Pension Risk Management Insurance Sector. Tim Geddes, FSA, EA, MAAA Director, Deloitte Consulting LLP

Transcription

1 Pension Risk Management Insurance Sector Tim Geddes, FSA, EA, MAAA Director, Deloitte Consulting LLP

2 Agenda Introduction Pension Risk Overview Balancing Value and Risk De-risking Framework and Strategies De-risking Impact on Expense Roadmap to Plan Termination Latest Developments 2 Copyright 2014 Deloitte Development LLC. All rights reserved.

3 Introduction Timothy J. Geddes, FSA, EA, MAAA Tim is a Director with Deloitte Consulting's Human Capital practice in Detroit, having been with Deloitte for more than seventeen years. During that time, he has served as the lead actuary to a number of Deloitte's actuarial clients and reviewed employee benefit disclosure information for a number of audit clients. Tim has provided employee benefits expertise to employers converting from US GAAP to IFRS and has assisted with a number of employee benefit-related ERISA litigation support engagements. Tim is a member of the American Academy of Actuaries' pension committee and the Society of Actuaries Retirement Plans Experience Committee.. 3 Copyright 2014 Deloitte Development LLC. All rights reserved.

4 Pension Risk Overview

5 Pension Risk Overview Many companies, across all sectors, face risks inherent in their retirement programs. Some risks impact companies differently or are uniquely specific to the insurance sector some of those specific considerations may differ between P&C / Health / Life companies. Strategic Risk Alignment with talent objectives Mix of defined contribution/defined benefit Integration of funding & investment policies Employee appreciation (ROI) Focusing on critical workforce segments Financial Risk Volatility of results Assumptions and methods Adopting the right risk mitigation strategies Impact on free cash flow, earnings per share Cost effectiveness Volatility and Asymmetry in Statutory Results Operational Risk Governance Effective decision making Insourcing vs. outsourcing Oversight of third party providers Using external experts appropriately Legislative/Oversight Risk Accounting standard compliance Fulfilling fiduciary responsibilities Financial reporting compliance Local compliance (e.g. ERISA) Continuously changing pension legislation Evolving financial reporting standards 5 Copyright 2014 Deloitte Development LLC. All rights reserved.

6 A Rough Road for Retirement Plans Legal and financial shocks over the past decades have dramatically increased retirement cost and volatility, which in turn has driven reactive strategy and stop gap measures. Legal and Financial Shocks ERISA enacted Oil shock and high inflation Equity market boom TRA86 and OBRA87 FAS 87 and 88 adopted 401(k) introduced Equity boom continues after early 90 s slump RPA 94 FAS 106 adopted Double digit medical trend Bookend market crashes Sarbanes-Oxley FAS 158 moves to market valuation PPA 2006 Bond yields decline and more volatile Financial market volatility Piecemeal U.S. funding reform adds volatility Heightened fiduciary scrutiny Changes to Statutory Accounting 1970s 1980s 1990s 2000s Strategic and Operational Reaction Paternalism reigns Plan simplicity Investment conservatism Asset diversification Rise of the 401(k) M&A raiding of pension surplus Plan terminations Heavy equity focus Move to hybrid DB plans (CB, PEP) Retiree medical redesign/closure Contribution holidays 401(k) explosion Admin outsourcing increases DB plans closed and frozen Asset volatility drives ALM and LDI Retiree medical sponsorship declines steeply 401(k) accounts battered Continued DB and retiree medical closure/freeze 401(k) match cessation Need for delayed or phased retirement Hedging equity and mortality risk 401(k) fee disclosures Cost, risk, complexity increased while employee value has declined 6 Copyright 2014 Deloitte Development LLC. All rights reserved.

7 Balancing Value and Risk

8 Retirement Strategy Balance of Value, Cost, and Risk The appropriate path forward will vary by employer, but must be driven by analyzing the return on investment (ROI) generated by retirement plan expenditures. This is not an easy task, but a thoughtful review of the value, cost, and risk of the plans will help companies determine the optimal way retirement plans fit into a company s talent strategy. Retirement ROI = Value Risk Adjusted Total Cost Value Cost + Risk Can be measured in many ways, but must ultimately be linked back to the broader rewards and business strategy. Typical measures of value include: Productivity Employee recruitment, retention and engagement Employee benefit survey results Opportunity Cost Does the company get appropriate value for the cost and risk? Relative Value Would rewards dollars be better spent elsewhere? Must reflect the total cost of sponsorship, adjusted for risk. Total cost includes the cost of benefits plus all hard and soft costs associated with the plans. Risk increases total cost directly through higher management costs, but also has significant indirect costs that must be considered. 8 Copyright 2014 Deloitte Development LLC. All rights reserved.

