1. Reviewing the fringe benefits provided to faculty and research staff at MTU and other comparable institutions, and the schemes those institutions use to charge extramural sponsors appropriate portions of the benefit costs.

2. Reviewing the new, recently negotiated plan for charging extramural sponsors in FY2001, considering:
   1. The effect the new rates may have on the competitiveness of funding requests;
   2. Equity in the relationship between charges and benefits for class of employees; and
   3. The consistency between the new fringe rates and MTU's strategic goals.

3. Recommending alternative fringe benefit cost recovery schemes if, in any of the three areas above, the new plan is found to be not consistent with MTU's goals.

   The FBCRPC's primary objective was to produce a recommendation for a fringe benefit rate structure for FY2002 that would be both acceptable to ONR and consistent with the above threefold charge from the Interim Provost. The specific criteria used to develop the FY2002 rate recommendation are:

   • Support of the Strategic Plan;
   • Competitiveness on Research and Grants;
   • Faculty/staff acceptance;
   • Financial impact to the University;
   • Cost of implementation and maintenance;
   • Positive message to soft-dollar employees;
   • Acceptance by ONR.

The FBCRPC divided itself into three subcommittees (Subcommittee #1, Subcommittee #2, and Subcommittee #3) to consider separately the specific charges a, b, and c in 2 (above).

The FBCRPC initially established some explicit guidelines for its work:

1. To solicit information and feedback from the MTU community with presentations to appropriate groups and with open forums, publicized as extensively as possible through Tech Topics and with all-departments e-mail announcements.

2. To maintain as much openness in its deliberations as possible. To this end, the committee established a web site with accounts of its discussions, with data collected by the committee, and with calculations: http://www.admin.mtu.edu/hro/fringe/index.html

3. To make no rate recommendations that involved reducing any employee's fringe benefits or reducing accrued sick and vacation time.

   The Committee has been operating with the following time lines:

   19 Jun 2000	-- Charge from the Interim Provost
   01 Aug 2000	-- Presentation to Academic Forum
   02 Aug 2000	-- University Senate Sponsored First Open Forum
   07 Sep 2000	-- University Senate Sponsored Second Open Forum
   13 Sep 2000	-- Progress Report to University Senate
   23 Oct 2000	-- Draft Report to the Vice Provost for Instruction, Senior Vice President for Academic and Student Affairs and Provost, Vice President for Finance and Administration, and Campus Community
   31 Dec 2000	-- Final Recommendation Due to ONR

   ---

   B. History of the Structure of Fringe Benefit Rates

   Recently, MTU's auditor for federal grants and contracts was changed from the HHS to ONR. This change required a review of fringe benefit rates at MTU. ONR audits and approves fringe benefit rates; HHS does not. ONR prefers that fringe benefit rates be the same for nearly all employees - a "pooled" or "composite" approach, as opposed to calculating and charging actual costs for each employee individually.

   Historically, MTU has used a composite rate (See Table 2). Higher fringe benefit rates have been charged for "soft-dollar" employees (those employees intended to be supported 100% by external funds) to compensate for costs of vacation, holiday, and sick leave. Lower rates have been applied for students, temporary employees, and summer faculty because of the limited benefits.

   MTU demonstrated to ONR auditors that actual costs would be recovered with a composite fringe benefit rate of 38%, with three exceptions: 57% for soft-dollar employees, 10% for temporary employees, and 0% for students. Postdoctoral students have fringe benefit rates varying from 10% to 38% depending on the term of the appointment.

   The announcement of the 57% rate and the increase in the summer faculty rate were unpopular with MTU researchers, and pending a final determination MTU is using FY2000 fringe benefit rates. MTU cannot charge more than the fringe benefit rates approved by ONR, although it may charge less. During FY 2001 MTU has been charging 46% for soft-dollar employees rather than the approved 57%, and 25% for summer faculty rather than the approved 38%.

