Ad Hoc Committee on Summer Benefits Rate

Committee Charge (July 2016) Certain 9-month faculty charge extramural grants for the time they work on projects during the summer.  There is a question about the charge for fringe benefits against those salaries since faculty believe that the benefits have been paid for during the normal course of the nine-month academic year.  Determine if there are inappropriate charges being applied and if yes, how we might get this corrected.  If no, develop an explanation of the current charges so that faculty can understand why they need to be levied. Motion presented in last session before adjourning for 2016. The Senate Steering committee formed an ad hoc committee and charged the committee in July 2016. Charge: Certain 9-month faculty charge extramural grants for the time they work on projects during the summer.  There is a question about the charge for fringe benefits against those salaries since faculty believe that the benefits have been paid for during the normal course of the nine-month academic year.  Determine if there are inappropriate charges being applied and if yes, how we might get this corrected.  If no, develop an explanation of the current charges so that faculty can understand why they need to be levied."

Issue presented 9 month faculty concerned about full fringe (33%) benefits on summer salary 9 month salary derived from grants, contracts, or pools of funds from salary savings No notable communication about change in policy D Held brought the issue raised by 9 month faculty in his dept. Those that are especially upset were faculty that were paying summer salary from reserves when between grants. The change also seemed to just happen without any advanced notice to faculty that their accounts would incur greater losses due to fringe.

Implications of the current policy for 9 month faculty Practically, 3 months with a 33% fringe rate is like earning 4 months of salary from grants Most grants limited to 1-2 months of salary in budget Management of multiple projects Reserve funds for salary also charged full fringe At the current pooled fringe rate, 9 month faculty have to earn the equivalent of 4 months of salary to pay themselves 3 months over summer. Most grants limit salary to 1 (many grants in agriculture) or 2 months max (NSF is 2 months regardless of the number of projects) so 9 month faculty funded on grants must managed 2 or more grant projects each summer to pay their salary. If a faculty member is between grants, funds must come from reserves. These reserves may be a portion of Indirect costs (not standard across campus) returned to a PI or salary savings generated from past research projects. When used for summer salary, the full fringe rate is also applied to those funds since the employer portion of the fringe rate is annualized and must be paid.

Procedures Budget services Committee discussions Summary Suggestions Collect information Current AU policy Fringe practices at peer institutions Meetings Budget services Committee discussions Conclusions Summary Suggestions We collected data on the current policy to determine when the change was made. We also colelcted data on the number of 9 month faculty that would be impacted

AU Policy and when it changed Effective FY2010, fringe benefits became based on pooled rate rather than actual Pooled rate selected for ease of budgeting Employee portion of fringe paid coincident with pay schedule Employer portion paid over 12 months The change came in FY2010. The change was to move from an actual cost accounting where everyone had to pay for their actual costs to a pooled rate. With actual costs, you could have one person having an 8% fringe rate and another a 38% fringe rate, and this could vary widely from year to year depending on the benefits selected by each employee at Open Enrollment. Source: Financial Liason meeting Aug 31, 2009.

Escrow Analogy University wide fringe is a pool funds similar to escrow account for real estate When the pool is overdrawn fringe rate is increased, decreased when running a surplus

AU fringe rate calculated as: FY 2017 Summary Rates Full-Time Part-Time Graduate Retirement 13.0% 2.7% FICA/Medicare 6.8% 6.7% 0.0% Health Insurance 7.3% 0.5% 5.4% Life Insurance 0.1% Long-Term Disability Worker's Compensation 0.2% Unemployment Comp Retiree Benefits 2.9% Employee Tuition Remission Sabbatical Pay Termination Pay 0.3% 0.6% Stop Loss Carry Forward -1.1% Total Fringes 32.0% 9.6% 5.6% *Provided by Larry Teeter

Do peer institutions reduced summer fringe rates? Most do not. UFL, UA, LSU UFL uses RCM and has pooled fringe; no reduction for 9 month faculty paid over summer Others had more complex calculations or fixed rate plus health care costs UT has a spreadsheet to calculate fringe rate. Their site said that fringe on summer salary for 9 month is calcuated at a lower rate. Texas A &M also had a complex calculation and no standard posted fringe rate. UKY had a base of 21.25% but then you had to add in full family health insurance and life insurance. http://www.research.uky.edu/ospa/info.html#fringe UNC has a fixed rate plus health insurance.

