The Ohio State University Proposed Composite Benefit Rates For Salary Year Ending September 30, 2009 January 30, 2008

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1 General Notes on Methodology: The Ohio State University Cost projections are based on the actual costs of the last full fiscal year, incremented for known and/or anticipated changes in costs. A primary cost driver is identified for each component of the rate and is used consistently for allocation of actual and projected cost to benefit rate groups. There are two primary cost drivers salary dollars and benefit-eligible headcounts. OPERS, STRS and most of the smaller benefit components are allocated to benefit-eligible rate groups based on salary dollars; health care costs and employee tuition are allocated based on benefit-eligible headcounts. To ensure consistency in the calculation of composite rates, we use FY07 actual headcounts and FY07 actual salaries, incremented across all rate groups for guideline wage increases. The costs to be recovered are variable costs (as covered salary dollars and benefit-eligible headcounts go up or down, the benefit costs and associated composite rate charges to the departments go up or down accordingly). Employee contribution rates for health coverage will not be set until Autumn Quarter and are effective January 1, The current composite-rate calculations assume that the employee s share of projected costs will equal employee contributions. To the extent that employee contributions are set below their projected share of health care costs, the additional costs would need to be recovered via the composite rates charged to the departments. A complicating factor in the rate-setting process is the multiple years associated with employee benefits. Budgets and OSURF rates are on a July-June fiscal year, salary increases and University/Health System rates are on an October-September year, and benefit provider agreements and employee contribution levels are on a calendar (January-December) year. We need to predict, by February 2008, what rates will be required to cover costs and provide sufficient benefit cash balances for the benefit year ending September 30, University/Health System Rates vs. OSURF Sponsored Program Rates: University/Health System rates are determined by OSU; OSURF rates are proposed by OSU and are subject to negotiation with the federal government (DHHS). Last year, DHHS rejected OSU cost projections for all overrecovered rate groups. For University/Health System rates, OSU has discretion to pursue rate stability, particularly related to maintaining targeted cash balances and amortizing

2 over/under-recoveries over multiple periods. For OSURF rates, the federal government requires full amortization of over/under-recovery in next even/odd year (for example, all over/under-recoveries for FY07 must be incorporated in the FY09 rate calculation). The lock-step amortization of under/over-recoveries under the federal rate-setting rules increases the likelihood of abrupt increases or decreases in OSURF benefit rates, hindering long-range planning. Proposed Targets for Benefit Cash Balances: Benefit rate calculations are tied into a projection of benefit cash balances. The absolute minimum/floor for benefit cash balances is an amount equal to the full-accrual liabilities for each component of the benefit rate. For the benefit rate calculation, the target for benefit cash balances is an amount that includes both the full-accrual liabilities and the $13 million Medical Plan Reserve. Substitute House Bill 272, which was signed into law on January 4, 2007, includes provisions to change the payment schedule for Ohio's public employers' retirement contribution liability. The liability, currently due on a quarterly basis, will be accelerated to a monthly due date schedule effective with the January 2008 liability. To help mitigate the burden of a large payment in March 2008 (the th quarter liability plus the February 2008 liability), OPERS is offering employers an interest-free deferred payment schedule for the 4th quarter 2007 liability. The deferral program spreads the due date for each month of the quarter over a three-year period. The payment schedule is as follows: October 2007 liability due by December 31, 2008 November 2007 liability due December 31, 2009 December 2007 liability due December 31, 2010 To fully fund the employer OPERS liability by the end of this transition period, approximately 0.15% will be added to the Unclassified and Classified Civil Service benefit rates for the next three salary/benefit years. Proposed Addition of Dependent Fee Authorizations to Composite Rates: The current process for charging the costs of dependent fee authorizations is not consistent for employees whose salaries are paid from different funding sources. Dependent fee authorizations for employees paid on general funds are charged to a centrally funded budget pool, while dependent fee authorizations for employees paid from other funds (earnings, restricted, etc.) are directly charged to the

3 department. For smaller units in particular, this can result in unanticipated charges, which can be financially significant, and it can potentially skew decisionmaking on whom to hire and where these individuals salaries are charged. In addition, it is anticipated that the current process would require significant customization work that would add effort and cost to the SIS project. To address these concerns, Business & Finance is proposing to incorporate dependent fee authorizations into the general University and Health System benefit rates. Federal costing regulations prohibit the inclusion of dependent fee authorizations in the negotiated OSURF benefit rates. The total estimated cost of dependent fee authorizations is approximately $6 million and would add 0.4 to 0.8 percentage points to the composite rates (see summary rate schedule below).

