Physician Retirement
Benefits Survey
University of California
Schools of Health Sciences
July 2001
William M. Mercer, Incorporated
3 Embarcadero Center
San Francisco, CA 94111
Contents
EXECUTIVE SUMMARY ..................................................................................................................... 1
BACKGROUND .................................................................................................................................. 8
PARTICIPATING ORGANIZATIONS ..................................................................................................... 9
GENERAL PARTICIPANT INFORMATION .......................................................................................... 10
RETIREMENT PROGRAMS ............................................................................................................... 13
COMPETITIVENESS OF RETIREMENT BENEFITS ............................................................................... 20
GLOSSARY ..................................................................................................................................... 38
APPENDIX ...................................................................................................................................... 42
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Executive Summary
21 institutions responded to this survey. 18 of 21 provide defined contribution (DC)
plans as their primary retirement plan; UCRP is a defined benefit (DB) plan. 13 of 21
provide retirement benefits on more than X compensation; UCRP provides benefits only
on X compensation.
UCRP and the respondents’ plans were compared for 60 different employee profiles.
UCRP generally ranked lower for employees with shorter service and lower X
compensation (e.g. $60,000). Also, for employees with lower X compensation, UCRP
decreases in the rankings as the level of Y compensation increases. However, UCRP can
be competitive for employees with longer service and lower base pay if their Y
compensation is relatively moderate in relation to their X compensation (when Y is closer
to 40% of X as opposed to 80% or more).
Middle rankings were common for employees with higher X compensation (up to
$150,000), including those employees with shorter service.
High rankings were found for longer service employees with X compensation of $200,000
and over. The reasons for the high rankings include: as a DB plan, UCRP provides
substantial benefits in comparison to DC plans both for older and longer service
employees. UCRP also provides a very generous benefit formula in the universe of all
retirement plans. Also, UCRP is not as constrained by the tax limits as are most of the
respondents.
1. Introduction
UC engaged William M. Mercer, Incorporated to conduct a survey of retirement benefits
provided by leading medical schools and other leading large group practice organizations. The
Physician Retirement Benefits Survey was undertaken in order to determine if UC’s retirement
benefits are competitive.
Twenty-four leading schools and other organizations were invited to participate. Twenty-one
responded. This high level of response occurred both because of the level of interest in this
subject (this is the only survey of its type of which we are aware) and because the UC Medical
School Deans encouraged other schools to participate.
2. Summary of Survey Results
Type of Plan Provided
•
UC provides only a defined benefit (DB) retirement plan with employer funding as its
primary plan.
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•
•
•
5 of 21 respondents provide a DB plan.
19 of 21 respondents provide a defined contribution (DC) plan.
18 of 21 respondents provide a DC plan (or choice of DC plan) as the primary plan.
Compensation Counted Under the Plan for Benefits Under Plans
•
•
•
•
•
UC counts only X (“base”) compensation in UCRP.
8 of 21 respondents count only X compensation in their retirement plan.
6 of 21 count both X and Y compensation in their retirement plan for determining
retirement benefits.
6 of 21 count X, Y and Z compensation.
1 of 21 counts “other” compensation, which is more than X compensation.
Limits on Counting Compensation
The tax laws limit the amount of compensation that can be counted for retirement purposes in a
“tax qualified” plan. The amount that can be counted differs between institutions because of
their legal status. Therefore, even though some institutions’ retirement plans state that they
count more than X, as a legal matter no more than X can actually be taken into account.1
•
•
•
•
•
UC can take into account up to $285,000 per year for pre 7/1/1994 UCRP participants.
UC can take into account up to $170,000 for other participants.
For respondents with DB plans, 4 of 5 are limited to $170,000/year.
For respondents with DC plans, 18 of 19 are limited to $170,000/year.
UC has submitted to the IRS for approval a plan to take into account compensation in
excess of the applicable limits. (This is called a “make up plan”.) 2 of the 5 DB
respondents have a make up plan. 5 of 19 DC respondents have such a plan.
Limits on Paying Benefits
Also, the tax laws limit the amount of retirement benefits provided under a “tax qualified” plan.
The limits differ between types of plans.2
•
•
•
•
UCRP can pay an annual pension of up to $140,000 per year for employees who retire at
the social security retirement age. This limit is reduced for younger ages.
The same is true for the other DB plans
Under a DC plan, the annual contribution to an individual’s account is limited to $35,000
or 25% of compensation, whichever is lower.2
UC also provides benefits over the limit applicable to defined benefit plans (in its
“restoration plan”). 2 of 5 DB respondents have a restoration plan. 2 of 19 DC
respondents have a restoration plan.
1
The new tax law increases these amounts in 2002. The new tax law will not impact the limits for UCRP
participants hired prior to July 1, 1994.
2
The new tax law increases these amounts in 2002.
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Benefit Formulas
•
DB plan formulas vary widely, with accrual rates, normal retirement age, COLAs and
other benefits varying.
•
DC plan contribution rates also vary widely, but the employer contribution rate averages
around 9 or 10% of compensation.
3. Competitive Comparison
Methodology and Assumptions
In comparing retirement plans, different results occur for different employees because:
•
•
•
•
DB and DC retirement plan values build up at different rates over time.
DB plan values generally increase as employees get older. However, as the formulas for
calculating benefits among DB plans differ, so too may the value of their benefits.
Different mixes of compensation (Y and Z as a percentage of X) affect the results
Tax limits apply in some cases. These limit the amount of compensation considered in
calculating benefits, the amount of contributions to retirement plans and/or benefits
payable from retirement plans.
Therefore, in comparing UCRP and other plans, five different employee profiles were used:
• Full career new hire (age 35: X = $60,000)
• Mid career new hire (age 45; X = $100,000)
• Current employee (age 45; X = $150,000; 10 years of service)
• Mid career new hire (age 45; X = $200,000)
• Current employee (age 45; X = $350,000; 10 years of service)
Benefit values were also determined for 3 different Y pay levels for each of the 5 employee
profiles: Y = 40%, 80%, and 120% of X pay.3
All retirement benefits were compared as lump sum values.
• This approach provides a single number to compare DB and DC.
• This approach also fits with UCRP, which offers a lump sum cash out for retirementeligible members.
• The DB lump sum is determined in accordance with stated retirement plan actuarial
assumptions as of date of assumed termination.
• The DC lump sum is the account balance.
• Tax limits were applied. Calculations were done both under current law and for 2002
under the new tax law.
3
Z pay was not included in these initial calculations because of the added complexity. Additional
analyses that take into account Z pay will be completed.
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Critical assumptions included:
•
•
•
Pay increases based upon UCRP’s actuarial assumptions for projected pay increases
8% investment earnings on defined contribution plans
3% employee contributions for both UC and the respondent plans
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Comparative Results
UCRP generally ranked lower for employees with shorter service and lower X compensation
(e.g. $60,000). Also, for employees with lower X compensation, UCRP decreases in the
rankings as the level of Y compensation increases. However, UCRP can be competitive for
employees with longer service and lower base pay if their Y compensation is relatively moderate
in relation to their X compensation (e.g. when Y is closer to 40% of X as opposed to 80% or
more). Middle rankings were largely for employees with higher X compensation (up to
$150,000), including those employees with shorter service. Higher rankings were largely for
longer service employees with X compensation of $200,000 and over.
Reasons for the results -- There are several reasons for the results, including:
• UCRP, as a defined benefit (DB) plan, provides substantial benefits in comparison to
many respondents’ DC plans for older employees
• UCRP, as a DB plan, provides substantial benefits in comparison to many respondents’
plans for longer service employees
• UCRP provides a very generous benefit formula in the universe of all retirement plans,
both DB and DC
• UCRP is not as constrained by the tax limits on compensation as are almost all of the
respondents. Therefore, while many respondents purport to take into account more than
X compensation, in reality they cannot do this for higher paid faculty because of the tax
limits.
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Data Highlights:
Compensation Model
The University of California uses an “XYZ” model, as do most of the survey participants.
No. of Orgs.
Base/Fixed
Compensation
D
D
D
12
5
1
Supplemental
Negotiated
Compensation
Incentive/Bonus/
Contingent
Compensation
D
D
D
Other
D
3
University of
California
D
D
D
Compensation Covered by Retirement Plans
13 of the 21 participants (62%) determine retirement benefits on compensation greater than the
base/fixed level.
8 participants use base/fixed compensation as does UC.
The responses from all 21 participants were as follows:
No. of Orgs.
8
6
6
Base/Fixed
Compensation
D
D
D
Supplemental Incentive/Bonus/
Negotiated
Contingent
Compensation Compensation
D
D
D
D
1
University of
California
Other
D
Prevalence of plan types
18 of 21 participants provide defined contribution (DC) plans (or choice of plan) as their primary
retirement plan. 5 have defined benefit (DB) plans (or choice of plan) as primary plan.4 UC
provides a DB plan.
4
One participant has both DB and DC listed as primary plan. Another participant includes a choice of a
DB and DC plan as the primary plan.
