Working Group #2:

Charge - Equity in the relationship between charges and benefits for classes of employees.



Two fringe benefit rates were changed:

Note: These changes have been rescinded while the issues are clarified by this committee.

There are two problems with these rates:





PLEASE NOTE: This form is new and was distributed at the Open Forum held on September 7, 2000.

In the past, MTU has not had an "approved fringe rate" for grans and contracts. The reason we now have an approved fringe rate is because of a change in our auditing unit:

  • In the past we were audited by Health and Human Services (HHS)
  • We are now audited by the Office of Naval Research (ONR)

HHS does not audit and approve fringe benefit rates. ONR does audit and approve fringe benefit rates.

Note: MTU cannot charge more than the approved fringe benefit rate, but we can charge less. In fact, we are currently charging less (46% soft dollar and 25% summer faculty) than the approved rates (57% soft dollar and 38% summer faculty).



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 1x's Salary 1x's Salary 50% to $100,000 $25,000 0 $25,000
Long Term Disability-60% University Paid University Paid Univesity 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/Month 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 Hours/Pay Period 3 Weeks Year 6 Months 5 Days/Semester 22 Days/Year 130 Days 8 Hours/Month
Note: LeHigh did not respond




EXAMPLE DIFFERENT FRINGE BENEFIT RATE STRUCTURES
Professor - Salary of $90,000
Current 38% Pooled Rate
Annual Cost

$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%




EXAMPLE DIFFERENT FRINGE BENEFIT RATE STRUCTURES
Regular/Full-Time/12-Months - Salary of $23,000
Current 38% Pooled Rate
Annual Cost
With VHS

$8,740 $8,740


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% 70.74%


Note: Non-productive time for general and auxiliary fund employees is charged directly to units.



EXAMPLE DIFFERENT FRINGE BENEFIT RATE STRUCTURES
Break Even Analysis at 57% - Salary of $47,400
Regular/Full-Time/12-Months
Direct Benefit Charge
Health & Dental (Family Plan) $8,496
Life Insurance (3x 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%




The original composite rate philosophy study which developed these fringe benefit rates made a fundamental assumption that the fringe benefit rate should be the same for nearly all employees. Employees with different rates were limited to:

  • Employees supported on contracts and grants ("soft dollar employees"), who would have an increased fringe benefit rate that would include vacation, holiday, and sick leave

  • Employees such as students and temporaries, who receive very limited benefits, would have lower rates

Our committee questioned this assumption, and replaced it with the premise that, for grants and contracts, the itemized cost to MTU to provide the benefits should be an important factor when deciding what to charge for the benefits.



The real issue causing the 57% fringe rate is the time that is compensated but when the employee is not working:
  • Sick leave - 7.5 days average use (13 earned)

  • Vacation - 24 days

  • Holidays - 10 days
Total nonproductive time = 41.5

Total possible work per year is 2080 hours, or 260 days.

The nonproductive time is 19% [41.5 divided by (260 - 41.5) = .1899] of the annual work time.

MTU currently charges soft-dollar funded positions the cost of these nonproductive times as part of fringe benefits, then pays the employees out of the fringe benefit account in the R&I fund when they take leave. Other employees are paid from their departmental accounts when they take leave, not from the fringe benefit account. This is why the fringe benefit rate is increased by 19% for soft-dollar employees, from 38% to 57%.



One resolution to the high fringe rate would be to cover the nonproductive time on grants:
  • Holidays - Number =10 per year, problems are minimal

  • Sick leave - Number (average) = 7.5 per year, moderate potential problems

  • Vacation - Number = 24 per year, serious potential problems



During the summertime faculty receive the following benefits:

Benefit
Cost
Comment
Retirement 10.55%-12.55% Actual cost depends on 2+2 participation
Social Security 1.45%-7.65% Higher rate applies to only first $72,600
Workman's Comp and Unemployment .3%


Total

12.3%-20.5%




Michigan Technological University
FRINGE BENEFIT RECOVERY REVIEW
RECOVERY:
FY00
FY99
Change
Fringes @ Approved Rates $21,695,628 $21,728,742 -0.15%




