# Presentation: 162611

## LANS Total Compensation Proposal to NNSA

- LANS Total Compensation Proposal to NNSA

**February 14, 2006**

## Retiree health & welfare (medical, dental, etc.) for current retirees 
Total Compensation Plan 1 (TCP1): Substantially equivalent pay & benefits package for transferring employees (not including inactive vested transferring employees)
Pay practices
Active employee health and welfare, i.e., medical, dental, etc. (H&W)  
Defined benefit pension plan
Defined contribution pension plan 401(k) – replaces 457(b), 401(a) DC and 403(b) Tax-Deferred Annuity Plan 
Retiree health & welfare (medical, dental, etc.) – applies to future TCP1 retirees
Substantially equivalent plan compliance with contract

**Total Compensation Plan 1 (TCP1): ****Substantially equivalent pay & benefits package for transferring employees (not including inactive vested transferring employees)**
- Pay practices
- Active employee health and welfare, i.e., medical, dental, etc. (H&W)
- Defined benefit pension plan
- Defined contribution pension plan 401(k) – replaces 457(b), 401(a) DC and 403(b) Tax-Deferred Annuity Plan** **
- Retiree health & welfare (medical, dental, etc.) – applies to future TCP1 retirees
- Substantially equivalent plan compliance with contract

- Summary of the LANS Total Compensation Design and Strategy as Proposed to NNSA

## Summary of the LANS Total Compensation Design and Strategy as Proposed to NNSA

**Total Compensation Plan 2 (TCP2): ****Market-driven pay & benefits package for new hires and other transferring employees**
- Pay practices
- Active employee health and welfare benefits, i.e. medical,       dental, etc. (H&W)
- Retiree health & welfare (medical, dental, etc.) – applies to future TCP2 retirees
- Defined contribution pension plan 401(k) – TCP2
- Market-driven plan compliance with contract

## Summary of the LANS Total Compensation Design and Strategy as Proposed to NNSA

**Definitions:**
- “**No change**” means “Plan or policy will have no change except change in organization name(s), i.e., UC LANL to LANS”
- “**Will replicate**” means “the benefit delivered will not change but the plan document wording will be modified as required to comply with legal requirements associated with the change from a governmental (public) plan to a private sector plan”
- “**ERISA**” means “Employee Retirement Income Security Act of 1974”

## Retiree Health and Welfare Plans for current retirees(No open enrollment requirement for transition on June 1, 2006*) 

**	****	**

| Provision | Current UC Retiree H&W Plans | Future LANS TCP1 Retiree H&W Plan |
| --- | --- | --- |
| Retiree Medical | Select EPO
Options PPO
Options PPO National
Options PPO Out-of-Area Plan
Core New Mexico
Kaiser CA  HMO
Kaiser Mid-Atlantic HMO
Kaiser South
Health Net HMO
PacifiCare of CA HMO
PacifiCare of NV HMO
PacifiCare Behavioral Health | Will replicate.*  Payment of premiums will be to LANS, LLC

*There are 41 LANL retirees/spouses in the following plans:
  PacifiCare of CA HMO
  PacifiCare of NV HMO
  Kaiser Mid-Atlantic HMO
  Kaiser CA  HMO
  Health Net HMO
These vendors are not willing to offer LANS a contract due to low enrollment.  These 41 retirees will need to enroll in another plan.  LANS HR will contact these retirees and assist them in making this change. |
| Retiree Dental | Dental PPO
PMI (HMO-style benefits not available in New Mexico) | Dental PPO:  Will replicate
Delta Dental/PMI: Only two retirees are enrolled  Can not replicate.  Dental PPO remains available |
| Retiree Legal | Voluntary plan | Will replicate |
| Accidental D&D | Voluntary plan | Will replicate |

## Total Compensation Package 1 (TCP 1) Summary of LANS TCP1 Pay Practices

| Provision | LANS TCP1 Pay Practices |
| --- | --- |
| Compensation structure | No change from UC-LANL |
| Holidays | No change from UC-LANL |
| Vacation accrual rates & maximum accrual limits for 
pre -12/1/92 hires and post -12/1/92 hires  | No change from UC-LANL |
| Sick leave accrual rate | No change from UC-LANL |
| Tribal leave, jury duty, court leave & community service leave | No change from UC-LANL |
| Special Allowances (Nevada Test Site Permanent Duty & Temporary Duty allowances, TA-55 Retention Pay and the Isolation Allowance) | No change from UC-LANL |
| Overtime pay | No change from UC-LANL |
| Shift differential | No change from UC-LANL |