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“Make-up Plans”
Some institutions provide “make-up plans” to employees which are defined as plans that restore
some of the benefits lost due to Internal Revenue Code limitations. UC provides one such makeup plan for benefits lost due to the application of IRC Section 415(b) (which limits the annual
benefits that can be paid from UCRP). Another make-up plan feature of UCRP to make up
benefits lost due to the compensation limit of IRC Section 401(a)(17) is currently being reviewed
by the IRS.
By comparison, few of the survey participants provide make-up plans. The actual breakdown
depends on the type of plan and is detailed later in this report.
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Background
Survey Scope
The University of California HR/ Benefits retained William M. Mercer, Incorporated to conduct
a survey designed to capture information about faculty and clinical physician retirement benefits
and compensation issues that affect retirement benefits.
The survey was designed to answer the following questions:
Are retirement benefits for UC faculty competitive given that base salary (X compensation)
is the only form of compensation upon which benefits are determined?
What is the prevailing definition of compensation on which retirement benefits are
determined?
What types of retirement plans are most prevalent?
How prevalent are “make-up” plans that restore retirement benefits lost as a result of the
Internal Revenue Code Section 401(a)(17) and 415 limits?
How does the structure of the University of California’s retirement plan compare with the
plans provided by other leading institutions?
Survey Methodology
The survey was conducted during the fourth quarter of 2000 and the first quarter of 2001. A
questionnaire was sent to 24 leading medical organizations, the vast majority of which comprise
the nation’s elite medical schools.
Mercer screened participant responses and follow-ups were made where necessary to obtain
missing information and/or to clarify responses.
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Participating Organizations
Twenty-one (21) organizations submitted data on their benefit practices.
Organizational governance varies among participants with an almost equal division between
public and private:
N=3
N=10
N=8
For Profit Organizations
Public Institutions
Private Institutions
The following organizations participated in the survey:
Organization
City
Baylor College of Medicine
Columbia University School of Medicine
Group Health Permanente, P.C.
Johns Hopkins University
Keck School of Medicine of University of Southern California
Loma Linda University School of Medicine
Private Diagnostic Clinic, PLLC at Duke University
Southern California Permanente Medical Group
Stanford University School of Medicine
State University of New York at Buffalo
The Permanente Medical Group
University of Florida College of Medicine
University of Illinois at Chicago
University of Michigan
University of North Carolina - Chapel Hill School of Medicine
University of Pennsylvania School of Medicine
University of Texas Southwestern Medical Center
University of Virginia
University of Washington Physicians
Washington University School of Medicine
Yale University School of Medicine
State
Houston
New York
Seattle
Baltimore
Los Angeles
Loma Linda
Durham
Pasadena
Stanford
Buffalo
Oakland
Gainesville
Chicago
Ann Arbor
Chapel Hill
Philadelphia
Dallas
Charlottesville
Seattle
St. Louis
New Haven
TX
NY
WA
MD
CA
CA
NC
CA
CA
NY
CA
FL
IL
MI
NC
PA
TX
VA
WA
MO
CT
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General Participant Information
Legal Structure of the Health Sciences Practice Plan – Academic
Institutions Only
Like the University of California, in most of the 18 participating academic institutions, the
practice plan is part of the University.
The responses were as follows:
N=1
N=13
N=5
Part of University/School of Medicine
Separate Not For Profit Corporation
Separate For Profit Corporation
One institution indicates a two-part program - university and separate not-for-profit
corporation. Its responses are included in both of those categories.
Model That Best Describes the Relationship of the Health Sciences
Practice Plan with the Overall Academic Medical Center or Health
System
Like the University of California, in most of the 18 participating academic institutions, the
practice plan is medical school based.
The responses were as follows:
N=2
N=4
N=12
Medical School Based
Hospital Based
Health System Based
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General Compensation Model Used for Health Sciences Faculty and
Clinical Physicians
The University of California uses an “XYZ” model, as do most of the survey participants.
No. of Orgs.
12
5
1
Base/Fixed
Compensation
D
D
D
Supplemental
Negotiated
Compensation
Incentive/Bonus/
Contingent
Compensation
D
D
D
D
3
University of
California
Other
D
D
D
The three organizations with “other” responses are:
Base/fixed compensation plus fee income
Base/fixed compensation plus hospital plus practice plan
Base/fixed compensation plus additional compensation from a not-for-profit corporation
All three of these organizations use base/fixed compensation to determine benefits for their
primary retirement plans.
Professional Compensation Paid by an Entity Other Than the University
Only 5 of the 18 academic institutions indicate that a significant portion of professional
compensation is paid by an entity other than the university. Of these 5, the compensation model
utilized is as follows:
No. of Orgs.
Base/Fixed
Compensation
2
D
Supplemental
Negotiated
Compensation
Incentive/Bonus/
Contingent
Compensation
Other
D
D
2
D
1
(Clinical Practice
Income)
The types of organizations providing the “outside” compensation are as follows:
3 of the 5 indicate that the compensation is paid by a not for profit corporation.
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1 of the 5 indicates that the compensation is paid by a for profit corporation.
1 of the 5 indicates that the compensation is paid by a foundation.
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Retirement Programs
Primary Retirement Plan Offered for Health Sciences Faculty and
Clinical Physicians
All of the participants offer one or more employer-provided retirement plans.
The breakdown of the responses is as follows:
N=1
N=4
N=17
Defined Benefit Plan
Defined Contribution Plan
Choice of DB or DC Plan
Defined contribution plans are much more prevalent than defined benefit plans
One institution offers two “primary” retirement plans - a defined benefit plan and a defined
contribution plan. Its responses are included in both of those categories.
Compensation on Which Benefits Provided by Primary Retirement Plan
Are Determined
13 of the 21 participants (62%) determine retirement benefits on compensation greater than
the base/fixed level.
8 participants use base/fixed compensation.
The responses from all 21 participants were as follows:
No. of Orgs.
8
6
6
Base/Fixed
Compensation
D
D
D
Supplemental Incentive/Bonus/
Negotiated
Contingent
Compensation Compensation
D
D
D
D
1
University of
California
Other
D
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Participants that provide a defined benefit plan (or a choice of such a plan) as the primary
retirement plan are much more likely to determine benefits on base/fixed compensation (as does
the University of California) than are participants that provide a defined contribution plan (or a
choice of such a plan).
Base/Fixed
Total Negotiated
Total
Compensation Compensation Compensation
Type of Plan
Other
Total
Defined Benefit Plan
3
1
1
0
5
Defined Contribution Plan
5
6
5
1
17
Tax Qualified Defined Benefit (DB) Plan Provisions
5 of the 21 participants (24%) provide a defined benefit plan. All of these participants consider
this plan (or a choice of this plan) as their primary retirement plan. One institution does offer
two “primary” retirement plans – a DB and a DC plan. Its responses are included in both
categories.
Basis for DB Plan Benefits
All 5 of the plans determine benefits on final average compensation. The participants define
final average compensation as follows:
No. of Orgs.
3-Year Avg.
4-Year Avg.
5-Year Avg.
Total
3
1
1
5
D
University of California
Pension “Spiking” in DB Plans
2 of the participants indicate that they have provisions in their plans that prevent or limit
pension spiking (i.e., significant increases in benefits for all years of service through
increases in compensation for final years’ service).
Because of confidentiality issues related to the limited number of responses, plan details
cannot be disclosed.
Retirement
Normal retirement age is defined as follows:
No. of Orgs.
Age 65
Age 62
4
1
University of California
Normal retirement age is 70; however, benefits are unreduced at age 60.
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5
D
(1)
(1)
Age 70
14
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All 4 of the plans that use age 65 permit early (prior to age 65) retirement with unreduced
benefits, based on a combination of age and service
Cost of Living Increases
1 plan provides for automatic cost of living increases.
2 plans provide ad-hoc increases.
2 plans do not provide increases.
The University of California plan provides for an automatic annual cost of living increase as
well as ad-hoc increases.
401(a)(17) Limits
The 401(a)(17) limit restricts the amount of annual compensation that can be used in
calculating the benefit provided by a tax qualified defined benefit plan. The 2001 limit for
taxable organizations is $170,000. The recently signed Economic Growth and Tax Relief
Reconciliation Act (EGTRRA) increased the limit to $200,000 for 2002.5
3 of the 4 academic institutions (4 out of 5 when including organizations that are not
academic institutions) with a defined benefit plan indicate a 401(a)(17) limit of $170,000.
The University of California and 1 other institution indicate a higher limit for certain
grandfathered employees. The limit is $285,000 for grandfathered employees of UC who
were hired before 7/1/94.
Approximately 20% - 50% of health sciences faculty and clinical physicians from the
surveyed institutions have plan compensation in excess of the limit for private sector
employees and non-grandfathered public sector employees.
401(a)(17) “Make-up Plans”
2 participants provide a nonqualified “make-up” plan for the 401(a)(17) limit.
