NFL Retirement Plans “What’s all the fuss about?”

1. NFL Retirement Plans“What’s all the fuss about?” Charles Clark and Regine Rucker Thursday, November 29, 2007 Finance 434 - Employee Benefits Dr. David Sinow

2. Introduction • Retirement pensions • Tradition of the American workforce • Late start for Sports • NFL • Nearly $7 billion in revenue annually • $193K: Minimum Salary for Rookies • $1.1 Million: Avg. NFL Salary • Pensions Plans • Avg. career 3.5 yrs. • Recent Debate

3. Objectives • History of NFL Retirement Plans • Current state of NFL Retirement Plans • Comparison to other major professional sport leagues • Suggestions to improve benefits of “old-timers”

4. History of NFL Retirement Plans • NFLPA • Union providing retirement, medical, and disability benefits to players through a collective bargaining agreement (CBA) along w/ NFL • 3 of 6 appointed voting trustees on the Retirement Board • Organized in 1956 • “Bert Bell NFL Retirement Plan” of 1962

5. History of NFL Retirement Plans • 1970 – 1st Revision • Basis for current plan • Formula to calculate monthly pension developed • Normal Retirement Age (NRA) = 55 • Single Life Annuity • Vesting Schedule – 5 “Credited Seasons” • # of “Credited Seasons” X “Benefit Credit” • “Credited Seasons” earned if paid for 3 or more games in a football season • “Benefit Credit” = $60 for retirement 1959-66 • Reductions – Joint/Survivor, Early Pension Benefits, and Social Security Adjustments

6. History of NFL Retirement Plans • 1977 Revision • Vesting Schedule - Reduced to 4 yrs. • Added lump sum “Early Payment Benefit” (EPB) • 1987 Revision • Expiration of 1982 CBA • $150 Benefit Credit for 1987 and 1988 • 1989: “Pete Rozelle NFL Player Retirement Plan”

7. History of NFL Retirement Plans • 1993 CBA • “Benefit Credit” increase from $60 to $80 for 1959-66 retirees and $150 to $210 • “Pre-59er’s” included, receiving same rate as 1959-99 retirees • Vesting Schedule – Reduced to 3 yrs. • Co-counsel, co-actuary system replaced

8. History of NFL Retirement Plans • 1993 CBA • Future contributions based on actuarial factors • Increases in plan funding • Early Retirement Options eliminated for those retired after 1993 • 401 (k) Plan established w/ 2 for 1 match • All benefits tied to salary cap

9. History of NFL Retirement Plans • The “GREAT DEBATE” • Benefits of all (current and retired) paid by active players • Former Players vs. Current Players • Benefit upgrades not received by “old-timers” • Union leaders have no obligation to represent former players, nor does management to re-negotiate benefits for “PAST” employees

10. Current Retirement Plan • CBA allocated 60% of league revenue to player benefits and salaries. • Because of this allocation, each NFL player (approximately 1800) paid $82,000 in benefits to former players • Although NFL revenues are estimated to be nearly $7 billion, only 2% went to retired players. • $96.5 million went to player retirements • $31 million went to health benefits • $20 million went to disability benefits

11. Current Retirement Plan • A player retiring today receives under the collective bargaining agreement • Pension funding • Group insurance • Injury protection • Workers’ compensation • Pre-season per diem • Expenses for travel, board and lodging for off-season workout programs • Payments or reimbursements for participating in Rookie Orientation Program • Moving and Travel Expenses • Postseason Pay

12. Current Retirement Plan • A player retiring today receives under the collective bargaining agreement • Player medical costs • Severance pay • Minimum Salary Benefit • The Performance Based Pool • The Tuition Assistance Plan • The NFL Players Health Reimbursement Plan • The “88 Benefit” Plan • The “Second Career Savings” Plan • The “Player Annuity Plan”

13. Professional Sports Pension Plans

14. Bert Bell/Pete Rozelle NFL Player Retirement Plan • In April 2006, was estimated to be 93% funded • $1.034 billion actuarial liability • Assumed investment rate of return is 7.25% • Players receive retirement credits based upon years of service in the NFL, not total salary

15. Bert Bell/Pete Rozelle NFL Player Retirement Plan - Accrual

16. Example - Former vs. Current But most players retire w/injuries…incurring major recurring medical expenses!!!

17. Second Career Savings Plan • Established in 1993 • Was the first 401(k) plan in professional sports • Beginning in the 2007 Plan Year, eligible players are automatically enrolled • After a player’s second year, pre-tax contributions up to $20,000 receive a two-to-one match • Remember, the IRS limit for contributions for 2007 was only $15,500

18. NFL Player Annuity Program • Established in 1998 • This DC plan allows former players to receive annuity payments as early as age 35 • After 4 credited seasons, $65,000 is placed in an annuity account for each subsequent season • The NFL Player Annuity Program has approximately $340 million in assets

19. Health and Disability Benefits • Free medical coverage for vested retired players and their families for five years after retirement • Players can contribute $25,000 per year (for a total of $300,000) to fund medical coverage after their free coverage ends • 88 Plan provides reimbursement for certain costs related to dementia up to $88,000 • Disability benefits can be between $18,000 to $224,000 per year

20. Ways to Improve the Plan • Many of the problems of the NFL pension plan are similar to those of Social Security • “Pay as you go” DB plans • Increasing health care costs • Benefits for many retirees outweighs the amount they put into the system • Similar to fixing Social Security, there are two ways to fix NFL pensions • Increase pension funding • Decrease the benefits of current players

21. Acknowledgements • Jeff Nixon • Buffalo Bills Retiree • 1979-84 • NFL/ NFLPA/ MLB • Dr. Sinow