OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM 277 EAST TOWN STREET, COLUMBUS, OH PERS (7377)

Transcription

1 OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM 277 EAST TOWN STREET, COLUMBUS, OH PERS (7377) MEMORANDUM DATE: June 9, 2006 TO: FROM: OPERS Retirement Board Members Julie Reneau, Director of Benefits RE: V. Discussion Item A. Disability Benefits Purpose The attached presentation is for discussion and no action will be necessary at this time. The purpose of the presentation is to continue review of the Disability benefit program design and administration. Last month, the Board reviewed Disability features and data related to program administration. This month, we will review past Board discussions regarding potential changes and take a look at other national public pension systems designs. The number of disability benefit recipients is growing steadily and thus, the cost to the pension and health care trust funds also continues to increase. The last time the OPERS Board reviewed the Disability program was in late After several indepth discussions regarding potential changes, the Board determined not to pursue any changes to the program. Since program provisions are provided in statute and further clarified in rule, any major changes would need to be pursued through the legislative process. This month, we will cover past Board discussions, other public pension designs, and discuss if the Board would like staff to prepare alternatives for discussion at the Strategic Planning session on July 17, Attachments: Disability Benefits Program Discussion presentation Attachment A: Disability Benefit Summary of Selected Statewide Systems and Social Security Attachment B: Disability Benefit Case Studies- Summary of Selected Statewide Systems Attachment C: Earnings Offsets Samples and Comparison of Applied Offsets

2 Disability Benefits Program Discussion June 21,2006 Julie Reneau, Director Beverlon Hodge, Assistant Director Kerry Karner, Disability Supervisor Benefits Division 1

3 Agenda Follow-up from May Board Tax status Health Care Costs Current environment and national trends Changes discussed by the Ohio PERS Board in 2004 Board direction 2

4 2005 Per Member Per Month Health Care Costs for Under Age 65 Under 65 PMPM Service Retirement Disability Retirement Circulatory $ $ Musculoskeletal $ $ Digestive $ $ Endocrine $ $ Respiratory $ $ Kidney and Urinary Tract $ $ Nervous System $ $ Cancer $ $ Mental Disorders $ $ $ $

5 2005 Total Health Care Costs for Top Nine Conditions under age 65 Under 65 Total Benefits Service Retirement Disability Retirement Circulatory $ 46,749,162 $ 46,825,961 Musculoskeletal $ 38,347,014 $ 34,589,859 Digestive $ 28,111,607 $ 23,681,417 Endocrine $ 25,941,461 $ 18,763,467 Kidney and Urinary Tract $ 15,426,471 $ 29,265,900 Respiratory $ 15,657,387 $ 25,086,739 Nervous System $ 14,082,536 $ 25,039,039 Mental Disorders $ 8,514,963 $ 15,928,691 Cancer $ 8,841,195 $ 6,112,472 $ 201,671,796 $ 225,293,545 4

6 2005 Per Member Per Month Health Care Costs for Over Age 65 Over 65 PMPM Service Retirement Disability Retirement Circulatory $ $ Endocrine $ $ Musculoskeletal $ $ Digestive $ $ Respiratory $ $ Nervous System $ $ Kidney and Urinary Tract $ $ Mental Disorders $ $ Cancer $ 6.80 $ 7.65 $ $

7 2005 Total Health Care Costs for Top Nine Conditions over 65 Over 65 Total Benefits Service Retirement Disability Retirement Circulatory $ 70,093,712 $ 5,551,195 Endocrine $ 59,462,601 $ 4,085,228 Musculoskeletal $ 40,517,099 $ 2,636,925 Digestive $ 32,091,357 $ 2,301,092 Respiratory $ 27,026,643 $ 2,665,002 Nervous System $ 19,605,437 $ 1,581,073 Kidney and Urinary Tract $ 15,954,756 $ 1,873,792 Mental Disorders $ 15,835,082 $ 1,612,781 Cancer $ 8,339,585 $ 483,649 $ 288,926,272 $ 22,790,737 6

