Last fall we learned that the premiums for two health plans were increasing dramatically for 2001. The increases and the reasons for them were announced in open forums for faculty and staff and in the open enrollment benefits newsletter. President Susan Resneck Pierce authorized a temporary 2001 salary subsidy for individuals with University salaries less than $40,000 and who cover family members under one of the University’s medical plans. She appointed a task force of three faculty and three staff members to study the matter and make recommendations for the future. The results of that process have been communicated in a memorandum from Acting President Terry Cooney.

Many faculty and staff members made comments and raised questions on the Benefits Task Force survey. Some of the same comments and questions appear in the results of the Staff Senate’s Fall 2000 informal survey. We have addressed the most common concerns from the two surveys in this document. If you have additional questions, don’t hesitate to contact the Human Resources Department or members of the Benefits Task Force. You may also ask questions by e-mailing a message to Qmail@ups.edu.

The University receives the majority of its revenue from tuition (see chart below). Most of the University’s expenses go toward faculty and staff compensation. Enrollment levels and tuition rates are carefully considered when establishing the annual budget, as is spending. The University, like all successful not-for-profit organizations, must operate within a balanced budget. It cannot spend more on operations than it receives.

In addition to tuition revenue, the University receives contributions from donors. Donors usually designate their contributions for specific uses, and the University is obligated ethically and by law to use such gifts as the donors specify. Typically, these gifts are for facilities and student scholarships and cannot be used for any other purpose. The gifts help keep pressure off the operating budget. Without this support, construction or renovation projects and scholarships would have to come out of the tuition-funded budget, leaving less revenue for salaries, benefits and other operating expenses.

No. The federal poverty level for a family of two is $11,610. That translates into an hourly pay rate of $5.58 per hour. There are no full-time employees who earn less than this amount. The minimum wage in Washington is $6.72 per hour. The lowest hourly rate for staff positions at Puget Sound is $8.50.

The Board of Trustees in February approved the fiscal year 2001-02 budget recommendations, including a 3.2% increase to the salary budget and a 0.2% increase to the flexible benefits allowance budget. These increases were funded by an increase in tuition. The budget was submitted by President Pierce based on recommendations made to her by the Budget Task Force (which includes two faculty members, two staff members and two students).

The Benefits Task Force (which includes three faculty members and three staff members) did not have the option of increasing the dollars available for compensation in 2001-02. In doing the survey, the task force wanted to sample opinions on a variety of possibilities, including the option to transfer salary dollars to the benefits budget.

It’s important to maintain a competitive compensation package for all employees, including senior management, in order to attract and retain executives of proven ability. Unlike corporate executives, senior managers at Puget Sound receive few perks. The president is required, as a condition of employment, to live in the President’s House, which is owned and maintained by the University. So while the president’s housing expenses are covered by the University, the house belongs to the University.

The University’s endowment is made up of gifts from donors who have stipulated that the principal of their gifts may never be expended. Donors expect their gifts to continue to serve their designated purpose forever. Thus some of the interest earned is spent toward the purpose of the gift, and some is reinvested so that the fund will outpace inflation and generate real growth over time, with or without new gifts.

Endowment income—both unrestricted and restricted (for example, endowments that are restricted to support endowed chairs or students scholarships or for the purchase of library materials)—is about 16% of the operating budget (see chart on page 1). The fact that endowment income is used to cover specified ongoing expenditures means that the University is able to commit more funds to faculty and staff increases than it would otherwise be able to do. Thus, in fact, the University’s endowment does indirectly support faculty and staff compensation.

The University does not currently have a "longevity" or " step" increase program. Annual step increases were discontinued in 1998-99 because an across-the-board increase was the most effective use of the relatively small salary pool available. The salary pool was distributed in the form of a 2.2% across-the-board increase for all staff members--those in exempt and non-exempt positions (eligible for overtime pay). In making their recommendations for the 1998-99 salary budget, both the Staff Senate Salary Committee and the Budget Task Force recommended to President Pierce that step increases be discontinued. Salary increases for staff members in non-exempt positions were made across-the-board again in 1999-2000.

The way in which the salary increase pool (different from one year to the next) is distributed is determined each year based on the salary increase pool amount, market data, and other considerations. In other words, because we don’t know from one year to the next what the salary increase pool will be (or whether there will be a salary increase pool), we cannot predict how future salary increase dollars will be distributed. These factors make it impossible to predict a staff member’s movement on the salary range or to predict when a staff member might reach the salary range maximum. When salary ranges are increased and extended, longer-term staff members have greater earning potential.