   ---

   C. Report of Subcommittee 1: Competitiveness & Other Problems

   The first charge given to the FBCRPC was to assess the likely effect the new ONR fringe benefit rate structure may have on the competitiveness of funding requests and the productivity of research-active faculty and staff. To respond to this question, Subcommittee #1 solicited input from research-active faculty and staff during the summer and fall months of 2000. Based on the analysis of this collective input, a common theme emerged that growth in externally funded research at MTU is put at risk by rising non-research costs (such as the fringe benefit rate).

   In fact, the fringe benefit rate increase can best be characterized as the "last straw" that has brought the frustration of many research-active faculty and staff to the forefront. Budgets for fixed-sized grants are being "squeezed" by rising costs of all types. Important factors in the budget squeeze have been a big rise in the Indirect Cost Recovery (ICR) rate and increased graduate student tuition and fees. Each of these items deserves attention by the campus community, but this report (and the FBCRPC charge) is restricted to the fringe benefit rate issue.

   The bottom line, however, is that every contract dollar used to cover rising fringe benefit costs is a dollar not available for research-productive expenditures such as faculty summer salary, release time cost-share, graduate student support, postdoctoral students, etc. Increased fringe benefit costs also make the bids on variable-size contracts less competitive. To summarize faculty and staff concerns, setting the fringe benefit rate too high will have a number of negative consequences:

   1. loss of competitiveness in winning grants and contracts;
   2. reduction in effectiveness at performing the research MTU does receive;
   3. drop in scholarly production;
   4. disincentive to hire and retain professional staff and post doctoral students;
   5. fewer graduate students.

   Explicitly including vacation, holiday, and sick time as fringe benefits for soft-dollar staff requires increasing the 38% rate to 57% (This will be described in greater detail in Section D). The 57% rate makes the billable ("loaded") hourly rate for soft-dollar employees much more expensive; is a concern to granting agencies and industrial clients, squeezes research budgets, and discourages hiring and support of regular, full-time staff. Lower rates would decrease these problems and would promote increased collaboration across academic and institute boundaries within MTU.

   Table 3 demonstrates that MTU has expensive fringe benefits, particularly in the area of health care. The medical benefit is between $1,500 and $4,300 more than other schools. Also, the Teachers Insurance Annuity Association/College Retirement Equities Fund (TIAA-CREF) contribution of 12.55% on salary is at least 1.5% higher than the other institutions. Although costly, this very competitive fringe benefit program is important in continuing efforts to recruit and retain world-class researchers and teachers. Tables 3 and 4, when taken together, strongly suggest that other institutions commonly subsidize a portion of their fringe benefits costs outside of their rate structures to promote research. Table 4 also shows that the fringe benefit rate for soft money employees, for those institutions that have them, is not disproportionately higher than that historically used at MTU (currently 46%).

   Based on the ONR-approved fringe benefit rates for FY2001, Table 4 documents that MTU has the highest composite fringe benefit rates in every employee category (e.g., academic, faculty summer, and soft dollar) among the institutions studied by Subcommittee #1. Therein lies the major reason why MTU's fringe rates are higher than at these other institutions - a combination of expensive fringe benefits and below-average salaries. The pooled (composite) rate for full cost recovery is calculated at MTU as the cost of benefits divided by the aggregate salary base. MTU has both a higher numerator (benefits cost) and a lower wage and salary denominator (for example, faculty salaries that are approximately 10% behind peer institutions, according to the Oklahoma State University Salary Survey), leading to a higher pooled fringe rate. Note also that the increase in the ICR rate from 47% to 51% further compounds the squeeze on research budgets.
   
   

   ---

   D. Report of Subcommittee # 2: Cost of MTU Fringe Benefits

   This section includes (1) a description of the different categories of employees at MTU as they relate to fringe benefits, (2) a description of the standard benefit package provided to the largest group of employees, (3) a discussion of the aggregate cost of delivering the benefit package, (4) the historical charges for benefits on grants and contracts, (5) examples of the actual cost of delivering benefits to a range of different hypothetical MTU employees, (6) a description of the study used to establish the ONR approved fringe benefit rates, and finally (7) a range of alternative fringe benefit scenarios to replace the rate structure approved by ONR and announced early during the summer of 2000.