8 Current OPERS Public Issues House Bill 272 OPEB disclosure Health care initiatives Service credit purchase changes 7

9 Dis ability Be ne fit Co mparis o n Be twe e n Public Pe ns io n S ys te ms Avg. salary/fas of Social Disability benefits Disability recipients Avg. period disability recipients Avg. service Security as a % of pension as a % of total receiving benefits Plan at time of credit at time of Coverage benefits benefit recipients disablement disablement Alaska Teachers No 0.93% 0.72% Arizona SRS Yes 4.42% 6.12% 28, Minnesota PERA Yes 2.72% 3.38% 30, Minnesota Teachers Yes 1.12% 1.78% 46, Missouri Non-Teachers Yes 2.05% 2.78% 18, Missouri Teachers No 1.22% 1.81% 40, Missouri State Employees Yes 0.02% 0.08% 24, Nevada Regular Employees No 5.57% 5.17% Ohio PERS No 13.20% 13.44% 29, Ohio School Employees No 11.26% 8.55% 25, Pennsylvania State ERS Yes 4.45% 6.94% 35, Pennsylvania School ERS Yes 2.81% 3.30% 31, Virginia Retirement System Yes 11.44% 11.78% 31, Average 5.02% 5.43% $31, Median 3.62% 4.28% $30, Source: NASRA (February 2006 Study)

10 2004 GRS Public Pension System Survey 20 comparable systems Definition of disability Eligibility Benefit Amounts Limitations on earnings 9

11 GRS Disability Survey Results Disability Definition 65% applied own occupation standard Current definition of disability mentally or physically incapacitated for the performance of duty used by the majority of systems Eligibility 68% require 5 years of service 14% require 10 years of service Service requirements waived if disability is job related 10

12 GRS Disability Survey Results Benefit Amounts Half use service as of disability date Half use projected service to normal retirement age Half apply minimum benefits expressed as as a percent of salary or monthly dollar amount 11

13 GRS Disability Survey Results Earnings Limitations Majority allow earnings while on disability Almost all apply limitation to continued receipt of disability benefit 4 terminate benefits based on gainful employment standard 9 reduce benefits if benefit plus earnings exceed recipient s final average salary 2 apply a fixed dollar limit on income earnings 12

14 Perceived Issues Some disability recipients are able to work in some capacity and earn a life-sustainable salary. Little incentive to return to own occupation. Termination is only possible due to medical review and determination. Health care costs continue to rise 30% of all health care costs are for 15% of total retirees who receive disability benefits. 13

15 Changes Considered by Ohio PERS Board in 2004 On-duty versus off-duty disabilities Workers Compensation offset any occupation versus own occupation standard Earnings offsets 14

16 On-duty versus Off-duty Disabilities Options considered: Expand application of on-duty illness or injury to allow all members disability coverage if member has less than five years of service credit (same as LE officer) Provide for different levels of benefits for onduty versus off-duty disability Provide disability benefits for on-duty disability only 15

17 On-duty vs. Off-duty Pros equal treatment for all those with on-duty illnesses Potential higher tax exclusion to expanded number of recipients Cons Per GRS cost is approximately.11% of payroll for both state and local Increases amortization period by 2 years Potential increase in health care costs due to more being eligible 16

18 Workers Compensation Offset Option considered: Offset disability benefits provided by OPERS for on-duty disability with available Workers Compensation benefits 17

19 Workers Compensation Offset Pros Savings to Ohio PERS Potential higher tax exclusion to expanded number of recipients Cons Past discussions have been unsuccessful Increases complexity in benefit administration 18

20 Performance of Duties Standards Options considered: Apply any occupation rather than current own occupation standard (similar to the standard used by Social Security) Utilize own occupation standard for first five years of service credit and any occupation standard thereafter 19

21 Performance of Duties Standard (any occupation) Pros In line with guidelines used by Social Security Reduces costs Cons Limits numbers of members eligible for benefits Requires clear communication to members and employers 20

22 Performance of Duties Standard ( own occupation first 5 years and any occupation thereafter) Pros Follows leave of absence provisions Limits number of members receiving benefits for extended period Provides incentive for people able to hold positions in other areas of employment Reduces costs Cons Adds complexity to benefit administration Limits number of members receiving benefits for extended period Requires clear communication to members and employers 21

23 Actuarial Analysis on Own Occupation to Any Occupation Completed in 2004 Based on actuarial methods and assumptions on 12/31/02 valuation Persons who would be able to perform any occupation assumed to be 50% Apply the combination of own occupation/any occupation to only future disability cases after law change 22