9 Measuring Cost and Risk The cost of the actual benefits are just one portion of the total cost of sponsorship for retirement plans. There are numerous hard and soft costs that must be understood, and the total cost must reflect the broad and significant areas of risks posed by retirement plans. Total Cost of Sponsorship Hard Costs Soft Costs Risk Cost of Benefits Normal cost Unpaid Past Costs Amortization of unfunded amount Vendor Fees Actuary Attorney Investment management Trustee Administrator Plan Auditor Other Costs Internal headcount (HR, IT, Finance, Treasury, etc.) PBGC premiums Internal systems Cost of Complexity Executive/management time Loss of strategic alignment Reactive redesign Financial statement surprises Quarterly close timing Loss of Productivity Internal meetings Unappreciated rewards Employee uncertainty Strategic Risk Lack of strategic alignment Workforce planning Financial Risk Cash and expense volatility Asset and liability mismatch Financial reporting Operational Risk Governance Reputational risk Internal controls Regulatory Risk Ongoing regulatory changes Fiduciary risk 9 Copyright 2014 Deloitte Development LLC. All rights reserved.

10 De-risking Framework and Strategies

11 De-Risking Framework Given the current environment, many plan sponsors are evaluating additional measures to manage and lower the liabilities carried for and financial risks inherent in pension and post retirement health and welfare (H&W) plans. These strategies are primarily focused in three areas: Plan Design Funding and Investment Policy Liability Management Pension Reduce or eliminate future benefit accruals Shift from defined benefit focus to defined contribution focus Close plan to new entrants Offer hybrid plan design Change plan provisions to encourage retention and reduce volatility Implement liability driven investment (LDI) strategy Reduce interest rate risk (asset liability mismatch), through long bond funds or synthetics Immunization or duration matching strategies Continue reducing equity price risk by reducing exposure to equities Risk transfer partial liability settlement through purchase of annuities from insurance company (small annuity buyouts) Risk settlement settle terminated vested liability by amending plan to allow lump-sums Risk Control -- Offer lump sums to actives upon termination Risk settlement settle retiree liability by amending plan to allow lump-sums Post Retirement H&W Eliminate certain types of coverage under the plan e.g. dependent or post-65 drugs Shift cost to retirees by increasing retiree contributions, capping employer subsidy or plan design changes Examine alternative options that shift costs to CMS or the pharmaceutical companies Change to an account balance approach to provide the benefits Pre-fund obligations to decrease expense and reduce risk Use of captives or other vehicles to pre-fund entire liability Risk settlement retiree healthcare buyouts Move from group plans to Individual policies which are generally less expensive and savings are shared with retirees. Administer through use of Medicare coordinator There is no silver bullet in any of the proposed approaches. They are all based on the same financial principles and ultimately must reflect the risk/return goals of the plan sponsor. 11 Copyright 2014 Deloitte Development LLC. All rights reserved.

12 Financial Balance Sheet Risk Spectrum Lower Equity, Lengthen Bond Duration Traditional Asset Allocation/More Equity Exposure LDI Terminate Plans Annuity Buy In Risk (and reward) is in terms of net balance sheet position, not pure asset return. High risk in this context means there is a higher probably that the funded status of the plan will change differently than expected. This can move both to the black or to the red. Removing risk has its costs less likely to make up funding and accounting shortfalls through the markets. 12 Copyright 2014 Deloitte Development LLC. All rights reserved.

13 Executing a Successful Pension De-Risking Strategy Current State Assessment Understand current financial costs Identify risk tolerance and current risk profile Evaluate risk factors and impact on business Develop De-Risking Strategy Explore plan design solutions Explore investment policy solutions Explore liability settlement solutions Develop De-Risking Roadmap Determine key actions Determine trigger points Draft roadmap for stakeholder approval Implement Form cross-functional execution team Implement one or more de-risking solutions Ongoing Risk Monitoring Monitor financial status Consider innovations in solutions / changing economic circumstances 13 Copyright 2014 Deloitte Development LLC. All rights reserved.