Salary ranges are established for staff positions at Puget Sound and change based on changes in the market. We look at the local market to assess the competitiveness of the salary range structure for non-exempt positions (eligible for overtime pay). The regional higher education market is tapped for information if we recruit regionally. And the national higher education market is used for positions that the University would conduct a national search to fill.

At Puget Sound staff salary ranges have increased at the beginning of the fiscal year in all but two of the last ten years. This means that we have increased the starting salaries for new staff members and provided for future salary growth for continuing staff members.

Each staff member receives an annual compensation statement which shows his or her salary and salary range for the fiscal year. Movement up the salary range for staff members in exempt positions (not eligible for overtime pay) has been based exclusively on performance each year since 1995 with one exception—1998-99, when the increase was an across-the-board increase.

For staff members in non-exempt positions salary range movement was based for many years on the length of time staff members had been in their positions (known as "longevity" or "step" increases). In 1998-99 all of the available salary increase dollars were used for across-the-board salary increases for non-exempt staff members. Again in 1999-2000 staff members in non-exempt positions received an across-the-board salary increase. Last September (the beginning of the 2000-01 fiscal year) staff members in non-exempt positions received flat-dollar-amount increases that were the same for everyone in a given salary range.

Even if an employee is at his or her salary-range maximum, he or she may still get an increase from time to time, based on the salary pool available in a given year. Following, you will see two specific examples of what actually happened over the past five years.

EXAMPLE:

A typical salary range for staff members in non-exempt positions (using Secretary as an example) has the following five-year history. Salary ranges for this classification benefited from the market equity adjustments made in the past two fiscal years.

Example #1 shows that a staff member whose salary was at the top of the salary range in 1996-97, earning $24,252, received a 1.5% across-the-board salary increase for 1997-98, bringing the annual base salary to $24,612, the new range maximum. In 1998-99, the staff members whose salary was at the range maximum received the 2.2% across-the-board salary increase which all staff members received; the increase ($541.46) was not added to annual base salary because the salary range maximum did not change. Instead the increase was received in the form of a onetime payment in September of 1998, bringing annual earnings to $25,153.46. In 1999-00, staff members’ salaries who were at the range maximum were increased to $25,834 because of the across-the-board increase (3%) and the fact that this classification benefited from the market equity adjustment (2%) in the form of a salary range increase. This year (2000-01) the staff member is earning $26,498, having received an increase last year of $664. Whereas in past years the staff member's annual base salary increase was capped because of salaries at the salary range maximum, there is now the potential for salary growth. This example assumes that the staff member did not receive a special merit increase in any of the years when such merit bonuses or increases were available.

In Example #2, the staff member was hired at the salary-range minimum during 1996-97 and received a 4.4% salary increase in 1997-98—the across-the-board increase and a step increase. In 1998-99 the staff member received the 2.2% across-the board increase (bringing the salary to $20,591). In 1999-00 the staff member’s salary was increased to $21,620 because of the across-the-board increase and the fact that this classification benefited from the market equity adjustment in the form of a salary-range increase. This year (2000-01) the staff member is earning $24,313, having received an increase last September of $664 and a substantial market equity adjustment.

In making merit pay recommendations, department heads apply criteria (the staff member’s job description, the objectives established for the staff member’s performance, any formal performance reviews conducted during the year, as well as University-wide performance criteria) and must justify their judgments. Salary increase recommendations are reviewed by next-level supervisors to ensure fairness throughout a unit or division.

As the related chart indicates, average annual staff salary increases at Puget Sound have exceeded the average annual increase in the national Consumer Price Index (CPI) for a decade. During the early ’90s, both staff and faculty salary pools exceeded the CPI based on market equity studies that indicated such increases were required to stay competitive.

Looking to the future, President Pierce has approved a compensation study for staff positions. This study will be conducted during the 2001-02 year. A specific set of compensation study activities and timelines will be established after a "request for proposals" (RFP) process. The RFPs will be sent to compensation consultants, and the one we select will work with us to develop the parameters of the study and the study schedule. The study will likely include updating and reviewing all staff position descriptions, identifying "benchmark" positions (jobs that have "apples-to-apples" relationships with jobs in the appropriate external labor market), and analyzing salary survey data for those positions.

