Grosse Pointe Public School System Financial Transparency Series EMPLOYEE INDIRECT

Size: px

Start display at page:

Download "Grosse Pointe Public School System Financial Transparency Series EMPLOYEE INDIRECT"

Lora White
5 years ago
Views:

1 Grosse Pointe Public School System Financial Transparency Series EMPLOYEE INDIRECT COMPENSATION

2 Presentation Objectives Deliver a Basic Understanding of: 2 Definition of Indirect Compensation Employee Retirement Systems (MPSERS) How GPPSS Funds Health Care to Employees Indirect Compensation Trends and Budgeting Financial Transparency Series - Employee Indirect Compensation

3 Types of Indirect Employee Compensation Michigan Public School Employee Retirement System Financial Transparency Series - Employee Indirect Compensation 3 Commonly referred to as MPSERS Funds public school employee pension and retiree health care Set by state as fixed percentage of salary payments to all employees MPSERS is our second largest expense behind employee salaries. Health Care Benefits Medical, vision, dental, life, and long-term disability insurance Subject to local bargaining and can vary by bargaining unit Narrowly behind MPSERS as district s 3 rd largest expense. Federal Insurance Contribution Act (FICA) Federally mandated employer contribution for Social Security Fixed percentage of salary and not subject to local bargaining.

4 4 A Closer Look at MPSERS MPSERS is a Defined Benefit retirement plan meaning it guarantees a certain level of pension and healthcare to retirees regardless of investment performance. When the market underperforms, the fund must account for this by increasing rates. MPSERS Concerns Unfunded Liability gap grows. Recent market performance indicates this problem will get worse. One of the main drivers for districts to outsource employee groups is to reduce MPSERS obligation. This further reduces MPSERS funding and the problem gets worse. A study by the state Senate Fiscal Agency shows conversion to Defined Contribution system will bear higher short term costs. This will be a growing challenge as time passes. Financial Transparency Series - Employee Indirect Compensation

10 Year History of MPSERS Rates Unfunded Accrued Actuarial Liability (UAAL) is Fund s Largest Problem 5 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.

5 10 Year History of MPSERS Rates Unfunded Accrued Actuarial Liability (UAAL) is Fund s Largest Problem % 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Pension UAAL Health Financial Transparency Series - Employee Indirect Compensation

Like a pro sports team luxury tax, salary costs compound with MPSERS and FICA rates.

6 The Compounding Problem of Higher Salaries 6 Two of the districts largest expenses are calculated as a percentage of salaries: Retirement at 16.94% and FICA at 6.5%. Like a pro sports team luxury tax, salary costs compound with MPSERS and FICA rates. Financial Transparency Series - Employee Direct Compensation Every $1.00 of salary above market value therefore actually costs the district $1.23 a 23% premium on our largest expense. Meanwhile, MPSERS rates can be expected to rise.

7 Health and Other Insurance Basics 7 Plans, Carriers and 3 rd Party Administration Blue Cross is primary provider, not MESSA, which is the dominant TPA for Michigan public schools. (PPO s are dominant plans.) On average our health care costs are likely lower than most public schools that use MESSA. HAP HMO is also used for Custodians/Engineers. Cost Control Strategies All employees, except teachers, pay roughly 5% medical premium co-pay. Prescription co-pays paid by all employees have dramatically reduced overall expenses. Spousal coordination of benefits and dependent audits have been utilized to reduce costs. Financial Transparency Series - Employee Indirect Compensation

Medical and Other Insurance Costs Cost Per All Employees 2007-8 2008-9 Cost Per Contract Cost Per All Employees Cost Per Contract Medical Insurance $9,481 $11,677 $9,610

more than the state increase of the per pupil Foundation Allowance from 2007-8 to 2008-9.