FRINGE BENEFIT COSTS


FICA $4,328,389 $4,122,182
TIAA-CREF $5,580,316 $4,683,692
MPSERS (Variable) $1,128,712 $1,027,965
MPSERS (Fixed) $1,605,396 $1,363,658
Health Care Costs $9,270,546 $7,556,310
Life Insurance Premiums $210,260 $182,909
Long Term Disability Premiums $158,527 $185,410
Tuition (employees) $92,566 $94,469
Unemployment Compensation $30,867 $56,285
Worker's Compensation $177,369 $157,193
Miscellaneous $86,809 $240,709
Subtotal $22,669,757 $19,670,782




Directly Assigned Payroll $609,244 $530,764
Supplies, Services & Equipment $93,539 $81,318
Other
$10,778




Total adjusted fringe benefits $23,372,540 $20,293,642 15.17%




Recovery over (under) Expenditures and Transfers ($1,676,912) $1,435,100




Summary


Total Fringe Benefits per above $23,372,540 $20,293,642
Non Student Chargable S&W $57,956,843 $56,057,901
Actual Cost Rate 40.3% 36.2%





PLEASE NOTE: Fiscal Year 2000 numbers have changed. This form was updated and distributed at the Open Forum held on September 7, 2000.

Michigan Technological University
FRINGE BENEFIT COST REVIEW
FRINGE BENEFIT COSTS
Actual
FY00
FY00
Percent to Total
Actual
FY99
Yr to Yr
Increase
FICA $4,328,389 19.4% $4,122,182 5.0%
TIAA-CREF $5,121,316 23.0% $4,683,692 9.3%
MPSERS (Variable) $1,128,712 5.1% $1,027,965 9.8%
MPSERS (Fixed) $1,605,396 7.2% $1,363,658 17.7%
Health Care Costs $9,270,546 41.6% $7,556,310 22.7%
Life, Disability, Unemployment, W/C, Other $849,937 3.8% $1,009,071 -15.8%
Total Adjusted Fringe benefits $22,304,296 100.0% $19,762,878 12.9%




PLEASE NOTE: This form is new and was distributed at the Open Forum held on September 7, 2000.



DEFINITIONS ON RATE SCENARIOS

Base Assumptions

  • Temporaries at 10% Charge Rate
  • Undergrad and Grad Students at 0%

One Rate

  • Summer Faculty, Soft Dollar Employees, and Faculty and Staff

Two Rates

  • Summer Faculty
  • Soft Dollar Employees, and Faculty and Staff

Three Rates

  • Summer Faculty
  • Soft Dollar Employees
  • Faculty and Staff




PLEASE NOTE: This form is new and was distributed at the Open Forum held on September 7, 2000.


FRINGE BENEFIT RATE OPTIONS FOR FY02

Current-FY01
Options Under Consideration

ONR Approved
 Rates Charged
Three Rate
Three Rate
Two Rate
One Rate







Summer Faculty 38.0% 25.0% 25.0% 25.0% 25.0% 42.2%
Soft Dollar Employees 57.0% 46.0% 59.9% 46.0% 43.3% 42.2%
Faculty and Staff 38.0% 38.0% 42.0% 43.0% 43.3% 42.2%




Comparable Rate Summaries
Comparable Rate Summaries
Estimate
FY02
Estimate
FY02
(w/o nonproductive wages)
Difference
Total Fringe Benefit estimate $26,833,668 $26,010,491 $823,177
Non Student Chargable S&W $63,626,860 63,626,860
Overall weighted average 42.2% 40.9%

TWO RATE SCENARIO-RECOVERY RATES UNDER VARIOUS SUMMER RATES
Breakeven
Example
Summer Faculty 40.9% 21.0% 22.0% 23.0% 24.0% 25.0%
Faculty and Staff 40.9% 40.9% 40.9% 40.9% 40.9% 40.9%
Cost Reallocation-Summer Faculty 0.0% 1.2% 1.2% 1.1% 1.0% 1.0%
Cost Reallocation-Soft Dollar (VHS) 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
Overall weighted average 42.2% 42.2% 42.2% 42.2% 42.2% 42.2%


Summer Cost Reallocation

0

$738,982

$701,809

$664,637

$627,464

$590,291
Soft Dollar (VHS) Cost Reallocation $823,177 $823,177 $823,177 $823,177 $823,177 $823,177
Total Reallocation Dollars $823,177 $1,562,159 $1,524,986 $1,487,814 $1,450,641 $1,413,468