The University has made significant strides in the last two years in salaries and salary ranges for many non-exempt staff positions through market equity dollars (beyond the normal salary increase pool dollars) provided in the salary budgets for 1999-00 and 2000-01.

The Budget Task Force considers the national CPI as they begin their planning process in the fall each year. They use the change in the CPI over the preceding year as one factor to help them determine what increase in tuition they will recommend as well as what increase in the faculty and staff salary budget they will recommend. Because we compete for students nationally (about 75% of our students come from outside of Washington state), the national index is the most useful for determining tuition recommendations. Similarly, the University recruits nationally for faculty and many staff positions. In addition, using one number over time provides the Budget Task Force with a consistent measurement tool. In summary, the national index is the most meaningful in developing University-wide budget (both revenue and expenditure) recommendations.

In determining competitiveness, we consider both benefits as a whole (see benefits budget chart) and we consider benefits as a part of total compensation (benefits and salaries). Hewitt Associates, a benefits consulting firm, is working with the Washington Association of Independent Colleges and Universities (WAICU) on the feasibility of developing a purchasing consortium for benefits. In the course of their analysis, Hewitt averaged the salaries of all faculty and staff members at Washington colleges and universities (Gonzaga, Pacific Lutheran, Saint Martin’s, Seattle Pacific, Seattle, Walla Walla, Whitworth, and Puget Sound). Hewitt reported to us that Puget Sound’s average salaries are the highest in this group and that average salaries for all Puget Sound employees are 20% higher than the average of the other seven schools combined. This is one very recent snapshot of the regional competitiveness of our salaries and clearly deals just with private colleges in Washington State. This information does not, of course, inform us about the local labor market or the national college and university market.

Again, the recent WAICU initiative has provided us with current information about Washington State schools. Among the 15 medical plans offered by the schools, Hewitt reports that for eight of the plans (the Options plan at Puget Sound is one of the eight) the faculty or staff member only is fully covered by the institution’s contributions. For seven of the plans (the Regence plan at Puget Sound is one of the seven) the employee pays a portion of the premium for his or her coverage. The average monthly payment is $32.78 (a Regence subscriber at Puget Sound pays $11.43 for her or his coverage). Fourteen of the 15 plans provide for spousal coverage and the average cost to the faculty or staff member is $193 per month. The cost at Puget Sound for covering spouses is $196.50 for Options and $252.57 for Regence. The average monthly employee cost to enroll a child under one of the 14 plans included in the study is $106.48; whereas the cost at Puget Sound is $92.45 to enroll a child under Options and $155.61 to enroll a child under Regence.

Looking at financial benefits alone, we consider all benefits, not just the flexible benefits allowance, for example. In Hewitt’s recent analysis of the benefits at the Washington State private colleges, Hewitt reported to us that our staff’s paid-time-off benefits ranked number one among this group. Puget Sound’s life insurance coverage (the University buys $25,000 of life insurance coverage for eligible faculty and staff members) ranked sixth (of eight) in employer-paid value. The most common life insurance coverage is a multiple (one or two times) of salary.

More significantly, at Puget Sound we have decided to invest the bulk of our benefits budget in the retirement plan. Our retirement plan contributions are at the top when compared with the institutions in this group. And, because our salaries are at the top as well—and retirement plan contributions are a percentage of salaries—our retirement savings plans are better funded than others who have comparable percentage contributions. Retirement plan contributions are "real dollars." They are fully-owned by the faculty or staff member as soon as the contributions are invested in the accounts the faculty or staff member has selected. In contrast, the much smaller University investment in life insurance coverage (to which employees have the option to add) goes to the insurance company so that benefits can be paid in the event of a faculty or staff member’s death.

There is no relationship between the Staff Senate Book Scholarship Fund and the flexible benefits plan. The book scholarship fund is administered by the Staff Senate and is funded by fund-raising events. The money raised is used to grant book scholarships to staff members, their partners, and/or their dependent children who are enrolled part-time or full-time in higher education.

Federal law requires that when we allocate dollars (either flexible benefits allowance dollars or our own pre-tax contributions) to a health care or dependent care personal expense account, the dollars must be used for those purposes. Employees can claim personal expense account dollars for out-of-pocket health and dental care or dependent care expenses during the calendar year. If employees don't use all of the dollars allocated for the calendar year, the law requires that the money be forfeited.

When the flexible benefits plan was established more than a decade ago, the committee of faculty and staff members who recommended the plan also recommended that any forfeited dollars not used for benefits go to the endowed scholarships funded by faculty and staff members' contributions to the University.

