In Spring 1999 the SCFA Benefits Subcommittee, representatives of ASAC, and the Civil Service Committee met to request a new employee benefit: a 50% tuition reduction for dependents of employees enrolled in undergraduate degree programs at the University of Minnesota. The Employee Benefits Department conducted an informal survey of other universities, including all Big Ten members, to determine what level of tuition remission benefits were offered.

A majority of the universities that were surveyed offered tuition benefits. Many remitted 50% with a few (mostly privates) offering 100%. In the Big Ten, 7 of 14 offered tuition remissions with Northwestern offering 85%; Penn State, 75%, and all others at 50%. Iowa, Michigan, Minnesota, and Wisconsin do not offer a tuition benefit for dependents of employees.

The analysis performed by Employee Benefits (appended to this report) suggests that the cost of a 50% tuition remission, when fully implemented with students in all four years, would be between $1.2 and $1.7 million. (See appended report.) Assuming that dependents are equally distributed across employment categories, this would mean that 44% of eligible dependents are associated with Civil Service/Bargaining Unit staff while 56% are associated with Faculty and Professional Administrative Staff. Using $1.45 million as the full cost (halfway between $1.2 and $1.7 million estimates), the added percentage fringe benefit increase would be .25% for CS/BU and .21% for Faculty/PA.

Employers design benefit plans to influence employee behavior—particularly with relation to attraction and retention to the organization. A benefit program that has certain features is more attractive to some segments of the labor force than others. For example, health care subsidies for dependents increases the attractiveness for applicants and employees with dependents. A retirement program with a service requirement for vesting of benefits encourages retention.

An employee’s total compensation consists of cash payments and economic benefits designed to reduce risk (insurance), pay in kind (recreation subsidies), pay during nonworking periods (vacations and holidays), and provide for retirement (pensions). The mix of cash payments and benefits reflects the joint interests of employers and employees. In turn, public policy has favored employers providing benefits for employees rather than the employees purchasing benefits themselves due to the nontaxability of benefits, but not cash payments.

A tuition remission program for dependents of employees that includes a service requirement would be expected to increase attractiveness of employment for those who have dependents who will likely be admissible to the university. It would also reduce turnover because sustained service would be necessary to make use of the benefit.

If cost savings from reduced turnover exceed increased costs of a tuition reduction benefit, then the benefit would be costless—actually improving the efficiency of the university.

We begin with the following enrollment assumptions which are largely similar to those used in last year’s proposal: 50% of employees have children/dependents, Of those with dependents, each has 1.8 children/dependents between 0-23 years of age,
50% of children will be qualified to attend the university,
50% of those qualified will choose to take advantage of university enrollment,
Thus, the “risk” of an employee having a child/dependent attend the university is about .225.
The current proposal requires some additional assumptions:Assume that the transition probabilities from freshman to sophomore, sophomore to junior, and junior to senior are .90 for each year,
The real (after inflation) rate of tuition increases will be a constant 2% into the foreseeable future,
The real (after inflation) discount rate will be a constant 3% into the foreseeable future.
Implementing the tuition benefit will be associated with a turnover reduction of 10% in the current rate of turnover during each year of an employee’s employment with the university.
The cost of replacing an employee who quits is equal to 150% of annual salary for faculty, 67% for PA, 50% for civil service, and 33% for bargaining unit employees.Analysis

With these assumptions in place, the present value of the 100% tuition remission for four years to an employee with 10 years of service is $5,568 (at 50%, $2,784). If we were to calculate the present cost of providing this benefit to the proportion of employees (by classification) who would be expected to accrue 10 years of service (under reduced turnover expectations), the cost would be $2,968 for P/A, $4,043 for faculty $2,537 for civil service, $2,443 for Teamster members, and $2,014 for AFSCME members. (Keep in mind that these figures are approximate.) However, if turnover were reduced by 10%, the net (cost) saving for the university from providing this benefit, after turnover cost reductions, for a 10 year service employee would be ($137) for PA, $929 for faculty, ($577) for civil service, ($1,594) for Teamsters, and ($1,077) for AFSCME. The overall weighted cost would be $23.73 per year for each 10 year employee. If a 50% remission is applied, the savings would be $112.13 per employer per year.

If the university were to implement a 100% tuition remission program, with vesting starting at 50% in year 5 and increasing by 10% per year until full vesting at year 10, and if turnover declined by 10% in each employee group as a result, the following conservative estimate would apply. Assuming that all employees work for up to 20 years, and that there are about 5% of employees in each year of service between 1 and 20, then the annual cost savings, net of tuition costs, per employee is about $89 and the annual savings across the employee population would be in excess of $1,200,000.

Spreadsheets on which this analysis is based are available upon request from the Senate office.

Resolution

Whereas: The University of Minnesota, as a land grant institution, has as one of its central missions the education of highly qualified undergraduate students, and

Whereas: The University of Minnesota benefits from the efforts and commitment of all of its employees, and

Whereas: University of Minnesota employees, especially as employees of an institution of higher learning, understand the benefits of higher education and seek to make them available to their children/dependents, and

Whereas: The University of Minnesota desires to improve the effectiveness of its workforce and reduce employment costs by reducing employee turnover, and

Whereas: The faculty of the University of Minnesota seeks a stronger sense of community among all employee groups, each of which contributes to the mission of the university, and

Whereas: It can be demonstrated that the inclusion of a partial tuition remission benefit would reduce employment costs under relatively conservative assumptions, therefore

Be it resolved: That the Faculty Senate strongly recommends that the children/dependents of all university employees having accrued 5 or more years of uninterrupted university service be granted a 50% tuition reduction upon being regularly admitted to an approved undergraduate program leading to a bachelor’s degree, that the tuition reduction will be applied to half of the tuition for the first four year’s of a child/dependent’s enrollment, during periods in which the child/dependent student is in good academic standing; and that the percentage of tuition reduced be increased by 10% for each additional year of uninterrupted service through year 10.

COMMENT:

The SCFA Benefits Subcommittee, under the direction of its chair, Professor John Fossum, has developed the above-mentioned resolution and supporting information. It has been presented to and approved by both the Senate Committee on Faculty Affairs (SCFA) and the Faculty Consultative Committee (FCC).