Currently, the University of California has a plan under review by the IRS to effectively
provide a “make-up” plan for the 401(a)(17) limit through UCRP.
Because of confidentiality issues related to the limited number of responses, plan details
cannot be disclosed.
5
Because UC operates on a fiscal year basis, the EGTRRA increases to the IRC limits do not become
effective for UCRP until July 1, 2002.
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415 Limits
The 415 limit restricts the annual benefit that can be paid out of a qualified defined benefit
plan.
Less than 20% of health sciences faculty and clinical physicians have employer provided
plan benefits restricted by the 415 limit.
2 participants provide a nonqualified “make-up” plan for the 415 limit - as does the
University of California.
Because of confidentiality issues related to the limited number of responses, plan details cannot
be disclosed.
Tax Favored Defined Contribution Plan Provisions
19 of the 21 participants (90%) provide a tax favored defined contribution plan with
employer contributions (a 403(b) plan, a 401(a) plan - such as a money purchase pension
plan, a “profit sharing plan” or an eligible 457(b) plan).
18 of these participants consider this plan (or a choice of this plan) as their primary
retirement plan.
Plans With Employer “Matching” Contributions
5 of the 19 plans (26%) include a “matching feature” under which the employer matches all
or part of the contribution made by the faculty member or physician. The average maximum
match is 100% on 5% of pay.
4 of these 5 plans provide non-matching contributions in addition to matching contributions.
The average employer non-matching contribution is 5% of pay.
Plans Without Employer “Matching” Contributions
14 of the 19 plans (74%) do not include a matching feature. Plan designs vary widely.
5 plans provide a fixed percentage contribution to all faculty or physicians, regardless of age
or pay. The average fixed contribution for these 5 plans is 10% of pay.
5 plans integrate the employer contributions with the Social Security Taxable Wage Base.
The average employer contribution is 6.5% up to the Taxable Wage Base and 11% above the
Taxable Wage Base.
4 of the plans determine employer contributions on age.
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− Contributions for younger (under age 40) faculty and physicians range from 5% - 9% of
pay.
− Contributions for older (over age 40) faculty and physicians range from 10% - 12% of
pay.
401(a)(17) Limits
The 401(a)(17) limit (the amount of annual compensation that can be used in calculating the
benefit provided by a tax qualified defined contribution plan) for taxable organizations in
2001 is $170,000. EGTRRA increased the limit to $200,000 for 2002.
16 of the 17 academic institutions (18 out of 19 when including organizations that are not
academic institutions) with a defined contribution plan indicate a 401(a)(17) limit of
$170,000.
1 institution indicates a higher limit for certain grandfathered employees.
We asked the 19 organizations with DC plans to indicate what percentage of their health
sciences faculty and clinical physicians have plan compensation in excess of the current
401(a)(17) limit. The results are shown in the table:
No. of Orgs.
None
2
Less than 20%
7
20% - 50%
6
More than 50%
3
No Response
12
401(a)(17) “Make-up Plans”
5 participants provide a non-qualified “make-up” plan for the 401(a)(17) limit.
3 participants do not provide a “make-up” plan, but instead provide additional cash to make
up for benefits lost because of the 401(a)(17) limit.
All of the participants with “make-up” plans indicate that all faculty members or clinical
physicians with plan compensation in excess of the 401(a)(17) limit are eligible for the
“make-up” plan.
Plan formulas and the definition of “compensation” are the same as those in the defined
contribution plans.
3 participants limit the “make-up” plan compensation to amounts ranging from $200,000 $250,000.
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Funding for the plan benefits vary, as shown in the following table:
No. of Orgs.
Funds not set aside in advance
3
Funds set aside
2
415 Limits
Health sciences faculty and clinical physicians that have defined contribution plan
contributions restricted by the 415 limit are shown in the table:
No. of Orgs.
None
6
Less than 20%
10
20% - 50%
1
More than 50%
2
No Response
1
415 Limit “Make-Up” Plans
2 participants with defined contribution plans provide a nonqualified “make-up” plan for
benefits lost because of the 415 limit.
Because of confidentiality issues related to the limited number of responses, plan details cannot
be disclosed.
Other Types of Retirement Plans Provided to Health Sciences Faculty
or Clinical Physicians
18 of the 21 participants (86%) provide a defined contribution savings retirement plan, as
does UC. This is a plan for employee contributions only and is used to supplement
employer-provided retirement plans.
− 13 of the 18 plans (72%) define plan compensation as W-2 earnings - as does the
University of California.
− The remaining plans use a portion of W-2 earnings, with base/fixed compensation being
the most prevalent definition.
− “Make-up” plans to restore benefits lost because of the 401(a)(17) and 415 limits are not
prevalent. Only 1 participant indicates the existence of a “make-up” plan for employee
contributions.
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7 of the 21 participants (33%) provide some other employer-provided deferred compensation
plan, such as a supplemental executive retirement plan (SERP), an eligible 457(f) plan, or an
individually negotiated plan or agreement. Plan designs vary widely.
Because of confidentiality issues related to the limited number of responses, plan details cannot
be disclosed.
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Competitiveness of Retirement Benefits
Methodology
One way to measure the competitiveness of an institution’s retirement program is to compute the
lump sum present values of the employer-provided retirement benefits and to compare those
values to the values of the benefits provided by the institution’s peer organizations.
Employee profiles compared
In making comparisons, it is important to look at a number of different employee “profiles” and
to look at a range of termination and retirement ages to determine the competitive value of the
benefits. This is the case for several reasons, for example:
Some plan designs are more competitive for new hires than for employees with significant
past service, or are more competitive for younger employees than for older.
For employees who have significant compensation in addition to base/fixed compensation,
plans that include base/fixed compensation only are typically less competitive than plans that
include compensation in excess of base/fixed compensation.
Mercer compared the benefits provided by the University of California to the benefits provided
by the 21 survey participants. In performing these comparisons, Mercer used five basic employee
profiles. Each profile is defined by age, service and base/fixed compensation (“X-Pay”).
The five profiles are as follows:
Profile Name
Full Career New Hire
Age
1
X-Pay
35
0
$60,000
45
0
$100,000
Current Employee – Lower Pay
45
10
$150,000
Mid-Career New Hire
45
0
$200,000
Current Employee – Higher Pay
45
10
$350,000
Mid-Career New Hire – Lower Pay
1
Service
1
Full career and mid-career new hires are employees hired at the start and in the middle of their working lives,
respectively. We calculate retirement plan values for them at different ages of termination or retirement, as set
out below. Current employees are faculty who are presently employees and therefore currently have the
indicated years of service under UCRP.
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Y Pay
In order to determine the effect of Y pay, benefit values for each of the four basic profiles were
calculated with three different levels of this pay -- Y-Pay was defined as 40%, 80%, or 120% of
X-Pay. Z pay was not included in the calculations.
Length of Plan Participation
For each of the four basic profiles, retirement plan benefit values were calculated for the
following five different lengths of service:
Termination 5 years from today
Termination 10 years from today
Retirement at age 55
Retirement at age 60
Retirement at age 65
* Note that if a profile would be eligible for early retirement at one or both of the two termination ages (e.g., an
employee currently age 45 who terminates 10 years from today) only the retirement value was calculated.
Valuing Defined Benefit Plans
For comparator defined benefit plans, the methodology for valuing benefits is as follows:
The lump sum value in the event of termination is the value of the accrued benefit at date of
termination payable at normal retirement age
The lump sum value in the event of retirement is the value of the immediately payable
retirement benefit.
Valuing Defined Contribution Plans
For defined contribution plans, the methodology for valuing benefits is as follows:
The lump sum value in the event of either termination or retirement is the account balance.
Effect of Tax Limits
Benefits under UCRP are currently limited by the Internal Revenue Code Section 401(a)(17),
which restricts the amount of compensation that can be taken into account in calculating benefits
($170,000 for employees hired after July 1, 1994 and $285,000 for grandfathered employees
hired prior to July 1, 1994; the $170,000 limit increases to $200,000 in 2002 as a result of the
new EGTRRA legislation; the $285,000 is unchanged by the legislation).
The University has adopted an amendment to UCRP, effectively removing that limit. The
amendment is pending IRS approval. In order to measure the effect on the University’s
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competitive position if the limit were to be removed, benefits under UCRP were calculated both
with and without the limit.
Assumptions Used in Valuing Plan Benefits
The various assumptions utilized for our analysis for valuing benefits are outlined below.
1. Projected pay and IRS benefit limitation assumptions:
•
•
•
Average annual salary increases by age group: < 30: 6.44%; 30-39: 5.74%; 40-49: 5.35%;
50-59: 5.09%; 60+: 4.63%
Consumer Price Index increase: 4.0%
Social Security Taxable Wage Base increase: 4.5% - [This is the maximum amount of
earnings that are subject to Social Security Tax ($80,400 for 2001) and affects the
contributions to and/or benefits provided by some plans in the Survey other than UCRP].