In the early years of the flexible benefits plan we transferred forfeited personal expense account dollars to the endowed scholarship fund every year. However, in recent years we have used forfeited dollars to fund benefits, including the fees charged by the third-party administrator who processes our personal expense account claims, the Employee Assistance Program, and the dental plan subsidy (1999, 2000, and 2001). Last year we also used forfeited dollars to subsidize the self-funded medical plan.

The Benefits Task Force considered this option, but did not pursue it because in survey responses the staff and faculty strongly expressed that they did not want retirement dollars to be transferred for other purposes. Seventy-five percent of the survey respondents said that they did not want to reduce the retirement contribution to enable faculty and staff to transfer dollars to the flexible benefits plan to pay medical premiums. A related chart and survey responses are available at http://www.ups.edu/ir/BTFSurvey.htm

The University’s plan is based on a principle of achieving a certain level of income replacement upon retirement. The contribution for faculty and exempt staff members is 12%. The contribution for non-exempt staff members is 10%. A 10% contribution is required for non-exempt staff and a 12% contribution for exempt staff and faculty to achieve a post-retirement income that meets recommended percentages of pre-retirement income.

Even before we learned of the medical plan premium increases, we were working with other private colleges in Washington through the Washington Association of Independent Colleges and Universities (WAICU) to explore the feasibility of entering into a consortium relationship for the purpose of purchasing group benefits plans. Our initial and primary focus is on health insurance benefits because of the recent dramatic premium increases all institutions have experienced. We are also considering dental, disability, and life insurance benefits. The first step in the exploration process was to look at the benefits plan designs at participating institutions to determine the extent to which there might be similarities in designs, delivery systems, and administrative partners that would support the development of a purchasing consortium. WAICU contracted with Hewitt Associates following a competitive proposal process. After examining benefits plan information provided by the member institutions, Hewitt concluded:

Based on Hewitt's assessment, the chief financial officers at the participating institutions decided to proceed to the next stage of the a feasibility study. Hewitt will explore the objectives and values of each member institution. After Hewitt summarizes the results and reports back to WAICU, the group will use the information to determine if we should proceed with developing a benefits purchasing consortium.

The University did investigate other medical plan carriers when we learned last fall of the Regence and Options medical plan premium increases. Even though Hewitt said that it was unlikely that we could find a different carrier with better rates, we formally requested a proposal from another carrier and the result was a premium schedule that was about 6% higher than the Regence premiums. This is so because an insurance company considers census information (gender, birth dates, and enrollment status) and claims data when they prepare their proposals. Since the underwriters who develop the rate schedules are working with the same data, they are unlikely to come up with different answers.

The University has also continued to meet with its current carriers to work creatively to develop more and better plans for next year. The University hopes to be able to offer more choice in plans at various price levels. We are working with carriers to develop educational programs so that University faculty and staff can be more informed consumers of health care benefits.

After many years of requests from faculty and staff for a dental plan, the University added an optional capitation plan (dental health maintenance organization or DHMO) in 1988. The vast majority of faculty and staff members interested in a dental plan deemed the plan unsatisfactory mostly because it did not offer a free choice of dentists and because the number of available dentists on the plan was small. The capitation plan concept for dental benefits had not taken hold in the Puget Sound region. Dentists generally were not in favor of the concept and the dental market was such that few dentists joined or formed DHMO plans.

President Pierce appointed a dental task force in the spring of 1995 charged with reviewing the then available dental coverage, discussing the advantages and disadvantages, and exploring other kinds of coverage. The task force recommended to the Budget Task Force in the winter of 1995 a voluntary enrollment indemnity dental plan underwritten by Blue Cross of Washington and Alaska (BCWA). Coverage under this plan began in January of 1997.

The BCWA dental plan lost money in 1997—claims exceeded premiums. The University, BCWA and Hewitt (the University’s benefits consultant) believed that the high claims costs were the result of the newness of the plan. We anticipated that "pent up" dental claims would level out in 1998, the plan’s second year. We decided, therefore, to subsidize the plan using benefits reserve dollars. However, claims did not level out in year two. We continued to subsidize premiums in 1999, again expecting that claims would plateau and then decrease. President Pierce reconvened the task force. It recommended that the subsidy be continued for two additional years—2000 and 2001—and President Pierce accepted the recommendation.