## Active Employee Health and Welfare Plans (TCP1) (No open enrollment requirement for transition on June 1, 2006*) 

| Provision | Current UC H&W Plans | Future LANS TCP1 H&W Plans |
| --- | --- | --- |
| Medical |  Select EPO
 Options PPO
 Options PPO National
 Options PPO Out-of-Area Plan
 Definity Health - NM
 Core New Mexico
 Kaiser CA  HMO
 Kaiser Mid-Atlantic HMO
 Kaiser South
 Health Net HMO
 PacifiCare of CA HMO
 PacifiCare of NV HMO
 PacifiCare Behavioral Health | Will replicate*

*There are 5 active employees in the following plans:
  PacifiCare of CA HMO
  PacifiCare of NV HMO
  Kaiser Mid-Atlantic HMO
  Kaiser CA  HMO
  Health Net HMO
These vendors are not willing to offer a contract due to low enrollment.  These 5 employees will need to enroll in another plan.  LANS HR will contact the affected employees. |
| Dental | Dental PPO | Will replicate |
| Vision | Basic vision | Will replicate |

- Active Employee Health and Welfare Plans (TCP1) *(No open enrollment requirement for transition on June 1, 2006*)** *

## Active Employee Health and Welfare Plans (TCP1) (No open enrollment requirement for transition on June 1, 2006 )

| Provision | Current UC H&W Plans | Future LANS TCP1  H&W Plan |
| --- | --- | --- |
| Life | Basic life
Core life
Supplemental life (voluntary plan)
Basic dependant life (voluntary plan)
Expanded dependant life (voluntary plan) | Will replicate |
| Accidental Death and Dismemberment | Voluntary plan | Will replicate |
| Short-term disability | Basic STD
Supplemental STD (voluntary plan) | Will replicate
 |
| Long-term disability (LTD) | Supplemental LTD (voluntary plan) | Will replicate |
| Flexible spending accounts | Healthcare Reimbursement Account
Dependant Care Account | Will replicate; account balances will roll over to LANS |

## Active Employee Health and Welfare Plans (TCP1) (No open enrollment requirement for transition on June 1, 2006 )

**	****	**

| Provision | Current UC H&W Plans | Future LANS TCP1 H&W Plans |
| --- | --- | --- |
| Tax-savings insurance plan (TIP) | Section 125 plan – permits medical, dental & other H&W benefit premiums to be paid with pre-tax earnings | Will replicate |
| Auto & home insurance | 	Voluntary plan | No change |
| Legal | Voluntary plan | No change |
| UC tuition waiver | Family members of UC employees who live outside of California can attend UC school and pay in-state tuition | No change; Regents have approved extending this waiver to LANS employees |
| Scholarshare program | 529 savings plan | No change |

## Total Compensation Package 1 (TCP1) Active Employee Health and Welfare Plans

**	****	**

| Provision | Current UC H&W Plans | Future LANS TCP1 H&W Plans |
| --- | --- | --- |
| Employee tuition reimbursement | Reimbursement for certain educational expenses | No change |
| Savings bond program | Purchase bonds through payroll deductions | No change |
| Home loans | Employee mortgage program | No change |
| Employee Assistance Plan | Counselors for employees reside on-site at Los Alamos | Will replicate |
| Business travel accident insurance | Basic business travel accident insurance | No change |

## The LANS Defined Benefit Plan (PP1) will be a replication of the UCRP to the maximum degree possible under IRS & ERISA regulations
LANS is required to “consider amending Pension Plan One to be consistent with any changes made by the Board of Regents ... to the UCRP”

**LANS is required to “consider amending Pension Plan One to be consistent with any changes made by the Board of Regents ... to the UCRP”**

- Total Compensation Package 1 (TCP1) Defined Benefit Pension Plan (PP1)

## Total Compensation Package 1 (TCP1) Defined Benefit Pension Plan  (continued)

| Provision | Current UC Retirement Plan | Future LANS Defined Benefit Plan (PP1) |
| --- | --- | --- |
| Eligibility | Three tiers based on position | Will replicate  |
| Vesting | 5 years (or age 62 if participated before 7/1/89) | Will replicate as well as add full vesting at the normal retirement age of 60 (ERISA requirement) |
| Basic benefit formula | 3 formulas in plan | Will replicate |
| Capital accumulation provision (CAP) | Allows voluntary ad-hoc employer contributions | Can not replicate due to ERISA rules |
| Service credit for accumulated sick leave | Credited at retirement | Will replicate |
| Reciprocity with public sector plans | Reciprocity with CalPERS, CalTRS, and several county systems  | Cannot replicate due to IRS regulations |
| Special service crediting rules | Various buyback provisions | Can not replicate due to IRS rules |

