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University of Alaska System July 2008

EMERITI AS A STRATEGIC RETIREMENT BENEFIT. University of Alaska System July 2008. Broader Context of Retiree Health Care . INSTITUTIONAL CONTEXT OF RETIREMENT PLANNING. No mandatory retirement age Increasingly delayed retirement decisions

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University of Alaska System July 2008

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  1. EMERITI AS A STRATEGIC RETIREMENT BENEFIT University of Alaska System July 2008

  2. Broader Context of Retiree Health Care

  3. INSTITUTIONAL CONTEXT OF RETIREMENT PLANNING • No mandatory retirement age • Increasingly delayed retirement decisions • Aging demographics coupled with expanded life expectancy • Lost opportunity costs for institutional renewal • Increasing end-of-career compensation pressures • Escalating cost of retirement incentive programs • Explosive trend in the active health care plan • Rising health care utilization at the end of career • Mounting unfunded obligations for defined benefit promise

  4. BEHAVIORAL IMPACT OF RETIREE MEDICAL ACCESS Faculty Stay 18-36 Months Longer Retirement Date No PlanSome Support High Support Source: Mellon Faculty Retirement Project (2000)

  5. TYPICAL COMPENSATION IMPACT Delayed Faculty Retirements

  6. INDIVIDUAL PERSPECTIVES ON RETIREMENT SECURITY • Dwindling employer commitments to retiree benefits • Eroding retiree defined benefit plans in all sectors • Escalating cost of and cost sharing on all medical services • Worries about access to “good” insurance • Anxieties about financial impact of a catastrophic illness • Concerns about outliving pension assets • Preoccupation with long-term care expenses • Frustrations with complexities of Medicare • Perceived lack of insurer commitments to local market • Loss of control over health care decisions

  7. HOW RETIREE HEALTH CARE EXPENSES ARE PAID Private Insurance 19% Individual Out-of-Pocket 20% Other Gov’t Programs* 10% Medicare 51% Source: The Employee Benefit Research Institute (EBRI) 2006 estimates from the 2003 Medical expenditure survey. *VA/Tricare 4%, Medicaid 4%, Other 2% 9

  8. 65-year old retiree Same retiree at 85 37.2% In 2006: 64.5% 52.6% In 2025: 80.2% RETIREMENT INCOME EXPOSURE(Medicare Cost Shares as a Percentage of Social Security Benefits) Source: Data from the Center for Medicare and Medicaid Services, Office of the Actuary, 2004.

  9. ESTIMATED HEALTH CARE SAVINGS REQUIRED FOR A COUPLE RETIRING TODAY Source: Retiree Health Care Costs: Addressing the Growing Gap, Fidelity Investments, March 2008 Amounts shown are annual savings required for a couple enrolled only in Medicare. The savings illustrations do not include either employer sponsored group insurance or long-term care insurance coverage. 12 8

  10. HOW THE EMERITI PROGRAM PROVIDES A SOLUTION www.emeritihealth.org

  11. EMERITI’S VALUE PROPOSITION • A strategic purchasing alliance of, by, and for higher education • An innovative retirement benefit paradigm • tax-advantaged savings/investment accounts • nationally accessible retiree medical plans • reimbursement benefit for other health expenses • An educational framework for integrating health planning into retirement decision making • A single source administrative structure

  12. EMERITI PARADIGM SHIFT Defined Benefit Promise Defined Contribution Account + Social Security 403 (b) Pension Plan + Medicare 501 (c) (9) EMERITI PLAN NOTE: Emeriti is made possible through the generosity of The Andrew W. Mellon Foundation and The William and Flora Hewlett Foundation.

  13. EMERITI PROGRAM STRUCTURE TAX ADVANTAGED SAVINGS TAX FREE EARNINGS TAX FREE DISBURSEMENTS Medicare Coordinated Group Insurance Employer Contributions INVESTED ACCOUNTS $ Employee Voluntary Contributions* Retiree Medical Expense Reimbursement *NOTE:Voluntary employee contributions are made post-tax.