14 Investment Policy Asset and Liability Interaction Considerations Typical pension portfolios consist of both hedging assets (e.g. fixed income) and return generating assets (e.g. equities and alternatives). Many plan sponsors are performing analysis to understand how hedging assets can mitigate asset/liability risk. Assets and liabilities are interrelated, and plan sponsors are shifting their views of pension risk from investment return (asset only) volatility to surplus (funded status) volatility. This volatility drives a large part of the underlying variability in the annual cash contribution requirements and accounting results for the plan. In recent years, more sponsors have adopted a liability driven investing ( LDI ) strategy, whereby the sponsor takes into account the liability profile of the plan when making investment decisions. This typically entails better aligning the duration of the plan s assets to that of the plan s liabilities. 14 Copyright 2014 Deloitte Development LLC. All rights reserved.

15 Pension Liability Management Options The two techniques are not mutually exclusive. In a termination, a lump-sum cash out and an insured annuity purchase would both occur. Cashout (Actives*, Term Vested, Retirees) Description Provides some subset of current or former employees with the option to receive a lump-sum payment Removes liabilities and risk through lump-sum payment Actives can only get lump sum upon plan termination Advantages Favorable lump sum interest rates result in lower liability than annuity purchase Reduces long-term administrative issues/costs and overall plan risk Avoids pending mortality table changes Considerations Must be > 80% funded to execute (IRS funding basis) May require accelerated cash funding May trigger settlement accounting depending on election Summer 2015: IRS released Notice Effectively indicated intention to prohibitretiree lump sums going forward (already commenced) Likely does not apply in plan termination scenario Communication is very important to allow participants to make informed decision Annuity Buy-Out/Full Termination Annuity provider takes over payments to participants Completely removes liabilities from company financials Pension plan liability and administration shifted to annuity provider Full transfer of risk to insurer Higher cost than lump sums Settlement accounting will be triggered * Active cashout is only an option if terminating the plan in full 15 Copyright 2014 Deloitte Development LLC. All rights reserved.

16 Pension Liability Management Options Understanding the impact on plan participants and plan sponsors is an important diligence step Impact on Participants Cashout (Actives, Term Vested, Retirees) Participants now have full control of retirement assets Depending on actual investment return and how long they live, participants could be better or worse off with the lump sum vs. the annuity Participants prefer to have the option of a lump sum, as it is completely voluntary, but offers flexibility if needed Participants could face tax penalties if they are under 59 ½ and do not roll over the money to another qualified plan. Good communication needed to minimize impact Annuity Buy-Out/Full Termination Participants liability will be backed by a highly rated insurer, which they should prefer Participants will lose PBGC coverage, but gain coverage through the state insurance associations, which varies by state For participants with significant amount of liability, the coverage from the PBGC could be better than coverage from the state associations Impact on Plan Sponsor Term Vested: Appears to be good option in all plans to decrease plan administrative and PBGC costs Actives: Adding lump sum option for actives to be considered depending on plan design and termination timeline, but has minimal short term impact Retirees: PLR had been issued to a number of companies of note : Ford, General Motors, Alcatel-Lucent, et al. Notice changed situation with IRS intent to end these types of programs Could require cash out-lay Plan termination is a lengthy process, but is only option to completely eliminate pension risk 16 Copyright 2014 Deloitte Development LLC. All rights reserved.

17 Cost to Terminate versus Maintain Retiree Liabilities While many believe the cost of a pension buyout to be very high, a significant portion of the cost difference is attributable to future costs an ongoing plan will bear but that are hidden from the required liability measure. Annuity Buyout Cost* 5-8% 110% - 115% 0% 4% 113% Percentage of US GAAP Liability 100% 0% 1% 1% 2% 2% 2.4% 1% 2% Future costs that will be borne by plan sponsor if frozen plan is maintained. US GAAP Liability Admin Expenses PBGC Premiums Investment Management Credit Default/ Downgrade Mortality Economic Liability Difference Annuity Buyout Liability Assumptions: Admin Expenses: PBGC Premiums: Investment Management Fees: Credit Default/Downgrade Risk: Mortality Cost: Estimated at $40/participant per year PBGC premiums are $42 per person in 2013, $49 in 2014, $57 in 215, $67 in 2016 and indexed to inflation thereafter Estimated at 25 basis points annually Even under an LDI strategy, sponsors will have ongoing costs within the bond portfolio related to credit defaults and downgrades. Estimated at 24 basis points annually Estimated cost of moving mortality basis from PPA prescribed mortality table using Scale AA to the RP 2014 generational table using scale MP With introduction of MP-2015, the impact may be reduced somewhat. * The percentages shown are estimates, actual percentages will vary depending on plan, demographics, or current situation Source: Prudential Insurance Company 17 Copyright 2014 Deloitte Development LLC. All rights reserved.