## Total Compensation Package 1 (TCP1) Defined Benefit Pension Plan  (continued)

| Provision | Current UC Retirement Plan | Future LANS Defined Benefit Plan (PP1) |
| --- | --- | --- |
| Forms of payment | Lump-sum cashout or default
payment form:
Life annuity with 25% survivor continuance to “eligible survivors” (50% for SS ineligible)
Life annuity only if no eligible survivor at retirement date
Optional forms of payment:
Life annuity
100%, 66 2/3% or 50% J&C
50% joint & survivor annuity with spouse or domestic partner
Only 75% (50% for SS ineligible) 
of basic benefit is payable in an
optional form elected by member. 
100% with spouse or domestic 
partner. | Due to ERISA regulations and our DOE contract
provisions, forms of payment will be simplified.
The following optional forms of payment will be
replicated:
Life annuity
100%, 66 2/3% or 50% joint and contingent  annuities with spouse and/or dependents only 
50% joint and survivor annuity with spouse and/or dependents only

Other considerations:
The lump-sum cashout will be eliminated due to a contract provision 
New plan will include ERISA spousal consent requirements
The survivor continuance feature will also be eliminated |

## Total Compensation Package 1 (TCP1) Defined Benefit Pension Plan  (continued)

| Provision | Current UC Retirement Plan | Future LANS Defined Benefit Plan  |
| --- | --- | --- |
| Survivor benefits | Various provisions depending upon employee retirement eligibility | Will replicate, with some very limited reductions to comply with ERISA death benefit rules 

Benefits for all employees will be improved to meet ERISA preretirement survivor minimum requirements, which generally calls for minimum of 50% preretirement survivor benefit for spouse

These changes represent a net increase in value |
| Social Security supplement | Social Security eligible-only:
$133 X service X age-based benefit factor, payable to age 65 | Will replicate |
| Normal retirement | Age 60 with 5 years of service | Will replicate |
| Early retirement  | Age 50 with 5 years of service | Will replicate |
| Mandatory Employee Contributions | Plan provisions exist in the UCRP for employee contributions.  While allowed, no contributions are currently required. 
 | Will replicate.
While allowed, no contributions are currently planned |

## Total Compensation Package 1 (TCP1) Defined Benefit Pension Plan  (cont.)

| Provision | Current UC Retirement Plan | Future LANS Defined Benefit Plan  |
| --- | --- | --- |
| Disability benefit | 5 years of service to be eligible
Benefit is a percentage of final pay, dependent on service
Converts to retirement benefit upon eligibility | Will replicate 
If unable to replicate in the LANS Defined Benefit Plan, will replicate in the long-term disability H&W benefit plan |
| Basic death benefit | $7,500 payable to beneficiary upon member’s death
Capital accumulation payment (CAP)        with interest
Refund of remaining unpaid balance of employee contributions, with interest | Will replicate $7,500 death benefit and refund of employee contribution balance

No provisions for CAP payments are required, since CAP accounts can not    be included in this plan |
| Cost-of-living adjustments | July 1 based on preceding year’s CPI      (Los Angeles and San Francisco, February to February)
100% of CPI increase up to 2%
75% of CPI increase over 4%
Maximum 6% COLA | Will replicate |

## Total Compensation Package 1 (TCP1)Defined Contribution Programs  

**Current UC Defined Contribution Program consists of three**
**plans:**
- 457(b) Deferred Compensation Plan (“457(b)”)  (established in 2004)
- 401(a) Defined Contribution Plan (“401(a) DC”)
- 403(b) Tax-Deferred Annuity Plan (“403(b) TDA”)
**IRS regulations for governmental (public) plans vs. private**
**sector plans limit LANS to one Defined Contribution Plan:**
- 401(k) Defined Contribution Plan

## Total Compensation Package 1 (TCP1)Defined Contribution Programs  (continued)

| Provision | Current UC Defined Contribution Plans | Future LANS TCP1 Defined Contribution Plan |
| --- | --- | --- |
| Eligibility | All employees except students working <20 hours/week. | All employees eligible for TCP1, except students working less than 20 hours/week. |
| Mandatory employee pretax contributions | 401(a) DC Plan
Social Security eligible: 2% of covered compensation to OASDI wage base, 4% in excess, minus $19/month
Non-Social Security eligible: 3% of  covered compensation, minus $19/month | 401(a) DC plan cannot be replicated |
| Voluntary employee pretax contributions | 457(b) Plan