In January 2001 we moved to the Premera (formerly Blue Cross) dental plan (from their Managed Dental Care Network plan). The plan enables faculty and staff members to go to the dentists of their choosing. Covered dental expenses, after a $50 deductible, are paid at 80% for basic services and 50% for major services to a maximum annual benefit of $1,000. Annual benefit maximums in a recent survey of private colleges in Washington were $1,200 per person.

Some faculty and staff members have chosen to "self-insure" for dental expenses. Because they anticipate routine dental care expenses only, they set aside funds for these expenses in their health care personal expense accounts so that they can pay their dental bills with pre-tax dollars.

However, the University is also exploring working through WAICU to possibly enter into a consortium relationship to purchase better dental plans at better rates.

The University is a not-for-profit organization. It is different from for-profit businesses in that it is mission driven, not profit driven. Nevertheless the University, like other not-for-profit organizations, must use sound business practices and must act responsibly in order to successfully achieve its mission. Circumstances for faculty, staff and students would be much less favorable than they are if the University were not a financially sound organization. If the University did not live within its financial constraints and allocate limited resources prudently, fewer students would decide to enroll and prospective donors would be less likely to contribute. A significant drop in revenue would have a serious negative impact on jobs and compensation. A strong business sense is vital in operating the University. If the Board of Trustees and administration did not operate with business acumen and expertise, the University could have fewer resources to allocate than it has now.

Tuition is the University’s primary source of income, but it does not supply unlimited revenue. It is subject to market competition just as salaries are. If we raise tuition to a level that isn’t competitive with the other private schools with which we compete for students, we will lose enrollment and thereby reduce our primary source of income.

Excellent, well-maintained facilities add to Puget Sound’s competitive advantage. Better facilities contribute to the long-term health of the institution and to our ability to recruit and retain students, faculty and staff. Wyatt Hall benefits students, faculty and staff by providing state-of-the-art classroom facilities as well as improved working conditions and office space.

Similarly, Trimble Hall will improve the residential facilities on campus, addressing students’ changing needs and interests and providing more on-campus housing options. This will help us attract and retain students. Trimble will actually pay for itself because the room and board it generates will cover the costs of construction and operation.

Planned major maintenance is necessary to keep University buildings functional over the long term. The President’s house project is a part of planned major maintenance for University-owned buildings. The project includes replacement of aged, failing windows, plumbing, and electrical wiring. It also includes some roofing and some wood siding repairs to stop leaking and some exterior brick repairs to prevent leaking. The house was constructed in 1950 and these systems have not been replaced since. The President’s House garage will be demolished and replaced because it was in such bad shape it would not have been cost effective to repair or restore it.

We are committed to recruiting and retaining high quality faculty and staff members. Without the commitment and expertise of the people who teach and work at Puget Sound, we could not have achieved our current success.

Average salary increases at Puget Sound in the recent past, as well as those projected for September, are in line with average salary increases in other institutions of higher education.

The turnover rate for staff was 11.5% in 2000. The turnover rate for the past four years has been between 10% and 11%. Employment analysts consider rates of termination between 10% and 20% to be very good.

In a recent survey of staff turnover rates, Puget Sound's was the lowest. Others surveyed were Lewis & Clark, Linfield, Gonzaga, Bastyr, Pacific, George Fox, Willamette, University of Portland, Saint Martins, Seattle Pacific, Seattle, Reed, Warner Pacific, and Pacific Lutheran. The rates range from Puget Sound's low of 11.5% to a high of 32% with an average of more than 22%.

Salary ranges change based on market conditions. The University established a market equity fund for non-exempt staff salaries in each of the past two fiscal years. In 1999-2000 we identified specific classifications for which our salaries "lagged" in the market, and we increased their salary ranges. This year the range structure was changed, using market equity dollars to increase the salaries and salary ranges of the lowest paid staff members in non-exempt positions.

In fiscal year 1998-99 the salaries of over half of staff members in non-exempt positions were at the range maximum. As a result of the market equity adjustments there are now only five staff members who are "maxed out" in their ranges.

Any part-time staff member who meets a minimum threshold of .50 FTE receives proportionally the same paid leave, retirement and allowance benefits as a full-time staff member. Any staff member who is employed at the .75 FTE level or more is eligible for education benefits and long-term disability insurance coverage.

If you have other questions, contact Human Resources at extension 3369. This information is available on the University of Puget sound Web site at www.ups.edu/humanresources/home.htm