   1. The employee classification system at MTU and its relation to fringe benefit packages

      Currently MTU provides a complete benefit package to regular employees who work 30 or more hours per week, i.e., three-quarter time or more. For those employees who are hired to work full time for one year, a health insurance package with a deductible of $300/$500, and a retirement package are provided.

   2. The standard MTU fringe benefit package

      The mandated review of other institutions' fringe benefits is summarized in Table 3. This table shows that the MTU fringe benefit package is extremely competitive relative to similar instate institutions and peer institutions from out-of-state. Health care and retirement benefits together make up 96% of the fringe benefit costs.

      The fringe benefits can be split into (a) items which every employee equally receives independently of salary, and (b) items which are mostly proportional to salary. Health insurance falls in the first group. Because the standard health care package costs $8,496 per year per family contract, the value of employees' benefit packages vary widely as a percentage of salary. Employees with lower salaries receive a much higher proportion of their salary in benefits than employees with higher salaries.

      The cost of retirement benefits vary by salary level and between two retirement systems-TIAA-CREF and MPSERS. Nearly all employees supported on grants and contracts are with TIAA-CREF, for which MTU contributes 10.55% to 12.55% of employees' salaries to retirement. This range in contributions occurs because, under a "2+2" system, MTU matches up to 2% of employees' supplemental contributions. Nearly all TIAA-CREF employees participate in the 2+2 plan.

   3. The cost to deliver MTU's fringe benefit package

      Retirement benefits for FY 2000 cost $12,183,813, or 54.6% of the total fringe benefit budget (Table 5). This amount is split between Social Security (FICA), TIAA-CREF, and MPSERS payments. The MPSERS payment is split into two line items. The variable portion pays for benefits currently being earned by employees under the MPSERS system; the fixed portion is a past service liability because not enough was collected by MPSERS in the past. When leaving MPSERS in 1995, MTU was required to pay this fixed portion for 40 years, with payment amounts being reset each year and, at least to date, rising rapidly. The reason for the rapid increase is the rapidly rising cost of retiree health care, the dominant component of past service liability.

      Health care cost $9,270,546 (41.6%) in FY 2000 (Table 5), and is the other major contributor to the cost of fringe benefits at MTU. Although there are many other fringe benefits provided by MTU, their cost is modest at only $849,937 (3.8%).

   4. MTU's history of fringe benefit charges on grants and contracts

      MTU has used several different models to recover the cost of fringe benefits for employees paid by research grants and contracts (Table 2).

      Note that rates paid by institutes have historically been higher than those for academic departments. This higher rate was used to recover some of the cost of paying non-productive time (vacation, holiday, and sick (v/h/s)) of soft-dollar institute employees. Soft-dollar employees receive their v/h/s pay from a separate account in the Retirement and Insurance (R&I) fund, while employees not supported by grants and contracts receive v/h/s pay directly from the same accounts that pay their regular salary. The differential between the fringe benefit rates for academic units and institutes pay a portion of the v/h/s; a 19% increase would be required to pay the entire cost for v/h/s. This value is based on 10 holidays, 7.5 sick days (the MTU average), and 24 days of vacation. This account in the R&I fund has not recovered amounts from grants and contracts sufficient to pay for the non-productive time claimed by soft-dollar employees, and during recent years has been subsidized by the general fund by transfers of $200,000 to $250,000 per year.

      The lower fringe benefit rate of 25% for summer faculty compensation was used because faculty receive their medical coverage for the entire year even if they do not earn summer salary. The maximum cost of faculty summer benefits is 20.5% (10.55 to 12.55% TIAA-CREF, 1.45%-7.65% for Social Security, and 0.3% for Workman's Compensation and unemployment).

      Historically, fringe benefit rates have, on average, recovered less than the cost for soft-dollar employees, while summer compensation has recovered more than the cost to deliver the benefits.

   5. Examples of the cost to provide fringe benefits to different hypothetical employees

      The actual cost of delivering the MTU benefit package to a variety of employees allows evaluation of the fairness of the fringe benefit rates charged. The hypothetical examples included in Tables 6 to 9 cover a range of appointments and salary levels, but emphasize employees who would likely be paid from contracts and grants. Any differences in the benefit package for the different positions is reflected in the tabulated costs.