403(b) Tax-Deferred Annuity Plan 
“Normal” deferral, plus 
“Special” catch-up after 15 years of        service, plus 
Age 50 catch-up | 457(b) plan cannot be replicated

401(k) plan will replace the 403(b)
 “Normal” deferral, plus 
 Age 50 catch-up
 Cannot replicate “Special” catch-up
 |

## Total Compensation Package 1 (TCP1)Defined Contribution Programs  (continued)

**LANS employees will now be subject to private sector vs. public sector plan rules for maximum allowable pretax savings:**
- Maximum employee pretax savings opportunities are reduced to 401(k) rules vs 403(b) and 457(b) rules, see below for 2006 limits
**Also mandatory pretax contributions in the 401(a) DC Plan cannot be replicated (2% for most employees) **

| Sample Employee | Public Sector Plans - 403(b) and 457(b) Maximums | Private Sector Plans – 401(k) Maximum |
| --- | --- | --- |
| Under age 50 | $30,000 | $15,000 |
| Age 50 and older | $40,000  | $20,000 |

## Total Compensation Package 1 (TCP1)Defined Contribution Programs  (continued)

| Provision | Current UC Defined Contribution Plans | Future LANS TCP1 Defined Contribution Plan |
| --- | --- | --- |
| Voluntary employee after-tax contributions | 401(a) DC Plan - only
After-tax contributions permitted per payroll deduction agreement, limited only by 415(c)
 | Will provide after-tax contributions in 401(k) plan
Pretax and after-tax contributions are combined for the IRS contribution limit of $44,000
Opportunity to contribute will be reduced |
| Rollover contributions | All plans allow rollovers | 401(k) plan can accept rollovers from all UC plans |
| Vesting | Immediate  | Same |
| Withdrawals/in-service distributions | Both the 403(b) TDA and 457(b) plan allow for:
Hardship withdrawals 
Limited in-service withdrawals | Will replicate the 403(b) plan hardship rules in the new 401(k) |
| Distributions on severance from employment | Members may elect distributions to begin any time after severance. Distributions must begin as needed to meet IRS minimum distribution requirements. | Will replicate |

## Total Compensation Package 1 (TCP1)Defined Contribution Programs  (continued)

| Provision | Current UC Defined Contribution Plans | Future LANS TCP1 Defined Contribution Plan |
| --- | --- | --- |
| Forms of payment | Various forms of payment, including partial distributions and purchase of annuity | Will replicate lump sums and installments.
Currently evaluating the need for other distribution options |
| Investment options | Participant-directed 
Core funds (UC funds available)
Mutual funds
Brokerage window | A range of investment options will be offered. Cannot replicate current UC Core fund investments |
| Death benefits | Lump sum 
Beneficiary may request annuity purchase  | Will replicate |
| Employee loans | 403(b)
Standard loan provisions | Will replicate the 403(b) loan provisions in the new 401(k) plan |

## Total Compensation Package 1  Retiree Health and Welfare Plan (Applies to future TCP1 retirees)

**	****	**

| Provision | Current UC Retiree H&W Plans | Future LANS TCP1 Retiree H&W Plan |
| --- | --- | --- |
| Retiree Medical | Eligibility: Receiving monthly (UCRP) income with 10 years of service at retirement or with five years and meeting Rule of 75, i.e., Age + Service ≥ 75
Maximum employer contributions are service-based. (100% of maximum employer contribution after 20 years or hired pre-1990, 5% increments between 10 and 20 years, 50% with 5-9 years AND age & service of 75+, 0% under 5 years.)
Dependant coverage: eligible adult family member and       eligible child
Survivor coverage: Yes | Will replicate |
| Retiree Dental | Contributions: Same as medical plan above
Dependant Coverage: Eligible adult family member and      eligible child
Survivor Coverage: Yes | Will replicate |
| Retiree Legal | Voluntary plan | Will replicate |
| Retiree Accidental D&D | Voluntary plan | Will replicate |

## Section 1 - Total Compensation Package 1Substantially Equivalent Plan Compliance

**TCP1 objective is to provide a complete package of employee pay and benefits that is substantially equivalent in the aggregate compared to the UC LANL package**
**Substantially equivalent benefit plans will be provided by replicating the UC-LANL benefits program where possible**
**LANS TCP1 and the current UC LANL benefit plans have nominally the same relative value and are therefore substantially equivalent **
- Changes to preretirement survivor benefits required by ERISA will _increase_ TCP1 value by about 0.2%.
- Estimated value of reduced employee pretax savings opportunities and new Social Security taxes will _reduce_ TCP1 value by about 0.5 to 0.6%.