18 De-risking Impact on Expense

19 Pension Accounting Overview Components of Net Benefits Cost (FASB: ASC 715) An entity recognizes the Net Periodic Benefit Cost as expense or income for the year. The Net Periodic Benefit Cost is the sum of components (1) through (6) below. Component Sample Description (1) Service Cost $80 Value of Benefits Earned this Year (2) Interest Cost* 100 Interest on PBO (3) Expected Return on Assets* (140) Expected Earnings on Assets (4) Amortization of Past Service Cost* 40 Recognition of Plan Improvements (5) Amortization of (Gain)/Loss* 20 Recognition of Differences in Experience (6) Curtailments/Settlements* 15 Non-recurring special charges/(credits) (7) Net Periodic Benefit Cost $115 Total Expense for Post-employment Plan * IAS 19 (Revised 2011) modifies the derivation of the Net Periodic Benefit Cost. The revision utilizes a net interest approach thereby eliminating the use of expected return. Past Service Costs are recognized in the P&L immediately. Actuarial Gains/Losses are recognized immediately in OCI. This could have a significant impact on pension expense if FASB took steps to align US GAAP with IFRS. * SSAP 102 (effective at 12/31/2013) modifies the statutory rules to be almost entirely consistent with US GAAP rules. 19 Copyright 2014 Deloitte Development LLC. All rights reserved.

20 Pension Accounting Overview Balance Sheet Presentation The following shows the presentation of the balance sheet liability under US GAAP for a sponsor of a defined benefit plan. Component Sample Description (1) Projected Benefit Obligation (PBO) ($2,000) Actuarial Present Value of Liability (2) Fair Value of Assets (FVA) 1,500 Value of Dedicated Assets (3) Unfunded Status ($500) Balance Sheet Liability (4) Unrecognized Past Service Cost* 200 Value of Plan Improvements (5) Unrecognized Actuarial (gains)/losses* 400 Experience different from assumed (6) Cumulative Excess of Contributions to Expense** $100 * The IASB has made changes to IAS 19 ( IAS 19 (Revised 2011) ) which will affect the determination of these components. These changes were generally effective for years beginning January 1, 2013 and later, although early adoption was permitted. The revision will immediately recognize past service costs (in P&L) and actuarial gains/losses (in OCI). ** SSAP 102 (effective at 12/31/2013) modifies the statutory rules to be almost entirely consistent with US GAAP rules. This creates substantially more volatility in the Net Surplus position as the unfunded (or over funded) PBO must be recorded as a reduction (or inadmissible increase) to Net Assets. However, the reconciliation of SSAP 102 to US GAAP did not address existing balances. While the components will be the same, existing prior service cost, transition, and actuarial gain / loss balances could differ. 20 Copyright 2014 Deloitte Development LLC. All rights reserved.

21 Pension Accounting Overview Due to adverse capital market experiences over the past decade, most plans have large unrecognized actuarial losses currently sitting in AOCI. Certain actions could trigger a settlement, which could require those losses to be recognized in earnings under US GAAP. Statutory rules under SSAP 102 are comparable to the US GAAP rules for settlements. Settlement Triggers A settlement is a transaction that meets the following 3 criteria Irrevocable action, cannot be revoked, recalled, or undone Relieves the employer or plan of primary responsibility for providing benefits to participants Eliminates significant risks related to the benefit obligation and assets Settlement accounting is triggered when the settlement amounts that have accumulated through the year are greater than the sum of the service cost and interest cost 2 common examples of a settlement Insurance company unconditionally takes on obligation to provide benefits to retirees Participants are paid a lump-sum distribution (either through one-time offering or aggregate payments during year) The percentage of AOCI that must be recognized is equal to the percentage of liability settled 21 Copyright 2014 Deloitte Development LLC. All rights reserved.