      Useful standards of comparison are break-even salaries, for which MTU's cost of benefits equals amount recovered using the fringe benefit rate applied. For regular full-time soft-dollar employees on 12-month contracts, the break-even salary is $47,400 with the approved 57% fringe rate (Table 6). For faculty and others paid from the general fund with the approved 38% fringe rate and v/h/s paid by the department account, the break-even salary is $49,300 (Table 7).

      An academic-year professor with a salary of $90,000 (Table 8) would receive a benefit package valued at $26,399 (29.3%), which is much lower than the $34,200 that would be recovered using the 38% fringe benefits rate for academic- year faculty. In contrast, an employee with a salary of $23,000 (Table 9) would receive fringe benefits valued at $13,350 (58.04%).

   6. The methodology used to calculate the ONR FY2001 rates

      As announced in May 2000, allowable fringe benefit rates for grants and contracts were 57% for soft-dollar employees, and 38% for all others. The new rates were developed assuming that all employees should pay the same fringe benefit rates (a "pooled rate" concept). The extra 19% for soft-dollar employees was added to cover the cost of v/h/s. Because they receive no health or retirement benefits, allowable rates were only 10% for temporary employees and 0% for students.

   7. Alternative fringe benefit scenarios considered for FY 2002

      Subcommittee # 2 considered a wide range of scenarios which involved sensitivity analysis for many possible policy parameters. For example, these parameters included varying general fund payments of a portion of v/h/s of soft-dollar employees, and the possibility of charging different components of the v/h/s directly to contracts and grants rather than from the R&I fund. Only a very small proportion of these scenarios will be reported here. All scenarios retained the fringe benefit rates of 0% for students and 10% for true temporary ("casual") workers.

      The entire FBCRPC participated in selecting scenarios to evaluate. In its deliberations, the committee noted that pooling the benefits and the salaries of academic and soft-dollar employees led to a single fringe benefit rate that was generally acceptable to the various affected groups of researchers. Based on this, the FBCRPC developed three conceptual models, labeled the one-rate, two-rate, and three-rate options.

      In the one-rate option, the fringe benefit rate for all employees would be the same. In the two-rate option, summer faculty would have one fringe benefit rate and all other employees would be charged a separate rate. For the three-rate model, (1) summer faculty, (2) soft-dollar employees, and (3) all other employees, would each have a different rate.

      The FY2001 ONR rate structure of 57% for soft-dollar employees and 38% for all other employees is intended to be a total cost recovery model. Full recovery is financially attractive. For FY 2000 the fringe benefit accounts had a deficit of $1.1 million due to the increasing cost of benefits. For FY 2001 another deficit is projected, because fringe rates were decreased from a proposed 38% to 25% for summer faculty, and from a proposed 57% to 46% for soft-dollar employees. It is important to separate these two sources of under-recovery. The first source is the increasing cost of benefits, primarily health care, and will be called benefit cost inflation. The second source of under-recovery is a result of recovering benefits at rates other than the planned ONR rate, and will be called benefit cost under-recovery.

      To begin the process, expenses were projected to FY2002. Next, a full cost recovery scenario was calculated that used the ONR logic of one rate (with 19% added on for soft money v/h/s). This calculation resulted in fringe benefit rates of 40.9% and 59.9%, which reflects only the change resulting from benefit cost inflation. This implies that the cost of providing the same benefit package in FY2002 will increase by $1,613,000. In addition, the benefit cost under-recovery for FY 2001 will be $884,000. It is important to understand that this amount is not entirely a subsidy because the reduced 25% rate for summer faculty is more than it could possibly cost to provide their benefits (20.5% is the maximum). A more appropriate term is "cost reallocation" rather than "subsidy". The cost reallocation of reducing the faculty rate from 38% to 25% is $467,000, while the cost reallocation of reducing the rate for soft-dollar employees from 57% to 46% is $417,000.

      The scenarios that we will present will be reported in two ways; the resulting fringe benefit rate and the resulting cost reallocation.

      Two issues that were particularly hard to address were the inclusion of the MPSERS fixed charge when calculating the fringe benefit rates and the possibility of charging some portion of the v/h/s directly to the grants.