  14. EMERITI DELIVERY MODEL EMERITI TRUST STRUCTURE EMERITI HEALTH ACCOUNTS EMERITI INSURANCE OPTIONS - Indemnity Medical Plans - Rx Plans - Medicare Part C Plan - Dental Plan VEBA Trusts Lifecycle Mutual Funds Aetna: Insurance Provider $ Grantor Trust* Fidelity: Trust Administrator Fidelity: Investment Provider EMERITI REIMBURSEMENT BENEFIT Eligible out-of-pocket expenses incurred by participants *NOTE: Grantor Trust money can only be used for Emeriti Insurance Options Acclaris: Claims Processor

  15. TAX ADVANTAGESCommon Amounts into VEBA Trusts *Depending on the organization, your employer’s contributions may also include additional pre-tax amounts in lieu of compensation or other benefits.

  16. TAX ADVANTAGES Special Contributions into Grantor Trust Workforce Management Flexibilities • Retirement Incentives • Retention Opportunities • Recruitment Strategies • Special Transition Contributions NOTE: These special employer contributions may be made in any amount, but are limited to fully insured products.

  17. ADVANTAGES OF FIDELITY FREEDOM FUNDS • Lifecycle funds geared toward retirement • Actively managed portfolios of stocks, bonds and money market funds • Automatic rebalancing over your lifetime • More conservative allocations as you move closer to retirement 28

  18. TAX ADVANTAGE OF THE REIMBURSEMENT BENEFIT Your tax-free earnings can be used for reimbursement of qualified medical expenses, such as: • Pre-65 health insurance premiums • Supplemental insurance deductibles, co-insurance, co-pays • Vision, dental, hearing care • Over-the-counter drugs • Long-term care insurance • Medical expenses associated with nursing or in-home health care services • Medicare premiums and cost shares • Other post-65 insurance premiums (if Emeriti coverage is not elected) Unlike a flexible spending account, any residual balance stays in your account and continues to grow tax free for future use NOTE: A wide range of health care expenses apply for tax-free reimbursement as long as they satisfy the requirements of Section 213 (d) of the IRS Code.

  19. ADVANTAGES OF EMERITI INSURANCE • Guaranteed issue group health insurance coverage • A menu of options to fit your personal needs • Catastrophic protection • Prescription drug coverage • Nationwide access • Annual enrollment choice • Foreign urgent or emergency care • Preventive care • Builds on the foundation of Medicare

  20. EMERITI’S BUILD YOUR OWN PLAN APPROACH TO RETIREE INSURANCE COVERAGE NEW in 2008 • Four Post-65 Medical Plans Choice of Two Medicare Supplement Plans (Original Medicare) Choice of Two Private Fee for Service Plans (Medicare Advantage) • Three Medicare Part D Prescription Drug Plans Choice of Formularies Choice of Coverage in the “Gap” Choice of mail order and retail pharmacy supply • One Optional Dental Plan • Pre-65 Retiree Health Plans (coming in 2009)

  21. EMERITI EDUCATIONAL COMMITMENTS Toll-free service center Dedicated websitewww.emeritihealth.org Printed enrollment materials Annual workshops on campus Periodic newsletters to active employees and to retirees 32

  22. Emeriti Funding and Design Issues

  23. PROGRAM FUNDING CONSIDERATIONS • Employer contribution must be at least ½% of benefit-eligible payroll • - Employer contributions are made on equal, flat dollar basis • - Minimal amount typically ranges from $300-$500 per person per year • Employee contributions are voluntary • - Contributions may be made in any amount during service and in retirement • - Regular payroll reduction option • - Periodic lump-sum option electronically from personal bank accounts • Employee mandated contributions are optional • - Mandated contributions are in lieu of salary and are a condition of employment • - Mandated contributions, like employer dollars, must be equal, flat dollar basis 20

  24. CAMPUS POPULATIONS POTENTIALLY SERVED Prefunded Contributions for Active Employees on a DC basis for all defined members of the benefits-eligible population Transitional Funding Support for Older Employees through a combination of DC and DB approaches Insurance Access for Current Retireeson retiree pay-all basis or through continuing employer DB premium subsidies 20

