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Grosse Pointe Public School System

Financial Transparency Series

EMPLOYEE INDIRECT
COMPENSATION
Presentation Objectives
Deliver a Basic Understanding of:
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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
Types of Indirect Employee Compensation
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Michigan Public School Employee Retirement System
• 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 3rd largest expense.
Federal Insurance Contribution Act (FICA)
• Federally mandated employer contribution for Social Security
• Fixed percentage of salary and not subject to local bargaining.
Financial Transparency Series - Employee Indirect Compensation
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A Closer Look MPSERS Concerns
at MPSERS • Unfunded Liability gap grows. Recent
market performance indicates this
MPSERS is a Defined
Benefit retirement plan
problem will get worse.
meaning it guarantees • One of the main drivers for districts to
a certain level of outsource employee groups is to
pension and reduce MPSERS obligation. This
healthcare to retirees
further reduces MPSERS funding and
regardless of
investment
the problem gets worse.
performance. • A study by the state Senate Fiscal
When the market
Agency shows conversion to Defined
underperforms, the Contribution system will bear higher
fund must account for short term costs.
this by increasing
rates. 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
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18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pension UAAL Health

Financial Transparency Series - Employee Indirect Compensation
The Compounding Problem of Higher Salaries
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Every $1.00
of salary
above
Like a pro market value
sports team
“luxury tax”,
therefore
salary costs actually
compound costs the
Two of the with MPSERS district $1.23
districts largest and FICA – a 23%
expenses are rates. premium on
calculated as a our largest
percentage of expense.
salaries:
Retirement at
16.94% and Meanwhile, MPSERS rates can
FICA at 6.5%. be expected to rise.
Financial Transparency Series - Employee Direct Compensation
Health and Other Insurance Basics
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• Blue Cross is primary provider, not MESSA,
Plans, Carriers which is the dominant TPA for Michigan public
schools. (PPO’s are dominant plans.)
and 3rd Party • On average our health care costs are likely lower
Administration than most public schools that use MESSA.
• HAP HMO is also used for Custodians/Engineers.

• All employees, except teachers, pay roughly 5%
medical premium co-pay.
Cost Control • Prescription co-pays paid by all employees have
dramatically reduced overall expenses.
Strategies • Spousal coordination of benefits and dependent
audits have been utilized to reduce costs.

Financial Transparency Series - Employee Indirect Compensation
Medical and Other Insurance Costs
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2007-8 2008-9
Cost Per All Cost Per Cost Per All Cost Per
Employees Contract Employees 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

Health Care costs alone consumed more than the state increase of the per
pupil Foundation Allowance from 2007-8 to 2008-9.
There will be NO Foundation Allowance increase from 2008-9 to 2009-10
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
Indirect Compensation Per Employee
Increases with Salary, MPSERS Rate, and Inflation
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2007-8 2008-9 2009-10
Total FTE Employees 950.87 961.37 908.26
Blended Student Enrollment 8,589.05 8,359.48 8,172.11
Direct Compensation Per Employee $65,793.26 $66,378.41 $68,692.44
MPSERS Cost Per Employee $11,000.63 $10,979.00 $11,636.50
Health Care Cost Per Employee $10,647.91 $10,769.69 $11,602.54
FICA Per Employee $5,033.18 $5,077.95 $5,254.97

Total Indirect Compensation/Employee $26,681.73 $26,826.63 $28,494.02

Financial Transparency Series - Employee Indirect Compensation
Indirect Compensation Cost Per Pupil
Increases with Salary, MPSERS Rate, and Inflation
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Actual Actual Projected
2007-8 2008-9 2009-10
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 $10,128.00 $10,184.00 $10,184.00
Total Indirect Compensation
$2,954 $3,083 $3,167
Per Pupil

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
Total Compensation Costs Outpace Revenue
The Primary Source of Recurring Projected Shortfalls
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2007-8 2008-9 2009-10
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
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Indirect Compensation
• Indirect Compensation per employee is up 6.7% from 2
Costs are Increasing years ago. (Teacher direct compensation up 6.5%.)
Faster Than Our • Revenue per pupil up only 1.1% in same time.
Revenue Per Pupil

Relative health care • GPPS has successfully kept our health care costs lower
cost control than districts using MESSA.
advantages have been • However, cost savings have fueled our position as
consumed by salaries paying the highest average teacher salary in the state.

Compounding Costs of • Since MPSERS and FICA costs are the product of their
rates and salaries, GPPS pays an additional premium.
MPSERS and FICA on • The unfunded liability of the state MPSERS fund will
High Salaries likely mean higher rates in the near term.

Financial Transparency Series - Employee Indirect Compensation