2. Defined Contribution plans
•
•
Investment earnings on defined contribution plan balances: 8% per annum
Employee contributions are included at a rate of 3% of total (X + Y) pay per year.
3. Valuation of Defined Benefit plan benefits:
•
•
•
Mortality: Blended 1983 Group Annuity Table
UCRP present values:
-- Retirements at age 50 or older: Based on UCRP's Lump Sum Cashout factors.
-- Terminations before age 50: Based on the present value of the retirement benefit at age
50, discounted to current age using a 7.5% discount rate and allowing for a preretirement COLA of 2% per year.
Comparator plan present values:
Present values based on 7.5% interest and 1983 Group Annuity Table
4. IRS Limitations:
Section 401(a)(17) -- UCRP plan compensation is currently limited by the Internal Revenue
Code section 401(a)(17). This limit is $170,000 for 2001 (or $285,000 for those hired before
7/1/1994)
Approval of an amendment to UCRP to effectively eliminate this limit is currently pending
approval by the IRS. For this reason, projected benefit values are shown both with and
without the limit.
Effective 1/1/2002, the 401(a)(17) limit will increase from $170,000 to $200,000 due to the
EGTRRA legislation. For this reason, separate illustrations are included to reflect
comparisons after this change. Since UC operates on a fiscal year basis, the increase to the
401(a)(17) won’t affect UC participants until 7/01/2002.
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Section 415 -- For UCRP, Internal Revenue Code Section 415(b) was not applied, due to
the 415(m) restoration plan which effectively eliminates this limit. For comparator plans,
this limit was applied when there was no make-up plan. We also considered the impact of
increased Section 415 limits under EGTRRA for competitor plans that do not provide a
make-up plan.
Sample Calculation
Illustrated below are two sample calculations similar to those in the pages that follow. These
examples show how the present value of total retirement plan benefits build up over a career.
We illustrate how UCRP compares with a typical comparator program. For this purpose we have
chosen a DC plan which provides an employer contribution of 10% of pay per year, based on
both X and Y compensation. This is around the median of the employer contribution to plans in
the comparator group.
Example 1 illustrates the values of the employer provided benefits only for UCRP versus the
typical comparator program.
Example 2 illustrates the values of employer plus employee provided benefits and contributions.
The values shown for UC are the total of the UCRP present value of benefits and the
accumulated value of 3% contributions based on total negotiated compensation (X+Y) to UC’s
defined contribution plans. The values shown for the typical comparator plan are the
accumulation of the 10% employer contribution and an additional 3% employee contribution
based on total (X+Y) pay.
The assumptions used for the projections are as described above.
See the Appendix for a more detailed calculation.
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Example 1 – Comparison of Retirement Benefits
Employer Provided Benefits Only: UCRP versus Typical Survey Participant
$3,000,000
$2,500,000
Present Value of Benefits
$2,108,556
$2,000,000
$1,817,304
$1,500,000
Value of UCRP Benefit
$1,000,000
Typical Program: 10% Employer
Contribution
$500,000
$0
35
40
45
50
55
60
65
Age
Example 2 – Comparison of Retirement Benefits
Employer Provided Benefits and 3% Employee Contributions: UCRP versus Typical Survey Participant
$3,000,000
$2,653,747
$2,500,000
Present Value of Benefits
$2,362,495
$2,000,000
Value of UCRP Benefit + 3%
Employee Contribution
$1,500,000
Typical Program: 10% Employer
Contribution + 3% Employee
Contribution
$1,000,000
$500,000
$0
35
40
45
50
55
60
65
Age
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Example 1 – Employer Provided Benefits Only
A numerical illustration of the values at age 65 follows.
Member aged 35 at hire;
X Pay = $60,000; ($5,000 per month)
Total (X+Y) pay = X pay + 40% * X pay = $84,000
UC Retirement Program
A. Present Value of UCRP benefits: $2,108,556
1. Projected Highest Average Plan Compensation (HAPC) – based on monthly X pay only:
•
$5,000 increased using the estimated salary increases shown in the assumptions section
and averaged over 36 months: $20,740
•
Less Social Security offset: ($133 per month)
•
= HAPC: $20,607
2. Age factor at age 65: 2.5%
3. Service at age 65: 30 years
4. Monthly pension: 1.*2.*3. = $15,455.25
5. Lump Sum Cashout Factor at age 65: 136.43
6. Present Value of UCRP benefits at age 65: 4.*5. = $2,108,556
Typical Comparator Plan:
A. Projected accumulated value at age 65 of employer contributions of 10% of X+Y pay:
$1,817,304
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Example 2 – Employer plus Employee Provided Benefits and Contributions
A numerical illustration of the values at age 65 follows.
Member aged 35 at hire;
X Pay = $60,000; ($5,000 per month)
Total (X+Y) pay = X pay + 40% * X pay = $84,000
UC Retirement Program
A. Present Value of UCRP benefits: $2,108,556
1. Projected Highest Average Plan Compensation (HAPC) – based on monthly X pay only:
•
$5,000 increased using the estimated salary increases shown in the assumptions section
and averaged over 36 months: $20,740
•
Less Social Security offset: ($133 per month)
•
= HAPC: $20,607
2. Age factor at age 65: 2.5%
3. Service at age 65: 30 years
4. Monthly pension: 1.*2.*3. = $15,455.25
5. Lump Sum Cashout Factor at age 65: 136.43
6. Present Value of UCRP benefits at age 65: 4.* 5. = $2,108,556
B. Projected accumulated value at age 65 of employee contributions of 3% of X+Y pay:
$545,191
C. The total present value of benefits from the UC programs is: $2,108,556 +545,191 =
$2,653,747
Typical Comparator Plan:
A. Projected accumulated value at age 65 of employer contributions of 10% of X+Y pay:
$1,817,304
B. Projected accumulated value at age 65 of employee contributions of 3% of X+Y pay:
$545,191
C. The total present value of benefits from the typical peer employer is: $1,817,304 +
$545,191= $2,362,495
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Introduction to Detailed Comparison of Retirement Plan Values
The graphs on the following pages illustrate how UC retirement benefits compare with the
survey data. The UC benefits are compared with the median from the survey data. In addition,
the ranking of UC compared with other survey participants is shown (i.e., 1 being the highest, 21
being the lowest) above the appropriate bars.
For these comparisons, both employer and employee provided benefits and/or contributions are
shown to illustrate the total retirement benefits provided. Employee contributions are calculated
consistently for both UC and the survey participants in order to maintain the validity of the
comparison. In each case, we assumed an employee contribution of 3% of compensation up to
the applicable 401(a)(17) limit.
The recently signed 2001 Economic Growth and Tax Relief Reconciliation Act makes numerous
changes for retirement plans, including increased contribution and benefit levels. We have
provided the comparisons between UC retirement benefits and other plans in the survey both
before and after consideration of this Act. The charts labeled ‘After Pension Reform Law
Changes’ incorporate all the relevant provisions of the new legislation. For the employee with X
compensation of $60,000, only one example is provided, since the revised limits will have
almost no impact on such an employee.
As the law currently stands, all provisions of the Act cease on December 31, 2010. This was
done for budgetary reasons, and the provisions may or may not survive beyond that date. In the
following analysis, we assumed that the provisions would survive.