Committee Discussion Appropriateness of full fringe Should the university reduce fringe rate on 9 month research faculty to incentivize grant writing? Faculty could invest fringe savings into their programs UT has a spreadsheet to calculate fringe rate. Their site said that fringe on summer salary for 9 month is calcuated at a lower rate. Texas A &M also had a complex calculation and no standard posted fringe rate. UKY had a base of 21.25% but then you had to add in full family health insurance and life insurance. http://www.research.uky.edu/ospa/info.html#fringe UNC has a fixed rate plus health insurance.

Are these charges appropriate? Yes, in part. AU employer portion must be paid for 3 months for all 9 month employees If paid from a grant, there is likely a surplus going into the pool What if paid from reserve funds? Reserves are savings from previous scholarly activity Full fringe can depletes reserves between grants Yes, in part. AU employer part must be paid for 3 months for all 9 month employees No, if based on actual. Actual 9 month costs to the university are closer to 21% So the difference in what is charged to grants (32-33%) and what is needed to pay real fringe expenses is about 21%. e.g., life insurance, health insurance are paid in full after 9 months; not continuing charges This is the origin of the concerns of 9 moth faculty that they are subsidizing the pool and other 9 month faculty that are not active in grant writing. The expending of reserve funds on full fringe rate is the point that upsets faculty. They have to have these reserves to maintain research personnel and operations between grant budgets. Most of these funds are salary savings or IDC recovery in departments that provide IDC to the PI’s. The reserves are critical since most federal grants have high rejection rates. Also NSF only allows 2 months of salary and IDC and reserves must pay at least 1 month or more of salary a year.

Should the summer fringe rate change? ~200, 9 month faculty take summer salary A decrease for one group will increase the rate for everyone else Less funds paid into fringe would increase funds for research\scholarship One question was how much of an impact would 200 or so faculty actually change the overall fringe rate? Argument for lower fringe rate is that more money would go back into research -Grants budgets have defined upper limits and PI’s spend to the limit

Conclusions Fringe rates are appropriate because university budgets are annualized and costs must be paid Communication about the change to a pooled fringe rate was poorly handled Fringe rates must be paid and are therefore appropriate. Fringe rate for the employer contribution is pooled and annualized. The university pays the rates for all employees and 9 month faculty active in grant writing offset those costs when paid by grant funds. Communication about the change to a pooled fringe rate was poorly handled. Once the change was made in FY2010, it was not communicated appropriately to faculty either by departmental staff or central administration.

Conclusions Pooled fringe rate is the best policy but with impacts on 9 month faculty the fund summer salary Should fringe rate on summer salary change to incentivize research? A pooled fringe rate is the best policy for budgeting, but has consequences for faculty that fund their summer salary. Pooling the benefits rates provides consistency in annual budgeting. Peer institution (LSU, UA, and UFL) that have a pooled fringe rate do not support reducing a fringe rate on summer salary. Other peer institutions had either complex calculations, still use actual fringe costs, or were not available online (Appendix B5). The primary consequence of pooling is for the >200 faculty that generate summer support. Their contribution of the full fringe rate in grant budgets may help to keep the pooled rate low, which benefits everyone including 9 month faculty without summer salary support. This is where the perceptions that 9 month faculty are subsidizing the pool originated. Finally, we have presented out discussion points about how it may be possible to reduce the fringe rate. Since this would have broader budget consequences, our committee just outlined and discussed how a change may work. Should the summer fringe rate change to incentivize extramural grant writing? The pooled fringe rate cannot exempt individuals without possibly increasing the pooled rate. An estimate of the fringe rate needed to cover the summer salary benefits for 9 month faculty is about 20% (Appendix B3). The following were discussion points related to possible ways to work with the current annualized, pooled rate to address the concerns of faculty. If faculty that pay salary from grants pay a reduced amount (20%) for summer salary, how much would it really increase the pooled fringe rate? It may also be possible to retain a regular fringe rate for salaries charged to grants but provide a reduced rate when charged to non-grant accounts (faculty reserve funds). Many 9 month faculty count use reserve accounts for operating their programs either annually or in years between extramural grant support. A change in the summer fringe rate may improve faculty morale and incentivize research/scholarship. Modifications of the fringe rate may be better handled at a local level (College or Department) and not university wide due impacts on the pooled fringe rate. But local units have less discretionary funds to ‘buy down’ a fringe rate.