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Sept. 9, 2010 Volume 32, No. 3

Employee health insurance premiums will likely go up next year


Reserves helped keep rates steady in recent years

Between pay freezes and a new mandatory contribution toward their retirement, many University of Missouri employees are seeing less money in their paychecks this year.

The fiscal news is about to get a bit worse: Health insurance premiums will likely go up in 2011, said Betsy Rodriguez, UM’s vice president of human resources.

Rodriguez said the use of reserve funding kept premium increases relatively small in recent years. “But the reality is, the plan was still going up in cost. We will continue to use reserves to offset increases, but we’ll still have to raise premiums.” 

It may be small consolation, but unlike most employers, UM will continue to shoulder its share of rising health care costs, which are increasing much faster than inflation. According to a recent report by the Kaiser Family Foundation, more employers are choosing to keep their health costs steady by passing the increases onto workers. Employee contributions to a family plan rose 14 percent in the last year, according to the report, and have increased 47 percent since 2005.

Rodriguez said UM will continue its traditional “split” with employees, in which it pays about 73 percent of the cost of health premiums, retirement and other benefits for faculty and staff. “When the costs go up,” Rodriguez said, “they go up proportionately for both employees and the university.”

Perhaps few people are as in touch with the economic anxiety felt by UM employees than Rodriguez. Over the summer, she has visited the system’s four campuses to discuss pay and benefits with faculty and staff. Turnout has varied from campus to campus, but the message is the same everywhere: With employees paying more for benefits, system administrators must find a way to increase salaries, which are the lowest of the 35 schools in the American Association of Universities.

That won’t be easy. The system is bracing for significant budget cuts in fiscal year 2012, which begins July 1, 2011. The issue is further complicated by investment losses suffered by the system’s pension fund, the result of the worst economic recession since the Great Depression. Despite instituting a requirement last year that all employees pay a percentage of their wages toward retirement, the university will have to increase its share of contributions to meet obligations to current and future retirees. 

The tension between its pension obligations and the need to increase pay is one reason why the system is considering switching from the current retirement plan, known as a defined benefit, to a defined contribution plan for new employees. The defined benefit plan guarantees each worker a pension upon retirement, as long as UM fully funds the plan. Rodriguez said that UM has never failed to set aside every dollar it needs to meet its retirement obligations — and administrators want to keep it that way.

“We’re in good financial shape on the current plan,” she said. “But that plan will always be subject to investment risk, and it might make sense in a public setting to shift that risk off the public and put it on the employee.”

A defined contribution plan would do just that. It would require employees to contribute a percentage of their wages into a retirement fund of their own choosing and that they would manage themselves. Under a defined contribution plan, employees who leave the university would take their retirement savings with them.

Rodriguez stressed that the switch would only impact new employees. “Our plan is absolutely valuable to the people who are here,” Rodriguez said. “That’s why it would be crazy to do something to disrupt that.”

Leona Rubin, chair of MU’s Faculty Council, said the current plan is attractive to prospective new hires. With salaries lagging behind other universities, she said faculty would like to find
a way to keep the defined
benefit, perhaps by temporarily increasing the mandatory contribution, currently two percent for those making more than $50,000 a year, for higher-salaried professors. 

“When the market is good and the returns are better, maybe the university can say, ‘You don’t have to put in more.’” Rubin said. “That’s like a raise for faculty and we get to keep the defined benefit.”

That’s likely to be one suggestion Rodriquez hears when she continues to meet with faculty groups this month. 

“A lot of people are getting very discouraged,” she said. “The consequences of doing nothing are very serious.”