22 Impact of De-risking Strategies on Pension Expense Risk management strategies tend to increase near-term expense under a baseline scenario in exchange for potentially reduced expense if negative interest rate/equity scenarios come to pass. Measuring the impact that pension risk management strategies have on expense depends on many factors, including the funded status of the plan, the amount of unrecognized losses, and the current investment policy of the plan. Baseline Scenarios Declining Interest Rate Scenario LDI Strategy Volatility Expense Liability gains/losses will be offset by asset gains/losses Lower future asset returns Assets and liabilities increase as discount rates fall Expense may be lower under LDI than current asset allocation Strategy Volatility Lower asset/liability that is other subject to market volatility Smaller liability increase (loss) due to smaller plan liability TV Cash-out/ Annuity Purchase Expense Settlement Accounting Future asset returns for plans with aggressive investment portfolio Expense may be lower than under baseline if rate declines offset lost assumed return The advantage of de-risking is predictability and down-side protection 22 Copyright 2014 Deloitte Development LLC. All rights reserved.

23 Roadmap to Plan Termination

24 Pension De-Risking Sample Roadmap De-risking a plan is a staged process with trigger points that reflect your business strategy and prevailing market conditions. Sample 24 Copyright 2014 Deloitte Development LLC. All rights reserved. 24

25 Key Questions for Various De-risking Steps Trigger Points Base it on Accounting, Funding, or Termination measures? Frequency of measures What criteria to set individual triggers? Is there a target timeframe? Trigger Steps At each step, what is the best approach - liability change, asset allocation change, any remaining plan design change Impact of steps on financials Pension Risk Transfer Asset Allocation Size of transfer Form lump sums vs. annuity purchase Risk change of remaining plan (PRT of all retiree liability will significantly change the liability duration) Recently contributed stock impact of sale or repurchase Any illiquid assets (contribution of property)? What allocation will be looked at favorably to help reduce costs for large PRT (in-kind transfer)? Annuity Purchase Buy In vs. Buy Out Size of purchase Buy In vs. Buy Out Use as hedge? Use for Settlement timing control? In preparation to terminate/buy out? Cultural Considerations Administration will be a key consideration (they will be the face for your retirees) Are plan participants prepared for retirement under non-defined benefit designs? 25 Copyright 2014 Deloitte Development LLC. All rights reserved.

26 Ongoing Monitoring Approach Leading plan sponsors establish proactive processes for de-risking pension programs over time. This process includes a robust ongoing monitoring component. 26 Copyright 2014 Deloitte Development LLC. All rights reserved.

27 Preparation for Plan Termination There are numerous activities that must be undertaken in preparation for plan termination. Near term planning is followed by short-term monitoring, and final execution. Near Term Planning Short-term Monitoring Final Execution Financial Termination Business Case Evaluate ongoing costs Compare to termination costs Establish timeline and triggers De-Risk and Monitor Implement asset risk strategy Evaluate liability approaches Monitor against triggers Execute Termination Evaluate annuity providers Purchase final annuities Data Work Benefit Calculations Pay Out Final Benefits Administration Evaluate current census data Clean and finalize data Finalize benefit calculations Calculate optional forms of benefit Process final elections and transfer admin to insurer Pay lump sums Legal Prep Work Review plan documentation Confirm plan compliance Understand termination timeline Clean Up Update documents as needed Implement compliance fixes Finalize File for determination letter Prepare required PBGC and IRS filings Communication Planning Understand employee impact Establish high level plan Drafting Prepare employee communications Consider bigger picture retirement implications Implement Distribute election forms Complete other required communications 27 Copyright 2014 Deloitte Development LLC. All rights reserved. 27

28 Data Clean-up Clean data enables the ability to execute certain derisking strategies within a tight timeframe Improved governance is an additional benefit in executing a data clean-up TV cash-out strategy Annuity purchase Plan termination Maintaining accurate data is an important part of the Governance and Oversight Process Cleaning the vested term population data now could generate significant cost savings in the future Calculating benefits now in bulk, rather than paying administrator for individual calculations in future Doing a calculation on a Terminated participant in the future could be upwards of $400 per participant Many plan sponsors are currently undergoing an assessment to determine how ready their data is to act on de-risking strategies Governance and Oversight Good governance is increasingly recognized as an important aspect of an efficient private pension system Advantages of Strong Governance Minimize issues that could arise between stakeholders Create trust among stakeholders Reduces cost of overly burdensome compliance needs Facilitates supervision Lowers operational and investment risk 28 Copyright 2014 Deloitte Development LLC. All rights reserved.

