical $75.4 $84.7 $83.3 $1.4 Retirement $66.5 $70.5 $72.0 ($1.5) Tuition $24.0 $24.0 $24.0 $0.0 Long-term disability $4.7 $5.0 $4.7 $0.3 Total $170.6 $184.2 $184.0 $0.2

1Medical costs under status quo projected to increase at 6% per year. Medical costs under new program expected to increase at 5% per

year. Projections assume no change in eligibility or headcount.

2Retirement costs assume 3% increase per year due to salary growth. Retirement costs under new program are inclusive of mitigation

benefits that will be provided to certain individuals for up to 5 years and assumes all current employees not enrolled in the retirement plan will be auto enrolled at the time the plan changes take effect.

3 No tuition increase percentage has been assumed for future years.

4Long-term disability costs assume 3% increase per year due to salary growth. Plan change savings will be reflected over the next 15 to

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