  25. KEY DECISIONS IN DEFINING YOUR PLAN • Participant Eligibility(Who is eligible for the Emeriti benefit? And which dependents?) • Contribution Period(How long does the employer fund?) • Prospective Funding Amount(How much does the employer contribute on a flat-dollar basis?) • Transition Support(Does the employer provide any catch-up amounts for older employees?) • Vesting Criteria(When does the employee own the employer’s contributions?) • Retirement Definition(When does the employee become eligible for insurance in retirement?) • Employer Forfeitures(How does the employer reallocate unspent dollars within its Plan?) • Current Retirees(Under what terms does the employer wish to invite current retirees into Emeriti insurance?) 20

  26. MODELING OBJECTIVES Prospective Funding Model • Document the first-year employer cost of the proposed DC plan • Project accumulated individual DC account balances over a long period of time • Provide sensitivity analysis of altering fundamental parameters of the proposed DC Emeriti plan • Estimate first-year flat dollar contributions for each eligible participant based on age cohort • Forecast the last-year flat dollar contribution for each eligible participant based on age cohort • Demonstrate the approximate account balance shortfall of older age entry in the proposed DC Emeriti plan (a proxy for transition funding needs at the individual level)

  27. University of Alaska Target Funding: 50% of Combo III | Contribution Starting Age: 25

  28. Emeriti Services and Fees

  29. EMERITI SERVICES • Legal Structure • Plan Design • Evaluation Tools (Funding Models) • Plan Documents • Regulatory Compliance • Communications to employees and retirees • Enrollment and ongoing education • Negotiation of insurance rates and plan provisions • Service and performance monitoring of partners • Ongoing evaluation and feedback from members

  30. EMERITI PROGRAM FEES 1. Required one-time institutional implementation fee: $25,000. 2. Optional institutional cost sharing of participant fees:  Emeriti account fee: $4.00/mo.  Fidelity record-keeping fee: Actives $1.67/mo., Retirees $6.25/mo.  Fidelity investment management fees: variable  Reimbursement benefit claims processing fee: first 4 submissions free, thereafter $6.00/bundle of receipts 20

  31. Next Steps with Emeriti

  32. Institutional Decision Making Timeline Institution Start Date: July 1, 2009 20

  33. UNIVERSITY OF ALASKA WHY EMERITI? WHY NOW? WHY NOT? THINKING STRATEGICALLY ■Talent Management: The Three “Rs” - Recruitment - Retention - Retirement • ■ Equity among Employee Groups • - ORP Tiers • - Value-added employee benefit

  34. UNIVERSITY OF ALASKA WHY EMERITI? WHY NOW? WHY NOT? THINKING STRATEGICALLY • ■Systematic Build-up of DC Assets for Health Care • - Good time start now for Tier 2 and 3 ORP • - No unfunded liability issues • - Minimal employer funding (can be budget neutral) ■ Value of Group Sponsored Consortium Based Insurance • - Guaranteed issue, fully portable • - Flexible menu of options, annual choice • ■ Single Source Solution • - Comprehensive approach (savings and insurance) • - Integrated service delivery; enrollment, communications, • education provided by Emeriti • - Minimal administrative responsibilities

  35. EMERITI CONTACT INFORMATION EMAIL info@emeritihealth.org PHONE (866) 685-6565 (toll-free) FAX (866) 686-6565 (toll-free) URL www.emeritihealth.org POST EMERITI Retirement Health Solutions 103 Executive Drive – Suite 503 New Windsor, NY 12553 20

  36. A benefit program of, by, and for colleges, universities, and higher education-related tax-exempt organizations. Emeriti Retirement Health Solutions provided this information and is responsible for its content. The Emeriti Program, Aetna Life Insurance Company, Fidelity Investments, HealthPartners (in Minnesota), and Acclaris Inc., are independent corporations and are not legally affiliated. The full name of Emeriti Retirement Health Solutions is The Emeriti Consortium for Retirement Health Solution, an Illinois Nonprofit Corporation. Emeriti Retirement Health Solutions is not an insurance company, insurance broker or insurance provider. Summary Plan Description (SPD) This presentation is intended to provide you with a brief summary of some of the details of your Employer’s Emeriti Plan and the Emeriti Program. For a full summary of the terms of your Employer’s Emeriti Plan you must consult the SPD, which will be provided to you upon enrollment or upon request.