      A valid argument for excluding the MPSERS fixed charge from the fringe benefit rate is that this is a past service liability. No present employee of MTU earns any current or future benefit from this charge. In fact, if there were no employees enrolled in MPSERS now, MTU would still be liable for this charge by the State of Michigan. The opposing argument for retaining it as part of the fringe benefit rates is that it is a charge associated with retirement programs, and therefore, should be included in the fringe benefit rate. If MPSERS fixed is removed from the calculation, then the change in the overall fringe benefit rate would be a reduction of 3.04%.

      The possibility of charging some portion of the v/h/s to the grants was discussed at length. Nobody was comfortable with charging vacation to grants because vacation accumulates and employees receive a lump-sum payment when they leave MTU; this could adversely impact later grants. A consensus was formed that holiday leave could be charged to the grants, which would reduce the fringe benefit cost by 4.58% for soft-dollar employees. It is important to note that this reduction in cost could result either in a reduction in the fringe benefit rate, or in cost savings by the general fund. The possibility of direct charging sick leave was discussed at length, and was rejected by the FBCRPC because of the potential to unfairly damage future grants by taking large amounts of accumulated sick leave and the modest expected savings of only 3.43%.

   ---

   E. Report of Subcommittee # 3: Consistency with Strategic Goals

   Clearly the new ONR-approved fringe rates of 38% and 57% run counter to the strategic goals of the university, given the strong antipathy of the research community toward those rates. This is despite the fact that they allow recovery of the costs of doing research and contribute to a financially healthy university, a most desirable goal.

   When it comes time finally to decide on fringe benefit rates, the decision cannot be dictated by "the numbers" alone. The final decision will be a POLICY choice that adjusts rates in order to advance the overall program of the university -- especially research efforts. It is not a question of whether there should be cost reallocations for fringe benefit expenses of individuals whose presence at MTU advances the research mission of the University. In fact, this historically has been done -- substantially.

   The goal of the decision should be to develop a structure that is perceived as equitable, while also advancing University goals. That means balancing the need for increased resources (obtained by higher rates) against the need to offer competitive programs attractive to external supporters and to provide incentives to researchers on campus (obtained by lower rates).

   The Strategic Planning group recognizes that one of the fundamental difficulties facing Michigan Tech has been limited financial resources. This is not likely to change in the foreseeable future. While advocating increased research activities and the expansion of graduate education, the strategic planning exercise has heightened understanding of the essential need to increase the resource base upon which these activities depend. In other words, expanded research efforts must rest upon additional external resources, and additional graduate students must be supported by external sponsors. Achievement of the goals of the strategic plan cannot be predicated solely upon heavy subsidies from the general fund.

   However, teaching is not the only activity supported by general fund monies. Research is also defined as a central function for this University, and it is reasonable that the general fund must support and help advance the research enterprise. Such support is already apparent in Research Services, the newly-approved position of Vice President for Research, and new buildings with their expanded research facilities. From this perspective, it is possible to defend selective cost reallocation designed to encourage research efforts.

   MTU's Strategic Plan assumes that Michigan Tech's research activities should fit seamlessly into the educational program of the University. The plan carefully avoids pitting undergraduate teaching against graduate instruction, or teaching against research. Rather, research activities strengthen the overall educational environment of the University for both undergraduate and graduate students. Fringe benefit rates that would damage the ability of researchers to attract funds or to hire 100 percent externally-funded researchers and support staff does not serve the best interests of MTU.

   The final decision between the committee recommendations will be a difficult one, based on guesswork about the attractiveness of lower fringe rates to funding agencies and their stimulating effect on research efforts at MTU.

   ---

   F. Committee Recommendations

   The FBCRPC quickly excluded the one-rate model because it seemed untenable to charge faculty 38% during the summer given the fact that our competitors all charge a reduced rate and when the most their fringe benefits could cost was 20.5%. After much deliberation, the committee ranked two acceptable fringe benefit rate structures (Table 10). Both rate structures are based on direct charging holiday pay on research grants and contracts, which provides recovery of approximately $180,000, and retaining a 25% summer faculty fringe benefit rate.