THREE RATE SCENARIO-RECOVERY RATES UNDER VARIOUS SOFT DOLLAR RATES
BREAKEVEN
EXAMPLE
Summer Faculty 40.9% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Soft Dollar Emp 40.9% 46.0% 48.0% 50.0% 52.0% 54.0% 56.0% 58.0% 59.9%
Faculty and Staff 40.9% 40.9% 40.9% 40.9% 40.9% 40.9% 40.9% 40.9% 40.9%
Cost Reallocation-Summer Faculty 0.0% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1%
Cost Reallocation-Soft Dollar (VHS) 1.5% 1.1% 0.9% 0.8% 0.6% 0.5% 0.3% 0.1% 0.0%
Overall weighted average 42.2% 42.2% 42.2% 42.2% 42.2% 42.2% 42.2% 42.2% 42.2%


Summer Cost Reallocation

0

$590,291

$590,291

$590,291

$590,291

$590,291

$590,291

$590,291

$590,291
Soft Dollar (VHS) Cost Reallocation $823,177 $601,352 $514,702 $428,052 $341,402 $254,752 $168,101 $81,451 (0)
Total Reallocation Dolalrs $823,177 $1,191,644 $1,104,993 $1,018,343 $931,693 $845,043 $758,393 $671,742 $590,291




PLEASE NOTE: This form was only distributed at the August 1 and 2 forum. They were not included in the forum on September 7.

EXAMPLE DIFFERENT FRINGE BENEFIT RATE STRUCTURES
Associate Professor - Salary of $55,000
Current 38% Pooled Rate
Annual Cost

$20,900


Direct Benefit Charge
Health & Dental (Family Plan) $8,496
Life Insurance (3x Salary) $322
Long Term Disability $171
Retirement (12.55%) $6,903
FICA (7.65%) $4,208


Total Annual Cost

$20,099
% of Salary 36.54%




PLEASE NOTE: This form was only distributed at the August 1 and 2 forum. They were not included in the forum on September 7.

EXAMPLE DIFFERENT FRINGE BENEFIT RATE STRUCTURES
Post Doc - Salary of $30,000
Fixed Term/Full-Time/12 Months
Current 38% Pooled Rate
Annual Cost
with Retirement
With VHS
Anual Cost
Without Retirement
With VHS

$11,400 $11,400 $11,400 $11,400


Direct Benefit Charge



Health & Dental (PPO 300 Family Plan) $7,308 $7,308 $7,308 $7,308
Retirement (12.55%) $3,765 $3,765

FICA (7.65%) $2,295 $2,295 $2,295 $2,295
Vacation (6 days)
$692
$692
Sick Leave (6 days)
$692
$692
Holidays (10 days)
$1,154
$1,154


Total Annual Cost

$13,368

$15,906

$9,603

$12,141
% of Salary 44.56% 53.02% 32.01% 40.47%




PLEASE NOTE: This form was only distributed at the August 1 and 2 forum. They were not included in the forum on September 7.

EXAMPLE DIFFERENT FRINGE BENEFIT RATE STRUCTURES
Research Engineer/Scientist - Salary of $42,000
Regular/Full-Time/12-Months
Current 38% Pooled Rate
Annual Cost
With VHS

$15,960 $15,960


Direct Benefit Charge

Health & Dental (Family Plan) $8,496 $8,496
Life Insurance (3x Salary) $247 $247
Long Term Disability $130 $130
Retirement (12.55%) $5,271 $5,271
FICA (7.65%) $3,213 $3,213
Sick Leave (7.5 days)
$1,212
Bereavement Leave (3 days)
$485
Vacation (24 days)
$3,877
Holidays (10 days)
$1,615


Total Annual Cost

$17,357

$24,545
% of Salary 41.33% 58.44%




PLEASE NOTE: This form was only distributed at the August 1 and 2 forum. They were not included in the forum on September 7.

EXAMPLE DIFFERENT FRINGE BENEFIT RATE STRUCTURES
Break Even Analysis at 38% (Without VHS) - Salary of $49,300
Regular/Full-Time
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%


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