  37. Investment Adviser Status Emeriti Retirement Health Solutions is a registered investment adviser for purposes of selecting the range of investment options for the Emeriti Program, selecting the investment manager for employer and voluntary employee contributions, and providing these and other impersonal educational materials to plan participants. Emeriti does not provide advice to participants about their individual investment selections. The participation interests in the voluntary employee contribution VEBA trusts associated with the Emeriti plans (the “Interests”) may be treated as securities under various state securities laws. The offering of these Interests is subject to compliance with any applicable state law. For residents of Georgia, the Interests are being offered in reliance on paragraph 13 of Code Section 10-5-9 of the Georgia Securities Act of 1973, as amended (the “Georgia Act”). The Interests may not be sold or transferred except in a transaction which is exempt under the Georgia Act or pursuant to an effective registration under the Georgia Act. Investment Decisions It is your responsibility to select and monitor your investments to make sure they continue to reflect your financial situation, risk tolerance and time horizon. Most investment professionals suggest that you reexamine your investment strategy at least annually or when your situation changes. In addition, you may want to consult an investment adviser regarding your specific situation. Unless otherwise noted, transaction requests confirmed after the close of the market, normally 4 p.m. Eastern time, or on weekends or holidays, will receive the next available closing prices. Recordkeeping and shareholder services for the Emeriti Program are provided by Fidelity Investments Tax-Exempt Services Company, a division of Fidelity Investments Institutional Services Company, Inc. Strategic Advisers, Inc., a subsidiary of FMR Corp., manages the Fidelity Freedom Funds Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges and expenses. For this and other information, call or write Fidelity for a free prospectus. Read it carefully before you invest. An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in these funds.

  38. ADDENDUM

  39. RETIREMENT BENEFIT DIFFERENCES

  40. University of Alaska Target Funding: ½% of payroll - Combo III | Contribution Starting Age: 25

  41. EMERITI MEDICAL COVERAGE SELECT ONE: Medicare Supplement Plan 1 $200 deductible 20% coinsurance Preventive Care: $300 (annual physical) $100 (vision & hearing) $1,250 out-of-pocket limit Age-rated Premiums*: 65-69 = $ 91.01 70-74 = $123.55 75+ = $161.86 Medicare Supplement Plan 2 $750 deductible 20%coinsurance Preventive Care: $300 (annual physical) $100 (vision and hearing) $2,000 out-of-pocket limit Age-rated Premiums*: 65-69 = $ 77.57 70-74 = $105.41 75+ = $137.95 PFFS Plan 1 $300 deductible 15% coinsurance 100% preventive care $2,750 out-of-pocket limit Community-rated premiums*: $98.70 PFFS Plan 2 $500 deductible 20% coinsurance 100% preventive care $3,500 out-of-pocket limit Community-rated premiums*: $64.90 *Anchorage, AK 99508 19

  42. EMERITI Rx COVERAGE SELECT ONE: Rx Plan 1- High Open Formulary$100 deductible Retail:15%/30%/40%Mail Order Drugs:10%/25%35% Full coverage in donut hole 100% catastrophic coverage Community-rated premium:$158.90* Rx Plan 2 – Middle Open formulary $275 deductible Retail: 15%/30%/50% Mail Order Drugs: 10%/25%/45% Coverage in donut hole 95% catastrophic coverage Community-rated premium:$125.80* Rx Plan 3 - Standard Closed formulary $275 deductible Retail: 15%/30% Mail Order Drugs: 10%/25% No coverage in donut hole 95% catastrophic coverage Community-rated premium:$32.90* Alternate Selection Or elect Emeriti’s Rx Plan 3 as a stand-alone option with no medical coverage *Anchorage, AK 99508 20