   The preferred option calls for a 39.9% rate and establishes the MSPERS fixed costs as a separate budget line item outside the fringe rate structure. The $180,000 saved by direct-charging holidays for soft-dollar employees is used reduce the impact of the fringe rate changes on the General Fund. This option is preferred primarily because it results in a fringe benefit rate of less than 40%. It also promotes the other goals summarized above and is not excessively expensive for the General Fund.

   The second, but still acceptable, choice is based on a 42.8% pooled fringe benefit rate, which includes the MSPERS fixed. The approximately $180,000 saved by direct-charging holidays for soft-dollar employees is used to reduce the fringe benefit rate for all employees except summer faculty from 43.1% to 42.8%.

   The total general fund cost difference between these two proposals is approximately $380,000. It is also worth noting that much of the direct benefit of the reduced fringe benefit rates from 42.8% to 39.9% does not go to benefit research, but is spread across all non-General Fund salary expenditures. The main attraction for research is that the fringe rate is kept below 40%. None of our peers charge over 40%, and having a rate over 40% distinguishes grant applications from MTU in a very negative way.
   
   

   ---

   
   
   
   Table 1

   MEMBERSHIP OF FRINGE BENEFITS COST RECOVERY PLANNING COMMITTEE
   Name	Department
   Ingrid Cheney	Human Resources
   Mike Hendricks	Accounting Services
   Helene Hiner	Vice Provost for Instruction
   Ellen Horsch	Human Resources
   Bob Keen	Biological Sciences
   Debbie Lassila	Budget Office
   Jim Pickens	School of Forestry and Wood Products
   Anita Quinn	Research/Grad School
   Tony Rogers	Chemical Engineering
   Bruce Seely	Social Sciences
   Others working on subcommittee work groups:
   Thomas Courtney	Materials, Sciences and Engineering
   Daniel Greenlee	Accounting Services
   Marilyn Haapapuro	Human Resources
   Jay Meldrum	Keweenaw Research Center
   Julie Seppala	Accounting Services

   
   
   
   Table 2

   FRINGE BENEFIT HISTORY
   Academic Departments	Prior to 7-1-90	07-01-90	10-23-91	02-08-93	07-01-93	06-01-94	02-21-95	09-01-96
   Faculty - Summer	18%	22%	22%	25%	38%	25%	25%	25%
   Faculty - Academic Year	24%	30%	33%	35%	38%	38%	38%	38%
   Professionals	25%	30%	33%	35%	38%	38%	38%	38%
   Graduate Students	2%	22%	22%	30%	38%	25%	25%	0%
   Clerical/Technical	32%	39%	46%	49%	38%	38%	38%	38%
   Part-time/Temporary	21%	22%	22%	25%	38%	38%	38%	38%
   Undergraduate Students	2%	0%	0%	0%	0%	0%	0%	0%
   Institutes (Soft-Dollar Employees)	Prior to 7-1-90	07-01-90	10-23-91	02-08-93	07-01-93	06-01-94	02-21-95	09-01-96
   Faculty - Summer							25%	25%
   Faculty - Academic Year							38%	38%
   Professionals	48%	44%	47%	44%	46%	46%	46%	46%
   Graduate Students	2%	22%	22%	30%	46%	25%	25%	0%
   Clerical/Technical	53%	53%	60%	60%	46%	46%	46%	46%
   Part-time/Temporary	21%	22%	22%	26%	46%	46%	46%	46%
   Undergraduate Students	2%	0%	0%	0%	0%	0%	0%	0%