24 Actuarial Analysis Change in Computed Normal cost Accrued liability $ millions 30-year amortization Total stand alone cost (savings) Any Occupation after 5 years (0.46)% $(339) (0.17)% (0.63)% Any Occupation after 2 years (0.66)% $(529) (0.27)% (0.93)% UAAL amortization period with no rate change Change from present amortization period 22 yrs. 20 yrs. (7) yrs. (9) yrs. 23

25 Disability Earnings Offsets Options considered: Limit disability benefit plus additional earnings to member s final average salary or compensation at time of retirement Reduce the disability benefit if additional earnings exceed final average salary Limit additional earnings to a fixed dollar amount Discontinue disability benefits upon gainful employment 24

26 Limit Benefit Plus Earnings to FAS or Compensation at Retirement Pros Recipient would not receive more than FAS or salary at retirement Easy to offset Offset would mean potential savings to system Cons Offset always a year behind the earnings Limit does not currently exist Administrative costs and complexity would increase 25

27 Reduce Benefit by any Additional Earnings Amount Pros Recipient would not receive more than the disability benefit Easily understood offset Offset would mean potential savings to system Cons Offset always a year behind the earnings Limit does not currently exist Disincentive to work 26

28 Pros Limit Additional Earnings to a Fixed Dollar Amount Recipient would not receive more than the disability benefit plus be eligible to earn up to a certain dollar amount Easily understood offset Offset would mean potential savings to system Cons Offset always a year behind the earnings Overpayments collected on a prospective basis Limit may change annually More communication with member More costly administration Limit does not currently exist Disincentive to work 27

29 Discontinue Benefits Upon Gainful Employment Pros Recipients could sustain livelihood based on earned income Equal treatment for all disability recipients returning to public or private sector Cons Offset always a year behind the earnings Overpayments collected on a prospective basis Defining gainful employment is difficult and it varies widely in the industry Limits incentive to work Limit may change annually 28

30 Sample Offset Based on a Fixed Earnings Limit of $10,0000 Base Amount (Earnings Limited combined with FAS or Dis. Benefit) Earnings Limit Total Disability Benefit and Additional Earnings Member Can Receive Final Average Salary $40,000 + $10,000 = $50,000 Annual Disability Benefit $24,000 + $10,000 = $34,000 Assumptions Member s FAS: $40,000 Annual Disability Benefit: $24,000 Earnings Limit: $10,000 Additional Employment Earnings: $42,000 29

31 Sample Offset Based on a Fixed Earnings Limit of $10,000 (cont.) Total Annual Income Total Disability Benefit and Additional Earnings Member can Receive Excess Earnings Annual Disability Benefit Excess Earnings = Adjusted Annual Benefit paid by OPERS - $66,000 $50,000 $16,000 = $24,000 - $16,000 = $8,000 - = $66,000 $34,000 $32,000 $24,000 - $32,000 = $0 30

32 Sample Earnings Offset Based on a 2:1 Earnings Limit Base Amount (Earnings Limited combined with FAS or Dis. Benefit) Earnings Limit Total Disability Benefit and Additional Earnings Member Can Receive Final Average Salary $40,000 + $21,000 = $61,000 Annual Disability Benefit $24,000 + $21,000 = $45,000 Assumptions Member s FAS: $40,000 Annual Disability Benefit: $24,000 Additional Employment Earnings: $42,000 31

33 Sample Earnings Offset Based on 2:1 Earnings Limit (cont.) Total Annual Income Total Disability Benefit and Additional Earnings Member can Receive Excess Earnings Annual Disability Benefit Excess Earnings = Adjusted Annual Benefit paid by OPERS - $66,000 $61,000 $5,000 = $24,000 - $5,000 = $19,000 - = $66,000 $45,000 $21,000 $24,000 - $21,000 = $3,000 32

34 Sample Earnings Offset Based on a 3:1 Earnings Limit Base Amount (Earnings Limited combined with FAS or Dis. Benefit) Earnings Limit Total Disability Benefit and Additional Earnings Member Can Receive Final Average Salary $40,000 + $28,000 = $68,000 Annual Disability Benefit $24,000 + $28,000 = $52,000 Assumptions Member s FAS: $40,000 Annual Disability Benefit: $24,000 Additional Employment Earnings: $42,000 33

