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UC retiree health benefit changes coming in July

Retiree health is a benefit employers rarely offer, but UC has chosen to maintain it as part of its employment package.

About half of current faculty and staff will be affected by new eligibility rules for retiree health benefits that go into effect on July 1, 2013. These rules were approved by the Regents in December 2010 as part of a series of reforms to address the $14.5 billion unfunded liability in the retiree health program and to help sustain the long-term viability of the program.

The Regents also approved a new pension tier for employees hired or re-hired July 1, 2013, and later. The new pension tier does not apply to current employees unless they leave employment and return at a later date.

To help employees understand the changes to retiree health, we sat down with Gary Schlimgen, Executive Director of Retirement Programs & Services, to field some of the most commonly asked questions.

Can you remind people what changes regarding retiree health benefits are going into effect on July 1?

First, let me point out what is not changing. A retiring employee will still be eligible to enroll in UC’s retiree health plans if that employee:

  • Is a member of the UC Retirement Plan (UCRP)
  • Is enrolled in or eligible to be enrolled in UC benefits on the day he/she retires
  • Is age 50 or older with 10 years or more of UCRP service credit at retirement

What’s changing is the formula for determining how much of UC’s contribution to the health premium a retiring employee will get. Beginning July 1, the formula is changing for all new employees and for about half of our current employees.

Under the revised rules, if you retire at age:

  • 50 – 55: You can enroll in UC-sponsored health insurance for retirees, but UC will not be contributing toward the cost of coverage. Access to our retiree health plan at a group rate is still a valuable benefit, with comprehensive coverage at a reasonable cost.
  • 56 and older: You will receive a portion of UC’s contribution to retiree health based on your age and years of service at retirement. The percentage ranges from a minimum of 5 percent at age 56 with 10 years of service to 100 percent at age 65 with 20 or more years of service. There is a chart that outlines the percentage.

To which employees do the new rules apply?

The new rules will apply to all new hires and to current employees in a UCRP-eligible appointment as of June 30, 2013, who:

  • will have less than five years of UCRP service credit as of June 30, 2013
  • have five or more years of UCRP service and whose age plus years of service credit is less than 50 on June 30, 2013. Age is measured in whole years. For example, someone who is 37 years old with 10.5 years of service would be under the new rules, as their age plus service does not equal 50.

There have been a lot of comments about this “age plus service greater than 50” rule. What was the thinking behind this rule?

The process that was undertaken to re-evaluate and design a more sustainable program looked at many factors. UC’s post-employment benefits are designed to reward long service. Currently, someone can retire as early as age 50 with retiree health, which doesn’t make sense for workforce planning and retention. Many thought a better idea was to foster retention by rewarding people who stay and encouraging later retirements by putting the maximum UC contribution at age 65 with 20 years or more of service. In this manner, the UC contribution towards retiree health rewards long-serving employees and provides for closer coordination with Medicare. A retiree may still be eligible for 100 percent of the maximum UC contribution, but at a later age.

At the same time, we wanted to protect employees who are already close to retirement age. There was concern that employees close to retiring would not have enough time to adjust their planning for higher medical premium costs, so the president recommended, and the Regents approved, grandfathering them under the current rules.

I can understand the disappointment for those employees who do not meet the age plus service credit criteria. They will still be eligible for retiree health with the current minimum of 10 years of service and at least age 50, but the amount of the UC contribution will be different. The retiree health eligibility rules have changed before, with the last time being in 1990, when graduated eligibility was established.

UC is also slowly reducing its contribution to retiree health premiums to a floor of 70 percent. Can you explain the 70 percent contribution floor? Many people think that if they get 100 percent of the UC contribution to retiree health that UC pays 100 percent of the premium.

The key is the UC contribution, which is currently 80 percent, on average, of the total cost of retiree health premiums. This will go down to 70 percent in the future. Those retirees who receive 100 percent of the UC contribution get the full amount UC sets, which even today may or may not cover the full premium, depending on the plan a retiree chooses. Those who don’t get the full contribution get the percentage associated with their years of service credit at retirement.

UC has been reducing the contribution since 2010; so current retirees have already felt the impact of changes to the retiree health program.

Do these changes also apply to employees who are represented by unions when they retire?

As with any change in terms and conditions of employment, which include benefits, these changes are subject to the collective bargaining process for represented employees. We are committed to having all future retirees pay the same rates for the same benefits. The collective bargaining process is ongoing.

Some employees have questioned whether UC can change these benefits for current employees. Aren’t they guaranteed?

Retiree health benefits have never been guaranteed and are not “vested” in the same way that pension benefits are. Any pension benefits you’ve already accrued are yours and can’t be changed. But retiree health benefits are separate and can be changed or eliminated at any time. UC has no plans to eliminate these benefits; they are important for recruiting and retaining our faculty and staff.

It’s been more than two years since the Regents approved the changes to post-employment benefits. Can you briefly recap how these changes came about and who was involved in making them?

UC is facing a $24 billion unfunded liability for its pension and retiree health benefits, along with increasing annual costs. UC needed to find ways to control the costs and manage the unfunded liability to be able to sustain these benefits for the long term. Our benefits are an important component in recruiting and retaining excellent faculty and staff, but changes were needed to ensure we can continue to provide these post-employment benefits well into the future.

Back in 2009, UC President Mark G. Yudof appointed a Post-Employment Benefits Task Force to develop recommendations for sustainable post-employment benefits. The task force, which included senior leaders, faculty, staff and retirees from around the system, conducted extensive consultation that included surveys, town halls at campuses and web chats. President Yudof continued the consultation process before finalizing recommendations that had the support of the Academic Senate, the staff advisors to the Regents and the Council of UC Staff Assemblies. He then brought those recommendations to the Board of Regents, which approved the measures in December 2010.

These are pretty significant changes. How do these changes compare with what other employers are doing?

Actually, few employers offer health benefits to retirees. A 2012 Kaiser Family Foundation study showed that 25 percent of employers with 200 or more employees nationwide still provide them. Many organizations that do offer them are evaluating changes as well.

At UC, we know retiree health benefits are very important and we have no plans to eliminate these benefits. But we need to modify them in order to ensure they remain financially sustainable. Also, as national health care reform becomes more fully implemented, it’s likely there will be additional changes in the future.


Editor’s note: We have received several comments asking about the retiree health benefits eligibility rules for UCRP members with five or more years of UCRP service credit whose age plus service will be 50 or greater as of June 30, 2013. For this group, the eligibility rules are not changing (see chart below), as the members would have five years of service, and their age plus service is at least 50. The chart below also applies to Safety members.

Years of Member’s UC Service Credit* Percentage of UC Contribution
5–9 If age plus years of service credit equal at least 75, then 50%; otherwise not eligible
10 50%
11–20+ Increases from 50% in 5% increments to 100% at 20 years

* Only whole years of service credit are considered.

By Anne Wolf, Systemwide Coordinator, Internal Communications

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