## Total Compensation Package 2 (TCP2)LANS Benefit Design Policy Statement

**	****Provide a market-driven benefit plan for new hires, retired or retiring UC employees, and other LANS partner-company transferees referred to as Total Compensation Package 2 (TCP2).  TCP2 shall not exceed 105% of market, aligned with peer companies and includes:**
- Access-only retirement medical plan
- 401(k) plan with a matching company contribution plus an additional service-based company contribution and
- Replicate the UC-LANL health and welfare plans (medical, dental, life, disability, etc.)

## Total Compensation Package 2 (TCP2)Pay Practices and Health and Welfare Plans: Same as TCP1

| Provision | LANS TCP2 Pay Practices |
| --- | --- |
| Holidays, vacation, sick leave, tribal leave, jury duty, court leave, community service leave, overtime pay, shift differential, etc. | Same as TCP1, no change from UC-LANL |
|  |  |
| Provision | LANS TCP2 Health and Welfare Benefit Plans |
| Medical, dental, vision, life, AD&D, short-term disability, long-term disability, legal, flex spending, UC tuition waiver, tuition reimbursement, etc. | Same as TCP1 |

## Total Compensation Package 2  Retiree Health and Welfare Plan (Applies to future TCP2 retirees)

| Provision | Proposed LANS TCP2 Post Retirement Medical and Dental  |
| --- | --- |
| Retiree medical eligibility | Age 50 with 10 years of service at retirement or with five years and meeting “Rule of 75, i.e., Age + Service ≥ 75” |
| Medical plans offered | Same as TCP1 |
| Employer medical contributions | None |
| Medicare Part B reimbursement | No |
| Dependant coverage | Same as TCP1 |
| Survivor continuance | Yes |
| Dental eligibility | Same as retiree medical eligibility above |
| Dental plans offered | Same as TCP1 |
| Employer dental contributions | Same as TCP1 |
| Dependant coverage | Same as TCP1 |

## Total Compensation Package 2 (TCP 2)Proposed TCP2 Defined Contribution 401(k) Plan

| Provision | Proposed LANS TCP2 401(k) Plan |
| --- | --- |
| Eligibility | Immediate eligibility for transfers eligible for TCP2;  immediate eligibility for LANS new hires, except students working less than 20 hours per week |
| Voluntary member pretax contributions | Allowed, up to IRS limitations on elective deferrals
$15,000 for 2006, plus additional $5,000 catch-up for employees age 50 and over |
| Voluntary member after-tax contributions | Allowed, up to IRS limitation on total contributions (including both employer and employee) to the plan, $44,000 for 2006 |
| Employer matching
contributions | 100% match on first 6% of member voluntary contributions |
| Additional employer 
nonmatching
contributions | Service-based contribution: 3.5% per year for 0-9 years of service, 4.5% for 10 -19 years of service, 5.5% for 20+ years of service |

## Total Compensation Package 2  (TCP2)Proposed TCP2 Defined Contribution 401(k) Plan  (cont.)

| Provision | Proposed LANS TCP2 401(k) Plan |
| --- | --- |
| Investment options | Same as TCP1 401(k) plan |
| Rollover contributions | Plan will accept qualified rollovers from 401(a), 403(b), and 457(b) & 401(k) plans |
| Vesting | Immediate on all contributions |
| Withdrawals and in-service distributions | Standard hardship withdrawal provisions
No other in-service distributions, except for rollovers and after-tax contributions
Matching contributions not available for hardship |
| Distributions | Employees may elect distributions to begin any time after severance.
Distributions must begin as needed  to meet IRS minimum distribution requirements. |
| Loans | Plan will include loan provisions consistent with TCP1 401(k) |

## Section 3 – Contract Requirements and Compliance

- Create total compensation package substantially equivalent to that provided by UC-LANL for transferring employees (not including inactive vested transferring employees).**  ******** Yes**** **
- Create market-driven total compensation package, for new hires and other transferring employees, that does not exceed 105% of market compared to DOE approved comparator companies.** ******** Yes**** **
- Provide substantially equivalent retiree medical and dental benefits for current retirees.** ******** Yes**** **