Presentation given to the University Senate by Tony Rogers on Wednesday, September 13, 2000.



Progress Report

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

  1. In the past we were audited by Health and Human Services (HHS)

  2. 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).



    Page 2

    Current vs Office of Naval Research (ONR) Approved Rates
    Category
    Current Rates
    ONR Approved Rates
    Academic Year Summer Academic Year Summer
    Faculty 38% 25% 38% 38%
    Soft Dollar Employee 46% _ 57% _
    Post Docs 38-10% _ 38%-10% _
    Temps 10% _ 10% _
    Grad Students 0 _ _ _



    Page 3

    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.



    Page 4

    Charge of the Fringe Benefit
    Cost Recovery Planning Committee

    Membership:

    This group is to consist of the Benefits Liaison Group and other members of the MTU community whose expertise or perspective may help the committee develop thoroughly considered recommendations. Ellen Horsch will chair the committee; Tony Rogers will serve as co-chair.

    Charge:

    The committee will review 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. The Committee will then review our new, recently negotiated plan for charging extramural sponsors, and consider:

    (1) the effect our new rates may have on the competitiveness of our funding requests,

    (2) equity in the relationship between charges and benefits for class of employees, and

    (3) the consistency between our new fringe rates and our strategic goals. In the event that the Committee finds our new plan is not consistent with out goals for any of the three issues above, it is asked to recommend alternative fringe benefit cost recovery schemes.

    Schedule:

    • November 1, 2000 - Report to Provost

    • December 31, 2000 - Final Report to ONR



    Page 5

    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 Meldrom Keweenaw Research Center
    Julie Seppala Accounting Services



    Page 6

    Problems with Rising Fringe Benefit Rates
    • The ONR approved faculty composite summer fringe benefit rate of 38% (currently 25%) on salaries is far in excess of the discrete actual cost of about 20.5%

    • Explicitly including vacation, bereavement, holiday, and sick time in the fringe benefit rate for staff comes to 57%. This is very unattractive to granting agencies and industrial clients, squeezes research budgets, and discourages hiring and support of regular, full-time staff.

    • Higher fringe benefit costs are the potential cause of:

      (1) Loss of competitiveness in winning grants and contracts;

      (2) Reduction in effectiveness at performing the research we do get;

      (3) Drop in scholarly production;

      (4) Disincentive to hire and retain professional staff and post-docs; and

      (5) Fewer graduate students produced



    Page 7

    During the summer 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%



    Page 8

    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%.



    Page 9

    Concerns of Research Faculty and Staff
    • Budgets for fixed-size grants are "squeezed" by rising costs of all types.

    • Costs are rising simultaneously on fringe benefits, University overhead, and graduate student tuition and fees.

    • Every contract dollar used to cover these rising costs is a dollar not available for research-productive expenditures: faculty summer time, release time cost-share, graduate student support, post-docs, etc.

    • Increased fringe benefit costs also make our bids on variable-size contracts less competitive.



    Page 10

    Comparison of Rates 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.



    Page 11

    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



    Page 12

    Composite Rate Philosophy


    Cost Benefit
    Salary Base    		 = Composite Rate

    Cost Benefits

    • Health Care (4%)
    • TIAA-CREF (2.55%)

    Salary Base

    • Faculty salaries approximately 10% behind peers

    Another Factor in Lower Fringe Benefit Rates at Other Institutions

    • Some costs subsidized outside of the rate structure.



    Page 13

    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%



    Page 14

    Criteria of Acceptance
    • Supportive 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 Money Employees.

    • Acceptance by ONR.



    Page 15

    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



    Page 16

    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%



    Page 17

    Other Forum Feedback
    • Adopt a use-it or lose-it philosophy for vacation and sick.

    • Consider cost subsidies outside of the rate structure.

    • Review Fringe Benefit Rate Structure in conjunction with Indirect Cost Recovery.

    • Reduce vacation/vacation accrual based on years of service.

    • Direct charge vacation/sick to research contract.



    Page 18

    WEB SITE: http://www.admin.mtu.edu/hro/fringe/index.html

    Tony Rogers - email: tnrogers@mtu.edu

    Ellen Horsch - email: eshorsch@mtu.edu


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