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Lump Sum Present Value of Employer-Provided Retirement Benefits
Full Career New Hire
Age = 35; Service = 0; X-Pay = $60,000
3,500,000
4
UC w/o 401(a)(17)
2,500,000
Median
4
4
2,000,000
1,500,000
4
4
Present Value of Benefit
Y-Pay = 40% X-Pay
4
UC w/ 401(a)(17)
3,000,000
1,000,000
15
15
16
16
500,000
0
Termination @ 40 Termination @ 45
Retirement @ 55
Retirement @ 60
Retirement @ 65
13
UC w/ 401(a)(17)
UC w/o 401(a)(17)
Median
5
2,000,000
5
2,500,000
1,500,000
11
11
Y-Pay =80% X-Pay
Present Value of Benefit
3,000,000
13
3,500,000
1,000,000
16
16
15
15
500,000
0
Termination @ 40 Termination @ 45
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
Median
13
2,500,000
UC w/o 401(a)(17)
14
14
3,000,000
UC w/ 401(a)(17)
13
3,500,000
Y-Pay = 120% X-Pay
2,000,000
14
14
1,500,000
16
16
500,000
15
15
1,000,000
0
Termination @ 40 Termination @ 45
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Mid-Career New Hire – Lower Pay
Age = 45; Service = 0; X-Pay = $100,000
Before Pension Reform Law Changes
4
UC w/ 401(a)(17)
Y-Pay = 40% X-Pay
4
2,000,000
UC w/o 401(a)(17)
3
3
Median
3
7
7
3
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
3,000,000
UC w/ 401(a)(17)
3
3
4
Median
11
11
3
1,000,000
3
Present Value of Benefits
2,000,000
4
UC w/o 401(a)(17)
Y-Pay = 80% X-Pay
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
3,000,000
UC w/ 401(a)(17)
3
7
Median
3
2,000,000
7
UC w/o 401(a)(17)
11
11
6
1,000,000
6
Present Value of Benefit
Y-Pay = 120% X-Pay
0
Mid-Career
New Hire – Lower Pay
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Mid-Career New Hire – Lower Pay
Age = 45; Service = 0; X-Pay = $100,000
After Pension Reform Law Changes
4
UC w/ EGTRRA
4
2,000,000
UC w/o 401(a)(17)
Y-Pay = 40% X-Pay
3
3
Median
3
7
7
3
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
3,000,000
UC w/ EGTRRA
4
4
4
Median
4
2,000,000
12
12
4
1,000,000
4
Y-Pay = 80% X-Pay
Present Value of Benefits
UC w/o 401(a)(17)
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
3,000,000
UC w/ EGTRRA
4
7
7
Median
4
2,000,000
12
12
7
1,000,000
7
Y-Pay = 120% X-Pay
Present Value of Benefit
UC w/o 401(a)(17)
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Current Employee – Lower Pay
Age = 45; Service = 10; X-Pay = $150,000
Before Pension Reform Law Changes
3
UC w/o 401(a)(17)
Median
2
3,000,000
UC w/ 401(a)(17)
2,500,000
1,500,000
3
2,000,000
3
Present Value of Benefit
Y-Pay = 40% X-Pay
3,500,000
2
4,000,000
3
4,500,000
9
9
1,000,000
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
UC w/o 401(a)(17)
3,000,000
5
2
UC w/ 401(a)(17)
3,500,000
2
4,000,000
Median
2,500,000
1,000,000
11
1,500,000
5
5
2,000,000
11
Y-Pay =80% X-Pay
Present Value of Benefits
5
4,500,000
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4
3,000,000
UC w/o 401(a)(17)
4
3,500,000
UC w/ 401(a)(17)
Median
2,500,000
6
6
2,000,000
1,000,000
12
1,500,000
12
Present Value of Benefits
4,000,000
Y-Pay = 120% X-Pay
6
6
4,500,000
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Current Employee – Lower Pay
Age = 45; Service = 10; X-Pay = $150,000
After Pension Reform Law Changes
UC w/o 401(a)(17)
2
2
3,000,000
Median
4
UC w/ EGTRRA
3,500,000
4
4,000,000
2,500,000
1,500,000
3
2,000,000
3
Y-Pay = 40% X-Pay
Present Value of Benefit
4,500,000
10
10
1,000,000
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
UC w/ EGTRRA
3,500,000
UC w/o 401(a)(17)
2
3,000,000
6
2
4,000,000
Median
2,500,000
1,000,000
11
1,500,000
5
5
2,000,000
11
Y-Pay = 80% X-Pay
Present Value of Benefits
6
4,500,000
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
UC w/ EGTRRA
3,500,000
UC w/o 401(a)(17)
3,000,000
4
4,000,000
7
Median
2,500,000
6
6
2,000,000
1,000,000
12
1,500,000
12
Present Value of Benefits
Y-Pay = 120% X-Pay
4
7
4,500,000
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Mid-Career New Hire – Higher Pay
Age = 45; Service = 0; X-Pay = $200,000
Before Pension Reform Law Changes
4,000,000
2
UC w/ 401(a)(17)
UC w/o 401(a)(17)
3,000,000
2
3
Median
2,500,000
3
2,000,000
1,500,000
1
1,000,000
7
500,000
2
2
Present Value of Benefit
3,500,000
Y-Pay = 40% X-Pay
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
2
UC w/ 401(a)(17)
UC w/o 401(a)(17)
3,000,000
2
6
Median
2,500,000
4
2,000,000
1,500,000
1
1,000,000
7
500,000
5
5
Y-Pay =80% X-Pay
Present Value of Benefits
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
4
Median
2
2,500,000
UC w/o 401(a)(17)
6
3,000,000
UC w/ 401(a)(17)
6
2,000,000
1,500,000
4
1,000,000
7
500,000
5
6
Y-Pay = 120% X-Pay
Present Value of Benefits
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Mid-Career New Hire – Higher Pay
Age = 45; Service = 0; X-Pay = $200,000
After Pension Reform Law Changes
4,000,000
2
UC w/ EGTRRA
UC w/o 401(a)(17)
3
3,000,000
Median
2
2,500,000
3
2,000,000
1,500,000
1
1,000,000
2
Y-Pay = 40% X-Pay
Present Value of Benefit
3,500,000
4
2
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
UC w/ EGTRRA
UC w/o 401(a)(17)
5
3,000,000
Median
2
2,500,000
3
2,000,000
1,500,000
3
1
1,000,000
6
500,000
5
Y-Pay = 80% X-Pay
Present Value of Benefits
2
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
4
UC w/o 401(a)(17)
6
3,000,000
UC w/ EGTRRA
Median
2
2,500,000
5
2,000,000
1,500,000
6
4
1,000,000
6
500,000
5
Y-Pay = 120% X-Pay
Present Value of Benefits
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Current Employee – Higher Pay
Age = 45; Service = 10; X-Pay = $350,000
Before Pension Reform Law Changes
9,000,000
2
Y-Pay = 40% X-Pay
UC w/ 401(a)(17)
2
4
UC w/o 401(a)(17)
7,000,000
6,000,000
Median
3
5,000,000
2
4,000,000
4
3,000,000
2,000,000
7
4
Present Value of Benefits
8,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
10,000,000
9,000,000
UC w/o 401(a)(17)
Median
6,000,000
5
7,000,000
4
5,000,000
4
4,000,000
3,000,000
5
Present Value of Benefits
4
UC w/ 401(a)(17)
8,000,000
2
Y-Pay =80% X-Pay
7
5
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
10,000,000
UC w/ 401(a)(17)
UC w/o 401(a)(17)
6,000,000
4
Median
5
7,000,000
5
5,000,000
4
4,000,000
3,000,000
5
Present Value of Benefit
8,000,000
5
9,000,000
Y-Pay = 120% X-Pay
7
5
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Current Employee – Higher Pay
Age = 45; Service = 10; X-Pay = $350,000
After Pension Reform Law Changes
2
9,000,000
UC w/ EGTRRA
2
5
UC w/o 401(a)(17)
7,000,000
6,000,000
Median
3
5,000,000
2
4,000,000
3,000,000
4
Y-Pay = 40% X-Pay
Present Value of Benefits
8,000,000
4
7`
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
10,000,000
UC w/ EGTRRA
UC w/o 401(a)(17)
6,000,000
2
Median
5
7,000,000
4
5,000,000
4
4,000,000
3,000,000
5
Present Value of Benefits
Y-Pay = 80% X-Pay
8,000,000
4
9,000,000
7
5
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
10,000,000
UC w/ EGTRRA
UC w/o 401(a)(17)
6,000,000
4
Median
5
7,000,000
5
5,000,000
4
4,000,000
3,000,000
5
Present Value of Benefit
Y-Pay = 120% X-Pay
8,000,000
5
9,000,000
7
5
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to the other 21 organizations.
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Overall Observations
The University of California retirement program appears to be competitive for the initial profiles
selected and under the assumptions stated, with the following exceptions:
UCRP generally ranked lower for employees with shorter service and lower X compensation
(e.g. $60,000). Also, for employees with lower X compensation, UCRP decreases in the
rankings as the level of Y compensation increases. However, UCRP can be competitive for
employees with longer service and lower base pay if their Y compensation is relatively
moderate in relation to their X compensation (e.g. when Y is 40% of their base pay as
opposed to 80% or more).
The UCRP is not very competitive for individuals who join at a young age and leave prior to
eligibility for retirement
The UCRP will become more competitive as base pay increases above 401(a)(17)
compensation limits, if Appendix E is approved by the IRS
The UCRP remains competitive for individuals with base pay in excess of $170,000,
regardless of the level of Y-Pay, because many of the retirement plans provided by the
survey participants do not cover compensation in excess of $170,000
The UCRP does particularly well for high paid employees hired prior to July 1994 due to the
grandfathered Section 401(a)(17) limits, which allow the UCRP to base benefits on up to
$285,000 of compensation, while most surveyed plans are limited to $170,000
The passage of EGTRRA does not have a significant impact on the overall competitiveness
of the UCRP
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Glossary
TERM
1. Benefit Formula
2. Eligible 457(b) Plan
3. 401(a)(17) Limit
4. 401(k) Plan
5. 403(b) Plan
DEFINITION
The provision in the qualified defined benefit plan which
describes the annual benefit a participant will receive at
retirement (e.g., 2% of the final 3-year average compensation
per year of service)
A deferred compensation plan that is maintained by an eligible
employer – a state or local government or a non-church,
nongovernmental tax-exempt organization- and that also meets
statutory requirements.
The maximum amount of annual compensation that can be
used in calculating most tax favored retirement plan benefits
(e.g., generally, $170,000 for private sector plans). The limit
will increase to $200,000 for 2002 due to the new 2001
EGTRRA legislation.