35 Sample Earnings Offset Based on 3:1 Earnings Limit (cont.) Total Annual Income Total Disability Benefit and Additional Earnings Member can Receive Excess Earnings Annual Disability Benefit Excess Earnings = Adjusted Annual Benefit paid by OPERS - = $66,000 $68,000 $0 $24,000 - $0 = $19,000 - = $66,000 $52,000 $14,000 $24,000 - $14,000 = $10,000 34

36 Summary Comparison of Earnings Limits Combined with FAS Offset based on Earnings Limit FAS Total Disability Benefit and Additional Earnings Member Can Receive Fixed earning limit $10,000 2:1 ratio $21,000 $40,000 $50,000 $40,000 $61,000 3:1 ratio $28,000 $40,000 $68, = = = 35

37 Summary Comparison of Earnings Limits Combined with Annual Disability Benefit Offset based on Earnings Limit Annual Disability Benefits Total Disability Benefit and Additional Earnings Member Can Receive Fixed earning limit $10,000 2:1 ratio $21, $24,000 $34,000 $24,000 $45,000 3:1 ratio $28,000 $24,000 $52,000 = = + = 36

38 Summary Comparison of Applied Offsets Limit Combined with FAS Offset based on Fixed earnings limit 2:1 ratio Annual Disability Benefit + Additional Earnings $66,000 $66,000 Total Disability Benefit and Additional Earnings Member can Receive Excess Earnings $5,000 3:1 ratio $66,000 $68,000 $0 - - $50,000 $16,000 $61,000 = = - = Adjusted Annual Benefit paid By OPERS $8,000 $19,000 $24,000 Savings to OPERS $16,000 $5,000 $0 37

39 Comparison of Applied Offsets Combined with Annual Disability Benefit Offset based on Fixed earnings limit 2:1 ratio Annual Disability Benefit + Additional Earnings $66,000 $66,000 = = = Total Disability Benefit and Additional Earnings Member can Receive $45,000 Excess Earnings $34,000 $32,000 $21,000 3:1 ratio $66,000 $52,000 $14, Adjusted Annual Benefit paid By OPERS $0 $3,000 $10,000 Savings to OPERS $24,000 $21,000 $14,000 38

40 Defining Goals and Applying Strategies Pension trust funding Improvements Own occupation standard vs. any occupation standard Statutory Apply earnings limits and offsets Statutory Define as gainful employment, a percentage of FAS, or set dollar amount Earnings statement submissions changed to IRS tax returns - Statutory Reduce filing deadline from 2-years - Statutory 39

41 Defining Goals and Applying Strategies Health care funding improvements Own occupation standard vs. any occupation standard Statutory Apply earnings limits and offsets Statutory Limit health care eligibility to members/dependents 40

42 Administrative Changes Possible Complete fewer routine random checks and use resources to investigate ad hoc reported abuses Continue routine random checks and add additional resources to investigate ad hoc reported abuses- Additional administrative costs Place more disability recipients on continued treatment Additional administrative costs 41

43 Strategic Planning Further discussion on Board objectives regarding Disability program Alternatives to bring forward based on Board direction Any occupation standard Offsets 42

44 System Social Security Ohio PERS and Ohio SERS Ohio STRS Ohio PFPF Definition of Disability Total, Permanent- Any Work Permanent-Own Duties Permanent-Own Duties Unable to perform official police or fire duties, permanent, may be total, partial, or off-duty. Disability Benefit Summary of Selected Statewide Systems And Social Security Service Requirement Generally 20 credits in the 10 years prior to the disability unless younger than YOS (OPERS Waives for on-duty Law Enforcement) 5YOS Total-no requirement. Partial-no requirement as long as job related. Off-Duty-5YOS Benefits if Not Job Related 5 Month waiting period for benefits, 2 years for Medicare- Benefit based on percentage of average lifetime earnings. Original-2.2% of FAS, multiplied by service projected to age 60. Revised (Post 7/29/92)-2.2% FAS multiplied by service to disability date. Original-2.0% of FAS, multiplied by service projected to age 60. Revised (Post 7/29/92)-2.2% FAS multiplied by service to disability date. Total-72% Average Annual Salary. Partial w/< 25YOS- Percentage of FAS. ** Partial w/>25yos- Regular Retirement. Off-Duty-% of FAS. ** Benefits if Job Related Not separately defined. Not separately defined. Not separately defined. Determined by degree of disability as listed under non-job related. Min/Max Benefit Family minimum cannot be less than the worker s Primary Insurance Amount (PIA) but not more than 85% of Average Indexed Monthly earnings Original-Min: 30%, Max: 75% FAS Revised-Min: 45%, Max: 60% FAS Original-Min: 30%, Max: 75% FAS Revised-Min: 45%, Max: 60% FAS No Minimum. Total or Partial- Maximum-72% FAS. Off-Duty Maximum-60% Earnings Limitations Offset by BWC and certain public service benefits. Regarding EI * - Ticket to Work Program -Trial time period, extended Medicare benefits, can automatically return to disability status during trial period. Benefit terminated if return to public employer or if medical review shows no longer disabled. Return to employment with private employer MAY result in termination of benefit. Benefit terminated if return to public employer or if medical review shows no longer disabled. Return to employment as a teacher, public or private, results in termination of benefit. Employment as police officer or firefighter results in termination of benefit. Other public employment is allowed. Attachment A