   Table 3 TR VALIGN="TOP">

   BENEFITS INCLUDED IN THE FRINGE RATE - BENCHMARK UNIVERSITIES
   Benefit	MTU	U of M	MSU	WMU	WSU	Virginia Tech	Georgia Tech
   Health Plan	PPO-Blues	HMO-MCARE	HMO-Blues	Blues	HMO-Health Alliance	State Plan-Blues	Traditional
   Health Plan - University Paid	$8,496	$5,340	$6,792	$4,122	$6,960	$6,600	$6,552
   Health Plan - Faculty Paid	$0	$960	None	$1,794	$624	$2,580	$2,000
   Health - Deductible	None	None	None	None	None	None	$200
   Life Insurance - University Paid	$5,000	1 x's Salary	1 x's Salary	50% to $100,000	$25,000	0	$25,000
   Long Term Disability - 60%	University Paid	University Paid	University Paid	University Paid	University Paid	0	0
   Retirement Plan	TIAA-CREF	TIAA-CREF	TIAA-CREF	TIAA-CREF	TIAA-CREF	TIAA-CREF	TIAA-CREF
   Retirement Amount - University	12.55%	10%	10%	11%	10%	10.40%	5%
   Retirement Amount - Faculty	2%	5%	5%	0%	5%	$40/mo Cash Match	8.79%
   Education - Faculty	2 Classes/Semester	75% Paid	None	75% Paid	2 Classes/Semester	12 Hours/Year	100%
   Education - Dependent	50% Discount	None	50% Discount	50% Discount	50% Discount	None	None
   Vacation - Faculty	None	None	None	None	None	None	None
   Sick - Faculty	4 Hrs/Pay Period	3 Weeks/Year	6 Months	5 Days/Semester	22 Days/Year	130 Days	8 Hrs/Month

   Note: LeHigh did not respond

   
   
   
   Table 4

   COMPARISON OF RATE AT OTHER UNIVERSITIES
   University	Soft Money Rate	University Funded Rate	Vacation, Holiday, etc. included	Faculty Rate - AY	Faculty Rate Summer	Indirect Cost Rate
   MTU	57%	38%	Yes1	38%	38%	51%
   WMU	39%		Yes	22%	11%	45.5%
   MSU	32%	32%	No		7.5%	47%
   UM-AA	26%2	26%	No	26%	<26%3	51%
   WSU		21.3%4	No	22.2%	22.2%	50%
   Virginia Tech	34%	34%	No	25%	9.0%	45%
   Iowa State5		29.2-35.5%	No	23.2%	23.2%	45%

   ¹ - Yes means fringe benefit pool pays for vacation, holiday time. No means contract is charged directly for vacations/holidays. For MTU, the Yes applies to soft money personnel but not for faculty.

   ² -This is a university-wide average. UM-AA practice is to charge specific (i.e., individual) benefits for each person on grant/contract money.

   ³ -The < signifies that health and life benefits are not charged as fringe benefits on faculty summer salary.

   ⁴ -The 21.3% is a university average. Rates vary from 17.6% to 32.5% depending on classification of employee.

   ⁵ -29.2% for professional and scientific personnel. 35.5% for "merit" employees. Actual charges to contracts are specific benefits to each employee whose salary is charged to contract.

   
   
   
   Table 5

   FRINGE BENEFIT COST - ACTUAL and PROJECTED
   	Actual FY 00	Percent of Total	Projected Cost Increase FY00 to FY01	Projected FY01	Projected Cost Increase FY01 to FY 02	Projected FY02
   FICA	$4,328,389	19.4%	2.4%	$4,433,367	3.5%	$4,588,535
   TIAA-CREF	$5,121,316	23.0%	8.5%	$5,556,628	7.0%	$5,945,592
   MPSERS (Variable)	$1,128,712	5.1%	-5.0%	$1,072,276	-5.0%	$1,018,663
   MPSERS (Fixed)	$1,605,396	7.2%	20.4%	$1,932,810	0.0%	$1,932,810
   Health Care Costs	$9,270,546	41.6%	12.0%	$10,383,012	12.0%	$11,628,973
   Life, Disability, Unemployment, W/C, Other	$849,937	3.8%	2.0%	$866,910	3.3%	$895,919
   Total Fringe Benefits Cost	$22,304,296	1.00%	8.7%	$24,245,003	7.3%	$26,010,492

   
   
   
   
   Table 6
   
   