A defined contribution plan established by a taxable or nontaxable organization (or a grandfathered government 401(k)
plan) under Section 401(a) of the Internal Revenue Code. The
plan provides participants with the opportunity to contribute
pre-tax salary deferrals to their accounts (e.g., participants may
defer up to 10% of their salaries and the employer matches $1
for $1 the first 5%).
A defined contribution plan established by a section 501(c)(3)
organization or public educational organization under Section
403(b) of the Internal Revenue Code. The plan permits salary
reduction contributions and may permit employer matching
and/or non-matching contributions (also referred to as a “TSA
Plan” or “Tax Sheltered Annuity Plan”).
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William M. Mercer, Incorporated
38
University of California
Schools of Health Sciences
TERM
6. 415 (c) limit
(defined contribution
plans)
415(b) limit
(defined benefit plans)
DEFINITION
In the case of a qualified defined contribution plan or 403(b)
plan, annual contributions plus any other annual additions are
limited to the lesser of $35,000 or 25% of a participant’s
compensation. This limit will change in 2002 to the lesser of
$40,000 or 100% of a participant’s compensation due to
EGTRRA.
In the case of a qualified defined benefit plan, benefits are
limited to the lesser of $140,000 or 100% of the
participant’s average compensation for the participant’s
highest three years (but, if a government plan, only limited
to $140,000). This limit will change to $160,000 for 2002
due to EGTRRA. For participants who retire before their
Social Security Retirement Age – between ages 65 and 67
depending on year of birth – the 415(b) limit is reduced
based on actual retirement age.
7. 402(g) Limit
In the case of a qualified 401(k) or 403(b) plan, annual
employee deferrals are limited to $10,500, indexed for
inflation.
8. Ineligible 457(f) Plan
A non-qualified plan offered by tax-exempt organizations and
government employers used to provide retirement benefits and
compensation-deferral opportunities to certain employees, but
requires a substantial risk of forfeiture to avoid current
taxation (i.e., generally, the employee must keep working to
receive the benefits).
9. Lump Sum Present
Value
A single sum payment determined based upon the accrued
benefit and actuarial provisions in effect on the date of
payment.
10. Make-up Plan for the
401(a)(17) Limit
An additional retirement plan designed to replace any benefits
lost as a result of the prohibition against the qualified defined
benefit plan and/or defined contribution plan considering
compensation in excess of the 401(a)(17) limit (e.g.,
participant has compensation of $200,000; since only
$170,000 is considered in the qualified plan, the make-up plan
replaces benefits she would have earned if total compensation
of $200,000 had been used in the qualified plan)
d:\working\attachs\717report.doc
William M. Mercer, Incorporated
39
University of California
Schools of Health Sciences
TERM
DEFINITION
11. Make-up Plan for the
415 Limit
An additional retirement plan designed to replace any benefits
lost as a result of the prohibition against the qualified defined
benefit plan and/or defined contribution plan providing
benefits in excess of the 415 limit (e.g., in a qualified defined
benefit plan, a participant is limited to annual benefits of
$140,000, but the formula would otherwise produce a benefit
of $150,000; the make-up plan would replace the benefit lost
as a result of the 415 limit.). In a qualified defined
contribution plan, the make-up plan would restore benefits lost
due to the limit on annual additions of the lesser of $35,000 or
25% of compensation.
12. Matching Feature
An employer contribution to a qualified defined contribution
plan or other tax favored defined contribution retirement plan
which matches some portion of contributions made by
participants (e.g., the employer matches $1 for $1 of the first
5% of compensation an employee contributes to the 403(b)
plan).
13. Money Purchase
Pension Plan
A defined contribution plan established under Section 401(a)
of the Internal Revenue Code which provides that the
employer has a fixed obligation to make certain contributions
to the plan each year (e.g., employer agrees to contribute an
amount to each participant’s account equal to 5% of the
participant’s compensation each year.).
14. Non-Qualified Plan
A plan that provides benefits that are not payable under a Tax
Qualified plan due to IRS limitations.
15. Other Deferred
Compensation Plans
A plan which is something other than a Tax Favored Defined
Contribution Retirement Plan or a Tax Favored Defined
Contribution Savings Retirement Plan such as a supplemental
executive compensation plan, ineligible 457(f) plan, or some
other plan designed to defer an employee’s compensation.
16. Pension Spiking
Significant increases in final years’ compensation that would
significantly increase benefits for all years of service under a
qualified defined benefit plan.
17. Portion of W-2
Earnings
An amount less than all taxable income (e.g., base salary,
excluding bonuses and incentive pay).
d:\working\attachs\717report.doc
William M. Mercer, Incorporated
40
University of California
Schools of Health Sciences
TERM
DEFINITION
18. Profit Sharing Plan
A defined contribution plan established under Section 401(a)
of the Internal Revenue Code which provides that the
employer will or may make contributions and which has a
predetermined formula for allocating contributions among the
participants (e.g., employer agrees that it will make
discretionary contributions to the plan and if made the
contributions will be allocated among all participants based on
a percentage of compensation).
19. Summary Plan
Description
A booklet provided to plan participants describing benefits,
rights and plan provisions.
20. Supplemental
Executive Retirement
Plan (SERP)
Any non-qualified plan used to provide retirement benefits and
compensation-deferral opportunities to certain employees (e.g.,
make-up plan; 457(f) plan; nonqualified plan with benefits not
dependent on qualified retirement plan formula; etc.).
21. Tax Favored Defined
Contribution
Retirement Plan
A plan established under Section 401(a), 403(b) or 457(b) of
the Internal Revenue Code and provides for employer
contributions each year to each participant’s account. (e.g., a
plan promises that the employer will contribute 3% of
compensation each year). Also, this plan may include
employee contributions.
22. Tax Favored Defined
Contribution Savings
Retirement Plan
A 403(b), 401(k), eligible 457(b) plan, or some other defined
contribution plan entitling participants to make pre-tax salary
deferrals. This plan permits only employee contributions.
23. Tax Qualified Defined
Benefit Retirement
Plan
A plan established under Section 401(a) of the Internal
Revenue Code and designed to pay a certain benefit at
retirement (e.g., a plan promises to pay 2% of a participant’s
final compensation for each year of service).
24. W-2 Earnings
All earnings reported as taxable income (e.g., would include
bonuses and incentive pay).
d:\working\attachs\717report.doc
William M. Mercer, Incorporated
41
University of California
Schools of Health Sciences
Appendix
Detailed Calculations for Example 1 – Employer Provided Benefits Only
Note that for termination prior to retirement eligibility (age 50), we assumed that the terminated member would begin receiving benefits at age 50. For this
reason, we used the age factor for age 50 (1.10%) and a lump sum cashout factor that reflected deferred payment.