29 Latest Developments

30 Pension Risk Management Latest Developments Latest Developments For Pension Plan Sponsors Financial risk management has remained a priority among CFOs, many plan sponsors have moved towards derisking investments and offering former employees lump-sum payments to eliminate longevity and market risk Rising interest rates and strong equity market returns have improved the funded status of pension plans for many sponsors, increasing the focus on asset and liability risk management tactics PBGC premiums have risen substantially, and companies with frozen plans and large terminated vested populations are moving aggressively to shrink the plans and evaluate full or partial plan terminations. This will continue with the recently reached FY16/17 Budget Compromise which increases PBGC premiums again to $80 / participant in 2018 Additional insurance companies are entering the pension risk transfer market, which should provide additional capacity and competition for plan sponsors looking to terminate their plan. There are now 11 active participants Society of Actuaries released exposure drafts of the new mortality study in January 2014 confirming mortality improvements in the U.S. have significantly outpaced typical assumptions. New mortality table and projections expected to be in place as early as YE 2014 for accounting IRS adoption likely in 2016 or 2017 for ERISA funding Observed 5.0% 8.0% increase in liabilities for traditional plans Updated improvement data released in October 2015 showing a somewhat reduced rate of improvement IRS issued intent to cease retiree lump sum offers for ongoing plans (Notice ) 30 Copyright 2014 Deloitte Development LLC. All rights reserved.

31 Post Retirement Medical Latest Developments Developments in Post Retirement Healthcare Companies continue to explore a variety of plan design changes (caps, account balance approach, etc.) and evaluate their short- and long-term strategy around retiree medical benefits Medicare exchanges have continued to increase in prevalence, with more than 1 million covered lives as many more employers come on line in 2015 Pre-Medicare private exchange market still very immature, and generally linked with the emerging active exchange marketplace Implementation struggles for public exchanges have caused many employers to take wait-and-see approach Increasingly strong growth forecast for overall private health care exchanges, with as many as 40 million covered lives projected by 2018 Congressional inaction on the Cadillac tax is leading more companies to explore exchange option for actives / pre-65 retirees 31 Copyright 2014 Deloitte Development LLC. All rights reserved.

32 Exchanges: Types and Differences With the public exchanges coming on line in 2014, there continues to be a lot of interest about the various public and private healthcare exchange solutions. One large vendor estimates that by 2016 approximately 71% of employers who offer post-medicare benefits will offer them through a Medicare Exchange Public Exchanges Private Exchanges: For Groups Private Exchanges: For Individuals Population As defined by the Affordable Care Act Under Age 65 Under Age 65 Over Age 65 Type and Ownership Public State or Federal Private Exchange Sponsor Retail or Private Exchange Sponsor Maturity Developing Developing Under Age 65 Developing Medicare Maturing Insurance Carriers Multiple Single or Multiple Single or Multiple Members Individuals 2014 Small Employers 2014 Large Employers 2017 Employers Individuals Employers Delivery State or Federal Exchange Software Solution Insurance Company Exchange Provider Insurance Company Exchange Provider Funding Participant Premiums Tax Credits/Subsidies Participant Premiums Employer Contributions Self or Fully Insured Participant Premiums Employer Contributions 32 Copyright 2014 Deloitte Development LLC. All rights reserved.

33 Medicare Exchanges Description Contract with carriers as a broker for individual fully insured Medicare Advantage, Medicare Supplement and Medicare Prescription Drug Plans Support retiree education, decision making and enrollment through salaried licensed agents Provide HRA reimbursement, customer service, and advocacy services Maintain compliance with CMS and state insurance requirements Allow for employer defined contribution Offer optional voluntary vision and dental plans Value Proposition Cap or reduce costs through available subsidies and defined contribution Can significantly reduce retiree healthcare balance sheet liability Offer wide array of retiree plan choices and premium costs Provide Medicare education and support Allow for access to coverage and services on a voluntary basis Considerations Ability to change/discontinue retiree benefits Retiree access to coverage and cost impact Other opportunities to reduce or cap retiree healthcare costs Role in plan design, management and retiree interaction Array of plans, carriers, and plan designs available Administration fees and exchange commissions Solution maturity, current offerings and future plans Impact on pre-funding VEBA strategies 33 Copyright 2014 Deloitte Development LLC. All rights reserved.

34 Future State of Retiree Healthcare Current Employer Responsibilities Future Employer Responsibilities Funding Funding Future Exchange Responsibilities Plan Design & Management Underwriting & Risk Administration Plan Design & Management Underwriting & Risk Administration Carriers/ Networks Retiree Support Carriers/ Networks Retiree Support 34 Copyright 2014 Deloitte Development LLC. All rights reserved.

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