4 The Ohio State University Summary of Current and Proposed Benefit Rates For Salary Years Ended September 30, 2008 and 2009 General University Current Rates (07-08) (08-09) with (08-09) without Faculty 27.1% 27.7% 2.2% 27.3% 0.9% Unclassified 32.0% 32.8% 2.5% 32.2% 0.6% Classified Civil Service 40.0% 41.6% 4.0% 40.8% 2.0% Specials 16.3% 16.2% -0.7% 16.2% -0.7% Students 0.9% 0.9% -2.6% 0.9% -2.6% Post-Doctoral Fellows 3.7% 3.1% -15.6% 3.0% -18.3% Graduate Associates 11.2% 11.1% -0.9% 11.1% -0.9% OSU Health System Current Rates (07-08) (08-09) with (08-09) without Faculty 33.8% 33.2% -1.9% 32.7% -3.4% Unclassified 28.8% 28.7% -0.5% 28.3% -1.8% Classified Civil Service 40.7% 41.5% 2.1% 40.8% 0.2% Specials 16.3% 16.2% -0.7% 16.2% -0.7% Students 0.9% 0.9% -2.6% 0.9% -2.6% Post-Doctoral Fellows 3.7% 3.1% -15.6% 3.0% -18.3% Graduate Associates 10.1% 9.8% -2.9% 9.8% -2.9% OSU Research Foundation Negotiated and Proposed Benefit Rates for Sponsored Research Programs Fiscal Years Ended June 30, 2008 and 2009 Negotiated-FY08 Proposed-FY09 Faculty 23.5% 28.6% Unclassified 34.5% 36.5% Classified Civil Service 33.0% 43.9% Specials 14.0% 16.6% Student, Grad, Fellow Combined Rate 5.0% 7.5%

5 The Ohio State University Summary of Key Assumptions Used in Benefit Rate Calculations Global Assumptions: Headcount Average Pay Increase Structure of Benefit Rate Groups Composition of Benefit Package Target for Benefit Cash Balances Assume stable benefit-eligible headcounts (FY07 actual) Assume guideline increases of 3.5% in FY08 and 3.5% in FY09 (lower % possible in FY09 if state cuts support) Assume no new rate groups or movement of employees between groups Assume same components as prior year, plus dependent fees for University and Health System. Cash equal to fully funded benefit liabilities, plus the $13 million Medical Plans Reserve Summary of Actual and Projected Costs by Component: FY07 FY09 Primary FY07 Total Actual Rate/ FY09 Total Projected Rate/ Cost Driver Actual Cost Cost per Head Projected Cost Cost per Head Notes STRS Salary $ 58,838, % 66,097, % (1) OPERS Salary $ 132,014, % 136,678, % (2) Medicare Salary $ 16,045, % 18,195, % (3) Group Life Salary $ 4,160, % 3,926, % Disability Salary $ 3,858, % 4,266, % Unemployment Comp Salary $ 682, % 586, % Workers Comp-UNIV/RF Salary $ 7,188, % 8,228, % Workers Comp-Health System Salary $ 3,512, % 4,020, % COBRA Admin/Other Admin Costs Salary $ 1,427, % 1,528, % Student Insurance Salary $ 7,184, % 8,688, % (4) Medical Plans Headcount 141,069,808 5, ,023,797 6,536 (5) Vision Headcount 1,653, ,762, Dental Headcount 9,868, ,931, Employee Tuition Headcount 7,845, ,840, Dependent Tuition (new rate component) Headcount - 0 5,963, (6) Totals 395,348, ,740,281 NOTES: (1) - To be applied to all Faculty and Specials salaries (2) - Reflects statutory rate (14%, effective Jan 2008) and 0.15% to fund transition to monthly employer remittances in 2008; OPERS rate to be applied to all Unclassified and CCS salaries (3) - Below 1.45% statutory rate due to exempt staff (4) - Reflects projected increase in subsidy per HR (5) - Reflects projected cost increases of 7.5% per year (6) - Reflects proposed addition of dependent fee authorizations to University and Health System composite rates

6 Cost of Decentralization of Dependent Fee Authorizations General Funds Estimated for FY 2009 College/VP Est. Cost Arts 64,008 Biological Sci 57,946 Humanities 141,226 MAPS 166,745 SBS 129,013 Executive Dean Asc 34,136 Business 89,264 FAES 58,125 Education Human Ecol 98,826 Engineering 184,903 Nursing 25,138 Pharmacy 34,547 Social Work 14,744 Dentistry 51,709 Law 51,248 Medicine 109,976 Public Health 19,546 Optometry 17,623 Vet Med 63,033 Subtotal Colleges 1,411,756 Graduate School 8,135 Libraries 64,961 Univ Relations 25,583 Trustees 2,805 President 7,057 Legal Affairs 9,882 Research 78,259 OAA 209,374 Undergrad Studies 91,365 Student Affairs 40,474 Healthsci 34,768 Business Finance 305,291 Subtotal Support 877,956 Total 2,289,712 (1) Based on FY 2007 salary expenditures in GFSA funds inflated at: FY 2007 to FY 2008: 4% for Faculty, 3.5% for A&P and Classified FY 2008 to FY 2009: 3% (2) Rates Rate with Dep Fee Auth Rate w/o Dep Fee Auth Dep Fee Auth Component Faculty 27.7% 27.3% 0.4% A&P 32.8% 32.2% 0.6% CCS 41.6% 40.8% 0.8%