45 Cal PERS Colorado PERA Missouri SERS Arizona Pennsylvania SERS Permanent or Extended Permanent & Total for any Substantial/Gainful Employment (75% Earnings) Own or Any Occupation 1 st 30 Months (including 6 month waiting period)-own Occupation. Subsequent-any occupation reasonably qualified by education/experience. Incapacitating-Own Duties 5 YOS (Tier 1) or 10 YOS (Tier 2) Service Retirement based on service to age 60(Tier 1) or 65 (Tier 2). 5 YOS Service Retirement with credit projected to the lesser of 20 years or age 65. No reduction factor. No Service Requirement No Service Requirement 5YOS, waived for Law Enforcement 60% of monthly salary on last full day of work (or AHC if greater) excluding overtime, bonuses, etc. 66-2/3% of Monthly Earnings as of disability date. Also will pay limited duty benefits if worker continues employment with reduced hours or duties. Single Life Annuity projected to normal retirement, no reduction factor. Greater of Service Retirement or 50% final compensation plus annuity based on employee contributions Not separately defined. Not separately defined. Will supplement Workers Compensation benefits. Additional benefits provided under Worker s Compensation Program *EI-Employment Income **Board sets percentage amount ***DB-Disability Benefit Not job related- Max. 1/3 of final compensation. Job related- Service Retirement Amount Not separately defined. Min: Greater of $50 /month or 15% of monthly disability benefit payable. Min: $50 or 1/12 of annualized contributions If member has less than 16-2/3rds YOS, Max is 33% FAS. (13-1/3 YOS if hired after 7/1/01) If employed outside state service: DB *** +EI cannot exceed max. compensation earnable in former position. Benefits end if individual is able to earn 75% of former earnings. Pre- 1/1/99: Benefit reduced by 1/3 of amount DB+EI exceeded highest average salary. Benefit reduced by SS, BWC, EI, group disability, and any sick leave or salary paid while eligible for disability benefits. Benefit offset by SS or Railroad Retirement, sick, ongoing employer benefits, group disability insurance, WC, VA, 50% of EI from gainful employment (not defined). Generally, DB+EI may not exceed retirant s FAS as state employee.

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48 Attachment C Earnings Offsets Samples and Comparison of Applied Offsets # 1 - Sample earnings offset based on a fixed earnings limit of $10,000 Assumptions: Member s Final Average Salary (FAS): $40,000 Annual Disability Benefit: $24,000 Earnings Limit: $10,000 Base Amount (Earnings limit can be combined with FAS or Disability Benefit) Earnings Limit Total Disability Benefit and Additional Earnings Member Can Receive Final Average Salary $40,000 + $10,000 = $50,000 Annual Disability Benefit $24,000 + $10,000 = $34,000 The table below shows how the excess earnings would be used to offset the OPERS disability benefit. Assume the member obtained private employment and earned $42,000. With the member s annual disability benefit of $24,000 the total annual income is $66,000. Total Annual Income Total Disability Benefit and Additional Earnings Member Can Receive Excess Earnings Annual Disability Benefit Excess Earnings = Adjusted Annual DR Benefit paid by OPERS $66,000 - $50,000 = $16,000 $24,000 - $16,000 = $8,000 $66,000 - $34,000 = $32,000 $24,000 - $32,000 = $0 In the above example, using a $10,000 earnings limit combined with the member s FAS, OPERS would only pay a benefit of $8,000. Using a $10,000 earnings limit combined with the member s benefit would reduce OPERS liability to $0. 1