UC
Highest
Y
Average Plan
Assumed
X
Compensation
Total
Compensation
Salary Compensation
(40% of
Negotiated Less $133 Offset Age
Age Year Increase (Base Salary) Base Salary)
Salary
(HAPC)
Factor Service
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
5.74%
5.74%
5.74%
5.74%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
4.63%
4.63%
4.63%
4.63%
4.63%
4.63%
$60,000
$63,444
$67,086
$70,936
$75,008
$79,021
$83,249
$87,703
$92,395
$97,338
$102,545
$108,031
$113,811
$119,900
$126,315
$132,744
$139,501
$146,601
$154,063
$161,905
$170,146
$178,807
$187,908
$197,472
$207,524
$217,132
$227,185
$237,704
$248,710
$260,225
$272,273
$24,000
$25,378
$26,834
$28,375
$30,003
$31,608
$33,299
$35,081
$36,958
$38,935
$41,018
$43,213
$45,524
$47,960
$50,526
$53,098
$55,800
$58,641
$61,625
$64,762
$68,058
$71,523
$75,163
$78,989
$83,009
$86,853
$90,874
$95,082
$99,484
$104,090
$108,909
$84,000
$88,822
$93,920
$99,311
$105,011
$110,630
$116,548
$122,784
$129,352
$136,273
$143,563
$151,244
$159,336
$167,860
$176,841
$185,842
$195,301
$205,242
$215,689
$226,667
$238,205
$250,329
$263,071
$276,461
$290,533
$303,985
$318,059
$332,786
$348,194
$364,315
$381,183
$0.00
$4,867.00
$5,010.50
$5,159.49
$5,463.28
$5,784.51
$6,116.05
$6,458.05
$6,810.68
$7,182.16
$7,573.52
$7,985.82
$8,420.18
$8,877.77
$9,359.85
$9,867.72
$10,393.63
$10,938.10
$11,501.62
$12,093.82
$12,716.17
$13,370.19
$14,057.50
$14,779.80
$15,538.86
$16,336.56
$17,148.34
$17,973.70
$18,812.04
$19,689.19
$20,606.96
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.10%
1.24%
1.38%
1.52%
1.66%
1.80%
1.94%
2.08%
2.22%
2.36%
2.50%
2.50%
2.50%
2.50%
2.50%
2.50%
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Monthly
Pension
$0.00
$53.54
$110.23
$170.26
$240.38
$318.15
$403.66
$497.27
$599.34
$711.03
$833.09
$966.28
$1,111.46
$1,269.52
$1,441.42
$1,628.17
$2,062.10
$2,566.08
$3,146.84
$3,814.39
$4,577.82
$5,447.01
$6,432.71
$7,546.56
$8,801.21
$10,210.35
$11,146.42
$12,132.25
$13,168.43
$14,274.67
$15,455.22
Lump Sum
Cashout
Factor
80.44
84.77
89.35
94.16
99.24
104.59
110.23
116.18
122.44
129.04
136.00
143.33
151.06
159.21
167.79
176.84
174.67
172.44
170.14
167.78
165.35
162.84
160.27
157.61
154.87
152.04
149.11
146.09
142.96
139.74
136.43
Present
Value
of UCRP
Benefit
$0
$4,536
$9,852
$16,032
$23,856
$33,276
$44,496
$57,768
$73,380
$91,752
$113,304
$138,504
$167,904
$202,116
$241,860
$287,928
$360,192
$442,500
$535,404
$639,984
$756,948
$886,992
$1,030,968
$1,189,416
$1,363,044
$1,552,380
$1,662,048
$1,772,400
$1,882,560
$1,994,736
$2,108,556
Typical Survey Participant
Employer
Interest on
Accumulated
Contribution
Account
Value of
(10% of Total
Balance and
10%
Negotiated
Employer
Employer
Salary)
Contributions
Contributions
$0
$8,400
$8,882
$9,392
$9,931
$10,501
$11,063
$11,655
$12,278
$12,935
$13,627
$14,356
$15,124
$15,934
$16,786
$17,684
$18,584
$19,530
$20,524
$21,569
$22,667
$23,820
$25,033
$26,307
$27,646
$29,053
$30,398
$31,806
$33,279
$34,819
$36,431
$0
$672
$1,436
$2,303
$3,281
$4,384
$5,620
$7,002
$8,544
$10,262
$12,173
$14,296
$16,650
$19,256
$22,140
$25,325
$28,838
$32,708
$36,966
$41,649
$46,794
$52,443
$58,642
$65,437
$72,884
$81,039
$89,954
$99,695
$110,333
$121,945
$134,615
$0
$9,072
$19,390
$31,085
$44,297
$59,183
$75,865
$94,522
$115,344
$138,541
$164,342
$192,994
$224,768
$259,958
$298,884
$341,893
$389,315
$441,553
$499,044
$562,261
$631,722
$707,986
$791,661
$883,405
$983,936
$1,094,028
$1,214,381
$1,345,881
$1,489,493
$1,646,257
$1,817,304
d:\working\attachs\717report.doc
William M. Mercer, Incorporated
42
University of California
Schools of Health Sciences
Detailed Calculations for Example 2 – Employer Provided Benefits and 3% Employee Contributions
Employee
Interest on
Accumulated
Y
Contribution
Account
Value of
Assumed
X
Compensation
Total
(3% of Total Balance and
3%
Salary Compensation
(40% of
Negotiated Negotiated
Employee
Employee
Age Year Increase (Base Salary) Base Salary)
Salary
Salary)
Contributions Contributions
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
5.74%
5.74%
5.74%
5.74%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.35%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
5.09%
4.63%
4.63%
4.63%
4.63%
4.63%
4.63%
$60,000
$63,444
$67,086
$70,936
$75,008
$79,021
$83,249
$87,703
$92,395
$97,338
$102,545
$108,031
$113,811
$119,900
$126,315
$132,744
$139,501
$146,601
$154,063
$161,905
$170,146
$178,807
$187,908
$197,472
$207,524
$217,132
$227,185
$237,704
$248,710
$260,225
$272,273
$24,000
$25,378
$26,834
$28,375
$30,003
$31,608
$33,299
$35,081
$36,958
$38,935
$41,018
$43,213
$45,524
$47,960
$50,526
$53,098
$55,800
$58,641
$61,625
$64,762
$68,058
$71,523
$75,163
$78,989
$83,009
$86,853
$90,874
$95,082
$99,484
$104,090
$108,909
$84,000
$88,822
$93,920
$99,311
$105,011
$110,630
$116,548
$122,784
$129,352
$136,273
$143,563
$151,244
$159,336
$167,860
$176,841
$185,842
$195,301
$205,242
$215,689
$226,667
$238,205
$250,329
$263,071
$276,461
$290,533
$303,985
$318,059
$332,786
$348,194
$364,315
$381,183
$0
$2,520
$2,665
$2,818
$2,979
$3,150
$3,319
$3,496
$3,684
$3,881
$4,088
$4,307
$4,537
$4,780
$5,036
$5,305
$5,575
$5,859
$6,157
$6,471
$6,800
$7,146
$7,510
$7,892
$8,294
$8,716
$9,120
$9,542
$9,984
$10,446
$10,929
$0
$202
$431
$691
$984
$1,315
$1,686
$2,100
$2,563
$3,079
$3,652
$4,289
$4,995
$5,777
$6,642
$7,598
$8,651
$9,812
$11,090
$12,495
$14,038
$15,733
$17,592
$19,631
$21,865
$24,312
$26,986
$29,908
$33,100
$36,583
$40,385
$0
$2,722
$5,817
$9,326
$13,289
$17,755
$22,760
$28,356
$34,603
$41,562
$49,303
$57,898
$67,431
$77,987
$89,665
$102,568
$116,795
$132,466
$149,713
$168,678
$189,517
$212,396
$237,498
$265,022
$295,181
$328,208
$364,314
$403,764
$446,848
$493,877
$545,191
Present
Value
of UCRP
Benefit
$0
$4,536
$9,852
$16,032
$23,856
$33,276
$44,496
$57,768
$73,380
$91,752
$113,304
$138,504
$167,904
$202,116
$241,860
$287,928
$360,192
$442,500
$535,404
$639,984
$756,948
$886,992
$1,030,968
$1,189,416
$1,363,044
$1,552,380
$1,662,048
$1,772,400
$1,882,560
$1,994,736
$2,108,556
UC
Total Value
of UCRP
Benefit and
3% Employee
Contributions
$0
$7,258
$15,669
$25,358
$37,145
$51,031
$67,256
$86,124
$107,983
$133,314
$162,607
$196,402
$235,335
$280,103
$331,525
$390,496
$476,987
$574,966
$685,117
$808,662
$946,465
$1,099,388
$1,268,466
$1,454,438
$1,658,225
$1,880,588
$2,026,362
$2,176,164
$2,329,408
$2,488,613
$2,653,747
Typical Survey Participant
Accumulated
Accumulated
Value of
Value of 10%
10%
Employer and
Employer
3% Employee
Contributions
Contributions
$0
$9,072
$19,390
$31,085
$44,297
$59,183
$75,865
$94,522
$115,344
$138,541
$164,342
$192,994
$224,768
$259,958
$298,884
$341,893
$389,315
$441,553
$499,044
$562,261
$631,722
$707,986
$791,661
$883,405
$983,936
$1,094,028
$1,214,381
$1,345,881
$1,489,493
$1,646,257
$1,817,304
$0
$11,794
$25,208
$40,411
$57,587
$76,937
$98,625
$122,878
$149,947
$180,104
$213,645
$250,893
$292,199
$337,945
$388,549
$444,461
$506,110
$574,019
$648,757
$730,940
$821,239
$920,382
$1,029,159
$1,148,427
$1,279,116
$1,422,236
$1,578,695
$1,749,646
$1,936,341
$2,140,134
$2,362,495
d:\working\attachs\717report.doc
William M. Mercer, Incorporated
43
University of California
Schools of Health Sciences
Addendum to Physician
Retirement
Benefits Survey
University of California
Schools of Health Sciences
Lump Sum Present Value of Employer-Provided Retirement Benefits
The following are several exhibits illustrating a comparison between the projected benefits under UC's
retirement programs and those of UC's comparator programs. These exhibits are analogous to those
shown on pages 28-36 of the Physicians Retirement Benefits Survey Report dated July 2001. Once again,
the ranking of UC compared with other survey participants is shown (i.e., 1 being the highest, 21 being
the lowest) above the appropriate bars.
The results shown in the exhibits have been modified to incorporate an allowance for Z compensation.
Six of the survey participants do include Z compensation in their benefit formulas. The additional Z
compensation incorporated is equal to 12.5% of X compensation for all profiles. This level of Z
compensation is typical for UC physicians who do receive compensation above their base salary.