  43. EMERITI DENTAL COVERAGE SELECT OPTIONALLY: * Six month waiting period applies, or evidence of continuing coverage. **Anchorage, AK 99508

  44. EMERITI MEDICAL COVERAGE SELECT ONE: Medicare Supplement Plan 1 $200 deductible 20% coinsurance Preventive Care: $300 (annual physical) $100 (vision & hearing) $1,250 out-of-pocket limit Age-rated Premiums*: 65-69 = $108.07 70-74 = $146.72 75+ = $192.20 Medicare Supplement Plan 2 $750 deductible 20%coinsurance Preventive Care: $300 (annual physical) $100 (vision and hearing) $2,000 out-of-pocket limit Age-rated Premiums*: 65-69 = $ 92.11 70-74 = $125.17 75+ = $163.82 PFFS Plan 1 $300 deductible 15% coinsurance 100% preventive care $2,750 out-of-pocket limit Community-rated premiums*: $98.70 PFFS Plan 2 $500 deductible 20% coinsurance 100% preventive care $3,500 out-of-pocket limit Community-rated premiums*: $64.90 *Fairbanks, AK 99775 19

  45. EMERITI Rx COVERAGE SELECT ONE: Rx Plan 1- High Open Formulary$100 deductible Retail:15%/30%/40%Mail Order Drugs:10%/25%35% Full coverage in donut hole 100% catastrophic coverage Community-rated premium:$158.90* Rx Plan 2 – Middle Open formulary $275 deductible Retail: 15%/30%/50% Mail Order Drugs: 10%/25%/45% Coverage in donut hole 95% catastrophic coverage Community-rated premium:$125.80* Rx Plan 3 - Standard Closed formulary $275 deductible Retail: 15%/30% Mail Order Drugs: 10%/25% No coverage in donut hole 95% catastrophic coverage Community-rated premium:$32.90* Alternate Selection Or elect Emeriti’s Rx Plan 3 as a stand-alone option with no medical coverage * Fairbanks, AK 99775 20

  46. EMERITI DENTAL COVERAGE SELECT OPTIONALLY: * Six month waiting period applies, or evidence of continuing coverage. ** Fairbanks, AK 99775

  47. EMERITI MEDICAL COVERAGE SELECT ONE: Medicare Supplement Plan 1 $200 deductible 20% coinsurance Preventive Care: $300 (annual physical) $100 (vision & hearing) $1,250 out-of-pocket limit Age-rated Premiums*: 65-69 = $112.81 70-74 = $153.15 75+ = $200.63 Medicare Supplement Plan 2 $750 deductible 20%coinsurance Preventive Care: $300 (annual physical) $100 (vision and hearing) $2,000 out-of-pocket limit Age-rated Premiums*: 65-69 = $ 96.15 70-74 = $130.66 75+ = $171.00 PFFS Plan 1 $300 deductible 15% coinsurance 100% preventive care $2,750 out-of-pocket limit Community-rated premiums*: $128.80 PFFS Plan 2 $500 deductible 20% coinsurance 100% preventive care $3,500 out-of-pocket limit Community-rated premiums*: $95.00 *Juneau, AK 99801 19

  48. EMERITI Rx COVERAGE SELECT ONE: Rx Plan 1- High Open Formulary$100 deductible Retail:15%/30%/40%Mail Order Drugs:10%/25%35% Full coverage in donut hole 100% catastrophic coverage Community-rated premium:$158.90* Rx Plan 2 – Middle Open formulary $275 deductible Retail: 15%/30%/50% Mail Order Drugs: 10%/25%/45% Coverage in donut hole 95% catastrophic coverage Community-rated premium:$125.80* Rx Plan 3 - Standard Closed formulary $275 deductible Retail: 15%/30% Mail Order Drugs: 10%/25% No coverage in donut hole 95% catastrophic coverage Community-rated premium:$32.90* Alternate Selection Or elect Emeriti’s Rx Plan 3 as a stand-alone option with no medical coverage * Juneau, AK 99801 20

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