49 #2 - Sample earnings offset based on a 2:1 earnings limit Assumptions: Member s Final Average Salary (FAS): $40,000 Annual Disability Benefit: $24,000 Annual Additional Earnings: $42,000 Base Amount Earnings Limit (apply 2:1 ratio to annual additional earnings) Total Disability Benefit and Additional Earnings Member Can Receive Final Average Salary $40,000 + $21,000 = $61,000 Annual Disability Benefit $24,000 + $21,000 = $45,000 Again, we assume the member obtained private employment and earned $42,000. With the member s annual disability benefit of $24,000 the total annual income is $66,000. Total Annual Income Total Disability Benefit and Additional Earnings Member Can Receive Excess Earnings Annual Disability Benefit Excess Earnings = Adjusted Annual Benefit paid by OPERS $66,000 - $61,000 = $5,000 $24,000 $5,000 = $19,000 $66,000 - $45,000 = $21,000 $24,000 - $21,000 = $3,000 In the above example, using a 2:1 earnings limit combined with the member s FAS, OPERS would pay a benefit of $19,000. Using a 2:1 earnings limit combined with the member s benefit would reduce OPERS liability to $3,000. 2

50 #3 - Sample earnings offset based on a 3:1 earnings limit Assumptions: Member s Final Average Salary (FAS): $40,000 Annual Disability Benefit: $24,000 Annual Additional Earnings: $42,000 Base Amount Earnings Limit (apply 3:1 ratio to annual additional earnings) Total Disability Benefit and Additional Earnings Member Can Receive Final Average Salary $40,000 + $28,000 = $68,000 Annual Disability Benefit $24,000 + $28,000 = $52,000 Again, we will assume the member obtained private employment and earned $42,000. With the member s annual disability benefit of $24,000 the total annual income is $66,000. Total Annual Income Total Disability Benefit and Additional Earnings Member Can Receive Excess Earnings Annual Disability Benefit Excess Earnings = Adjusted Annual Benefit paid by OPERS $66,000 - $68,000 = $0 $24,000 $0 = $24,000 $66,000 - $52,000 = $14,000 $24,000 - $14,000 = $10,000 In the above example, using a 3:1 earnings limit combined with the member s FAS, OPERS would pay the full benefit of $24,000. Using a 3:1 earnings limit combined with the member s benefit would reduce OPERS liability to $10,000. 3

51 #4 Summary comparison of earnings limits Limit combined with FAS Offset based on: Earnings Limit FAS Total Disability Benefit and Additional Earnings Member Can Receive Fixed earnings limit $10,000 + $40,000 = $50,000 2:1 ratio $21,000 + $40,000 = $61,000 3:1 ratio $28,000 + $40,000 = $68,000 Limit combined with Annual Disability Benefit Offset based on: Earnings Limit Annual Disability Benefit Total Disability Benefit and Additional Earnings Member Can Receive Fixed earnings limit $10,000 + $24,000 = $34,000 2:1 ratio $21,000 + $24,000 = $45,000 3:1 ratio $28,000 + $24,000 = $52,000 4

52 #5 Summary comparison of applied offsets Limit combined with FAS Offset based on Annual Disability Benefit + Additional Earnings Total Disability Benefit and Additional Earnings Member Can Receive Excess Earnings Adjusted Annual Benefit paid by OPERS Savings to OPERS Fixed earnings limit $66,000 - $50,000 = $16,000 $8,000 $16,000 2:1 ratio $66,000 - $61,000 = $5,000 $19,000 $5,000 3:1 ratio $66,000 - $68,000 = $0 $24,000 $0 Limit combined with Annual Disability Benefit Offset based on Annual Disability Benefit + Additional Earnings Total Disability Benefit and Additional Earnings Member Can Receive Excess Earnings Adjusted Annual Benefit paid by OPERS Savings to OPERS Fixed earnings limit $66,000 - $34,000 = $32,000 $0 $24,000 2:1 ratio $66,000 - $45,000 = $21,000 $3,000 $21,000 3:1 ratio $66,000 - $52,000 = $14,000 $10,000 $14,000 5