8 Medical and Other Insurance Costs Cost Per All Employees Cost Per Contract Cost Per All Employees Cost Per Contract Medical Insurance $9,481 $11,677 $9,610 $11,842 All Other Insurance* $1,167 $1,235 $1,159 $1,212 Totals $10,648 $12,912 $10,769 $13,055 Insurance Costs Per Pupil $1,179 $1,237 8 Health Care costs alone consumed more than the state increase of the per pupil Foundation Allowance from to There will be NO Foundation Allowance increase from to and we project a $53 cost increase per pupil on health care. * Other insurance includes Dental, Vision, Life, and Long-Term Disability Financial Transparency Series Employee Indirect Compensation

9 Indirect Compensation Per Employee Increases with Salary, MPSERS Rate, and Inflation Total FTE Employees Blended Student Enrollment 8, , , Direct Compensation Per Employee $65, $66, $68, MPSERS Cost Per Employee $11, $10, $11, Health Care Cost Per Employee $10, $10, $11, FICA Per Employee $5, $5, $5, Total Indirect Compensation/Employee $26, $26, $28, Financial Transparency Series - Employee Indirect Compensation

10 Indirect Compensation Cost Per Pupil Increases with Salary, MPSERS Rate, and Inflation 10 Actual Actual Projected MPSERS Rate 16.72% 16.54% 16.94% MPSERS Cost Per Pupil $1,218 $1,263 $1,293 Health Care Cost Per Pupil $1,179 $1,237 $1,290 FICA Per Pupil $557 $584 $584 Per Pupil Foundation Allowance $10, $10, $10, Total Indirect Compensation Per Pupil $2,954 $3,083 $3,167 In a 3 year window, Indirect Compensation Costs rise $213 per pupil. In same period, Foundation Allowance increases only $56. Financial Transparency Series - Employee Indirect Compensation

11 Total Compensation Costs Outpace Revenue The Primary Source of Recurring Projected Shortfalls Per Pupil Foundation Allowance $10,128 $10,184 $10,184 Employee Direct Compensation Per Pupil $7,284 $7,634 $7,635 MPSERS Cost Per Pupil $1,218 $1,263 $1,293 Health Care Cost Per Pupil $1,179 $1,237 $1,290 FICA Cost Per Pupil $557 $584 $584 Total Compensation Cost Per Pupil $10,238 $10,718 $10,802 YOY Foundation Allowance Change $56 $0 YOY Total Compensation Costs Increase $480 $85 Net Compensation Cost Increases Per Pupil $424 $85 Multiply the Net Compensation Cost increase per pupil by the total number of students to quantify the full impact of the problem this poses. Financial Transparency Series - Employee Indirect Compensation

Indirect Compensation Summary 12 Indirect Compensation Costs are Increasing Faster Than Our Revenue Per Pupil Indirect Compensation per

Relative health care cost control advantages have been consumed by salaries GPPS has successfully kept our health care costs lower than

Compounding Costs of MPSERS and FICA on High Salaries Since MPSERS and FICA costs are the product of their rates and salaries, GPPS pays an

12 Indirect Compensation Summary 12 Indirect Compensation Costs are Increasing Faster Than Our Revenue Per Pupil Indirect Compensation per employee is up 6.7% from 2 years ago. (Teacher direct compensation up 6.5%.) Revenue per pupil up only 1.1% in same time. Relative health care cost control advantages have been consumed by salaries GPPS has successfully kept our health care costs lower than districts using MESSA. However, cost savings have fueled our position as paying the highest average teacher salary in the state. Compounding Costs of MPSERS and FICA on High Salaries Since MPSERS and FICA costs are the product of their rates and salaries, GPPS pays an additional premium. The unfunded liability of the state MPSERS fund will likely mean higher rates in the near term. Financial Transparency Series - Employee Indirect Compensation

MPSERS REFORM (Senate Bill 1040) FREQUENTLY ASKED QUESTIONS

MPSERS REFORM (Senate Bill 1040) FREQUENTLY ASKED QUESTIONS What is MPSERS? MPSERS is the Michigan Public School Employees Retirement System, a statewide public employee defined benefit plan serving members