We have used an asterisk to denote the profiles for which the UCRP ranking drops. In none of the
profiles did the UCRP lose more than one place in the rankings.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
1
University of California
Schools of Health Sciences
Lump Sum Present Value of Employer-Provided Retirement Benefits
Full Career New Hire
Age = 35; Service = 0; X-Pay = $60,000
3,500,000
4
UC w/o 401(a)(17)
2,500,000
Median
4
4
2,000,000
1,500,000
4
4
Present Value of Benefit
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
4
UC w/ 401(a)(17)
3,000,000
1,000,000
15
15
16
16
500,000
0
Termination @ 40 Termination @ 45
Retirement @ 55
Retirement @ 60
Retirement @ 65
UC w/ 401(a)(17)
UC w/o 401(a)(17)
2,000,000
5
Median
5
2,500,000
1,500,000
12
*
12
*
Y-Pay =80% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefit
3,000,000
14
*
14
*
3,500,000
1,000,000
16
16
15
15
500,000
0
Termination @ 40 Termination @ 45
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
3,000,000
2,500,000
14
14
UC w/o 401(a)(17)
Median
13
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
UC w/ 401(a)(17)
13
3,500,000
2,000,000
14
14
1,500,000
15
16
16
500,000
15
1,000,000
0
Termination @ 40 Termination @ 45
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
2
University of California
Schools of Health Sciences
Mid-Career New Hire – Lower Pay
Age = 45; Service = 0; X-Pay = $100,000
Before Pension Reform Law Changes
UC w/ 401(a)(17)
4
4
2,000,000
UC w/o 401(a)(17)
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
3
3
Median
3
8*
8*
3
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
3,000,000
UC w/ 401(a)(17)
3
4
Median
3
2,000,000
4
UC w/o 401(a)(17)
11
11
3
1,000,000
3
Present Value of Benefits
Y-Pay = 80% X-Pay
Z-Pay = 12.5% X-Pay
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
3,000,000
UC w/ 401(a)(17)
3
7
Median
3
2,000,000
7
UC w/o 401(a)(17)
11
11
6
1,000,000
6
Present Value of Benefit
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
3
University of California
Schools of Health Sciences
Mid-Career New Hire – Lower Pay
Age = 45; Service = 0; X-Pay = $100,000
After Pension Reform Law Changes
UC w/ EGTRRA
4
4
2,000,000
UC w/o 401(a)(17)
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
3
3
Median
3
8*
8*
3
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
3,000,000
UC w/ EGTRRA
UC w/o 401(a)(17)
4
4
4
Median
4
2,000,000
12
12
4
1,000,000
4
Present Value of Benefits
Y-Pay = 80% X-Pay
Z-Pay = 12.5% X-Pay
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
3,000,000
UC w/ EGTRRA
4
7
Median
4
2,000,000
7
UC w/o 401(a)(17)
12
12
7
1,000,000
7
Present Value of Benefit
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
4
University of California
Schools of Health Sciences
Current Employee – Lower Pay
Age = 45; Service = 10; X-Pay = $150,000
Before Pension Reform Law Changes
3
UC w/o 401(a)(17)
2
3,000,000
UC w/ 401(a)(17)
Median
2,500,000
1,500,000
3
2,000,000
3
Present Value of Benefit
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
3,500,000
2
4,000,000
3
4,500,000
9
9
1,000,000
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
6*
6*
3,500,000
UC w/o 401(a)(17)
3,000,000
2
UC w/ 401(a)(17)
2
4,000,000
Median
2,500,000
6*
6*
2,000,000
1,500,000
1,000,000
12
*
12
*
Y-Pay =80% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
4,500,000
Retirement @ 65
500,000
0
Retirement @ 55
Retirement @ 60
UC w/o 401(a)(17)
4
3,000,000
UC w/ 401(a)(17)
4
3,500,000
Median
2,500,000
6
6
2,000,000
1,000,000
12
1,500,000
12
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
4,000,000
6
4,500,000
Retirement @ 65
6
Termination @ 50
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
5
University of California
Schools of Health Sciences
Current Employee – Lower Pay
Age = 45; Service = 10; X-Pay = $150,000
After Pension Reform Law Changes
3,000,000
Median
4
4
UC w/o 401(a)(17)
2
UC w/ EGTRRA
3,500,000
2
4,000,000
2,500,000
3
3
2,000,000
1,500,000
10
1,000,000
10
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefit
4,500,000
500,000
0
Retirement @ 55
Retirement @ 60
7*
UC w/ EGTRRA
3,500,000
UC w/o 401(a)(17)
2
3,000,000
2
4,000,000
Median
2,500,000
6*
6*
2,000,000
1,000,000
12
*
1,500,000
12
*
Y-Pay = 80% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
4,500,000
Retirement @ 65
7*
Termination @ 50
500,000
0
Retirement @ 55
Retirement @ 60
7
UC w/o 401(a)(17)
3,000,000
5*
UC w/ EGTRRA
3,500,000
5*
4,000,000
Median
2,500,000
6
6
2,000,000
1,000,000
12
1,500,000
12
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
4,500,000
Retirement @ 65
7
Termination @ 50
500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
6
University of California
Schools of Health Sciences
Mid-Career New Hire – Higher Pay
Age = 45; Service = 0; X-Pay = $200,000
Before Pension Reform Law Changes
4,000,000
2
Median
2
2,500,000
UC w/o 401(a)(17)
4*
3,000,000
UC w/ 401(a)(17)
3
2,000,000
1,500,000
1
1,000,000
7
500,000
2
2
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefit
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
2
Median
2
2,500,000
UC w/o 401(a)(17)
7*
3,000,000
UC w/ 401(a)(17)
4
2,000,000
1,500,000
6*
1
1,000,000
7
500,000
5
Y-Pay =80% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
4
Median
2
2,500,000
UC w/o 401(a)(17)
7*
3,000,000
UC w/ 401(a)(17)
6
2,000,000
1,500,000
4
1,000,000
7
500,000
5
6
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
7
University of California
Schools of Health Sciences
Mid-Career New Hire – Higher Pay
Age = 45; Service = 0; X-Pay = $200,000
After Pension Reform Law Changes
4,000,000
2
UC w/o 401(a)(17)
3
3,000,000
UC w/ EGTRRA
Median
2
2,500,000
3
2,000,000
1,500,000
2
1
1,000,000
4
500,000
2
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefit
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
UC w/ EGTRRA
UC w/o 401(a)(17)
6*
3,000,000
Median
2
2,500,000
3
2,000,000
1,500,000
3
1
1,000,000
6
500,000
5
Y-Pay = 80% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
2
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
4,000,000
4
UC w/o 401(a)(17)
6
3,000,000
UC w/ EGTRRA
Median
2
2,500,000
5
2,000,000
1,500,000
6
4
1,000,000
6
500,000
5
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
3,500,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
8
University of California
Schools of Health Sciences
Current Employee – Higher Pay
Age = 45; Service = 10; X-Pay = $350,000
Before Pension Reform Law Changes
2
9,000,000
UC w/ 401(a)(17)
2
6,000,000
5*
UC w/o 401(a)(17)
7,000,000
Median
3
5,000,000
2
4,000,000
4
3,000,000
5*
2,000,000
7
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
8,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
10,000,000
UC w/ 401(a)(17)
UC w/o 401(a)(17)
6,000,000
2
Median
5*
5,000,000
5
7,000,000
4
4,000,000
3,000,000
5
Present Value of Benefits
Y-Pay =80% X-Pay
Z-Pay = 12.5% X-Pay
8,000,000
4
9,000,000
7
5
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
10,000,000
UC w/ 401(a)(17)
UC w/o 401(a)(17)
6,000,000
4
Median
5
5,000,000
5
7,000,000
5*
4,000,000
3,000,000
5
Present Value of Benefit
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
8,000,000
5
9,000,000
7
5
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
9
University of California
Schools of Health Sciences
Current Employee – Higher Pay
Age = 45; Service = 10; X-Pay = $350,000
After Pension Reform Law Changes
2
9,000,000
UC w/ EGTRRA
2
6,000,000
5
UC w/o 401(a)(17)
7,000,000
Median
3
5,000,000
2
4,000,000
3,000,000
4
Y-Pay = 40% X-Pay
Z-Pay = 12.5% X-Pay
Present Value of Benefits
8,000,000
4
8*
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
10,000,000
UC w/ EGTRRA
UC w/o 401(a)(17)
6,000,000
2
Median
4
5,000,000
6*
7,000,000
4
4,000,000
3,000,000
5
Present Value of Benefits
Y-Pay = 80% X-Pay
Z-Pay = 12.5% X-Pay
8,000,000
4
9,000,000
5
8*
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
10,000,000
UC w/ EGTRRA
UC w/o 401(a)(17)
6,000,000
4
Median
6*
5,000,000
6*
7,000,000
4
4,000,000
3,000,000
6*
Present Value of Benefit
Y-Pay = 120% X-Pay
Z-Pay = 12.5% X-Pay
8,000,000
5
9,000,000
5
8*
2,000,000
1,000,000
0
Termination @ 50
Retirement @ 55
Retirement @ 60
Retirement @ 65
Note: The numbers superimposed on the bars represent the ranking of UC relative to 20 other organizations.
d:\working\attachs\zaddendum0918.doc
William M. Mercer, Incorporated
10
University of California
Schools of Health Sciences