   BREAK EVEN ANALYSIS FOR SOFT DOLLAR EMPLOYEES AT 57% Regular/Full-time/12-Months Salary=$47,400
   Direct Benefit Charge	Direct Charge
   Health and Dental (Family Plan)	$8,496
   Life Insurance (3 x's Salary)	$278
   Long Term Disability	$147
   Retirement (12.55%)	$5,949
   FICA (7.65%)	$3,626
   Sick Leave (7.5 days)	$1,367
   Bereavement Leave (3 days)	$547
   Vacation (24 days)	$4,375
   Holidays (10 days)	$1,823
   Total Annual Cost	$26,608
   % of Salary	57%

   
   
   
   
   Table 7
   
   

   BREAK EVEN ANALYSIS FOR GENERAL FUND AT 38% Regular/Full-Time/12-Months Salary = $49,300
   Cost Recovery Methods	Annual Cost
   Direct Benefit Charge
   Health & Dental (Family Plan)	$8,496
   Life Insurance (3x Salary)	$289
   Long Term Disability	$153
   Retirement (12.55%)	$6,187
   FICA (7.65%)	$3,771
   Total Annual Cost	$18,897
   % of Salary	38%

   
   
   
   
   Table 8
   
   

   EXAMPLE OF FRINGE BENEFIT RATE STRUCTURES: PROFESSOR Salary of $90,000
   Cost Recovery Methods	Annual Cost
   Current 38% Pooled Rate
   $90,000 x .38	$34,200
   Direct Benefit Charge
   Health & Dental (Family Plan)	$8,496
   Life Insurance (3x Salary)	$523
   Long Term Disability	$279
   Retirement (12.55%)	$11,295
   FICA (7.65% for first $72,600)	$5,554
   FICA (1.45% for second $17,400)	$252
   Total Annual Cost	$26,399
   % of Salary	29.33%

   
   
   
   
   Table 9
   
   

   EXAMPLE OF FRINGE BENEFIT RATE STRUCTURES Regular/Full-Time/12-Months Salary of $23,000
   Cost Recovery Methods	General Fund VHS on GF Account	Soft $ with VHS
   Current 38% Pooled Rate
   $23,000 x .38	$8,740
   Current 46% Pooled Rate (Soft Funded)
   $23,000 x .46		$10,580
   Direct Benefit Charge
   Health & Dental (Family Plan)	$8,496	$8,496
   Life Insurance (3x Salary)	$137	$137
   Long Term Disability	$71	$71
   Retirement (12.55%)	$2,887	$2,887
   FICA (7.65%)	$1,760	$1,760
   Sick Leave (7.5 days)		$663
   Bereavement Leave (3 days)		$265
   Vacation (12 days)		$1,062
   Holidays (10.5 days)		$929
   Total Annual Cost	$13,350	$16,269
   % of Salary	58.04%	70.73%

   
   
   
   
   Table 10
   
   

   THE TWO PROPOSED RATE STRUCTURES AND COSTS
   Remove MPSERS Fixed	Rate
   Summer Faculty	25.0%
   Soft Dollar Employee (Direct Charge Holiday to Contracts)	39.9%
   Regular	39.9%
   Include MPSERS Fixed	Rate
   Summer Faculty	25.0%
   Soft Dollar Employee (Direct Charge Holiday to Contracts)	42.8%
   Regular	42.8%

   
   
   
   

   ESTIMATED GENERAL FUND COSTS
   Remove MPSERS Fixed	Cost
   Establish Separate Budget Line Item MPSERS Fixed	$1,932,810
   Benefits Rate Increase 1.9% (change from 38% to 39.9%)	$896,800
   Recovery from Direct Charge of Holidays	($180,000)
   Total	$2,649,610
   Include MPSERS Fixed	Cost
   Summer Faculty	$457,980
   Soft Dollar Employee (Vacation & Sick)	$469,280
   Benefit Cost Inflation (2.9%)	$1,338,340
   Total	$2,265,600

   
   
   
   [Back to Index]
   

   ---

   [Benefits Office] [Human Resources Information System] [Employment Office] [Labor & Employee Relations Office]
   [Classification & Compensation Office] [Payroll Office] [Center for Profession Dev & Quality Improvement]
   Last Revised June 20, 2001 - http://www.admin.mtu.edu/hro/employ
   Copyright © 1998, Michigan technological University All Rights Reserved.
   Maintained by gmsayen@mtu.edu