Budget Review Work Group
Discussion Item – General Funds Employee Benefits Budget
November 28, 2011
Overview
The General Funds Employee Benefits budget has been managed centrally in order to maintain a critical source of
personnel funding that supports campus core operations. Employee benefit costs are considered mandatory
costs that must be paid, and over which neither the campus nor the hiring department has any control. The
Employee Benefits budget for FY 2011/12 is approximately $86M (compared to $75M in the year prior).
The current State budgetary climate and outlook, implementation of OPs Funding Streams Initiative, and the
decoupling of the 19900-General Funds budget rate the question – ‘Should the campus continue to centrally
manage the General Fund Employee Benefits budget or should it be decentralized down to departments?’
General Background and Issues
How is the Benefits budget currently managed?
• Salary for personnel on General Funds, all academics and staff, are budgeted and administered at the
department level; however, there is no corresponding benefits budget.
• The benefits budget is held in central campus accounts. Monthly benefit costs are charged to departmental
budgets as part of payroll costs. These payroll transactions immediately trigger an automated “budgetary
offset” process that transfers budget from central accounts to fully reimburse the department for actual
benefits costs.
Because actual employee benefit costs vary year-over-year and department-to-department, the net result is that
the General Funds Employee Benefits budget is a pool of resources that funds a critical campus employee
program. Costs are covered for all departments equally, regardless of changes in actual costs resulting from
external program factors, or changes in employee profiles like size of family, number of dependents or health and
welfare program choices.
The Benefits budget is funded in two ways.
• Annually, the budget is inflation-adjusted for the cost increases through the resource allocations process. This
adjustment is dependent upon UC salary program actions, health & welfare program cost changes, and
contributions to UCRP among others.
• Departments are required to transfer funds into the Benefits budget when they budget new FTE, when an FTE
% is increased, or when a salary is adjusted as a result of a department transaction for off-scale, equity,
promotion, etc. Similarly, funds may be transferred out when FTE are deleted or adjusted downward.
Funding for employee benefit costs, like the rest of the core operating budget, has been in partnership with the
State of California. In resourcing the operating budget, UC used a combination of State and other UC General
Funds to address these mandatory costs. Until recently, the State provided some funding for salary and benefits
increases. Since the start of this budgetary downturn, the UC has had to fully self-fund these costs in addition to
addressing state cuts.
BRWG, Discussion Item – General Funds Employee Benefits Budget
Page 1
The Employee Benefits Program is complex. Costs are considered mandatory, subject to many pressures outside
of local campus or departmental control:
• UCRP contributions, expected to continue to increase in each of the next 5 years
• External market conditions for health and welfare insurance programs
• Internal and external policy decisions influencing benefits costs
• Employee eligibility and choice of benefits
• Employee profile, i.e. marital status and size of family/dependents
• UC policy decisions influencing salary (collective bargaining, market competitiveness, etc.)
• Lack of inflationary funding and reduced base State support
To improve and increase funding transparency, the “19900” General Funds budget is being decoupled so
departmental budgets and spend will be recorded directly on the primary fund sources. More than $225M in
“19900” budget has to be exchanged for at least three other funds1. The effect of this exchange could
immediately remove those budgets from participation in the central Employee Benefits budget. The impact is
significant considering that it represents approximately 71% of VC General Funds salary budgets, approximately
$318M, or 56% of the compensation budgets ($318M salary plus $86M benefits).
Options
There are at least four options that should be considered in response to the primary policy question – ‘Should the
campus continue to centrally manage the Employee Benefits budget or should it be decentralized down to
departments?’ At least one of these must be implemented:
• Current Model: Add new funds (19933/19941/20095) for reimbursement from the benefits pool
• Expand Current Model to all Core funds: Transfer funds into benefits pool in relation to salary budgets
• Partially Decentralize: Transfer some portion of the benefits pool with exchanged budgets
• Decentralize: Transfer the entire benefits pool and shift funding responsibility to departments
The first option is arguably the easiest from an implementation perspective. The budgetary offset program could
be amended to include the additional fund(s) that are designated to participate in the pool. Minor changes to
policy may be required.
The second option expands the priority given to General Funds, to the rest of core funds – namely inclusion of
overhead recovery funds – in maintaining full benefits funding for personnel that supports campus core
operations.
The third option only partially, but significantly, decentralizes the benefits budget by transferring some amount of
funds to budgets that exchange 19900 for another fund. This option likely poses similar questions as the fourth
option of completely decentralizing the entire benefits pool, inclusive of a methodology that determines the level
of funding to transfer initially and how to resource these needs going forward.
To help frame this discussion, it is important to note that the General Funds budget is less than 20% of total UCSD
sources. In addition, as reflected in the table on the next page, the projected mandatory compensation increases
1
This reflects the 2010/11 base amounts implemented by OP with the Funding Streams Initiative in addition to 2011/12 increases.
BRWG, Discussion Item – General Funds Employee Benefits Budget
Page 2
are huge year-over-year, and approximately 22% of those costs are expected to be General funds.2 The other
78% of costs will be incurred against non-general fund sources and will be managed by the VC units.
Estimated Mandatory Compensation Increases (in millions)
FY12/13 FY13/14
FY13/14
Non-Core Funds
Core Funds
General Funds
All Funds
%
89.77
33.99
28.45
80.81
31.38
26.29
76.1
27.63
22.73
73%
27%
22%
123.73
112.19
103.72
100%
Some pros and cons of decentralizing the central benefits pool:
Pros
Consistent with the way departments currently
manage benefits costs on all other fund sources.
Increases incentive for improved charging of
personnel cost to where effort is allocated.
Increases the transparency of how all resources
are expended.
Removes incentives for manipulating the system
in order to benefit from the central pool.
Eliminates need for non-budgeted benefits
calculation and recovery.
Shifts costs and savings to departments.
Cons
Additional and immediate workload for each
department and VC unit.
Departments would assume the risk for costs they
have no control over.
May disproportionately impact smaller units and
administrative units with higher inflationary
benefit rates and less budget flexibility.
Eliminates a source of temporary campuswide
funding for the Chancellor.
Both models, centralized or decentralized, pose important questions that must be answered.
• In a centralized benefits model:
o Which revenue sources will support the pool?
o How to adjust allocations to the central benefits pool for fund sources that do not grow apace?
o How to increase transparency?
•
In a de-centralized benefits model:
o How to distribute the existing benefits pool budget?
o How to resource these future mandatory cost increases in a reasonable and responsible manner?
Conclusion
The consensus of the subgroup for de-coupling the General Funds is to either completely decentralize the benefits
budget or expand it to include all core funds. The following two attachments provide a recent historical
perspective on General Fund benefits expenses by major program and by Vice Chancellor.
2
Estimated mandatory compensation increases are from Compensation paper presented to Financial Officers earlier this past spring.
BRWG, Discussion Item – General Funds Employee Benefits Budget
Page 3
Expenses Paid By Central Benefits Pool by Account -- FY 2008/09 thru FY 2010/11
Benefit Account
2009 Amount
Retirement Match
FICA
Medicare
Health
Annuitant Health
Life Insurance
Disability Insurance
Workmans Comp
Unemployment Insurance
Summer Salary Benefits
Incentive Award
Core Life
Core Medical
Employee Support Prog
Vision
Dental
UCRS Benefit Admin
Postdoc Benefits (All)
Total
13,578,787.66
3,855,726.46
27,171,520.20
8,604,390.14
193,331.30
286,009.42
2,140,380.03
7,180.54
68,845.23
823,164.10
259.52
83,353.24
723,080.30
574,177.38
3,174,570.29
445,541.98
88,332.52
61,818,650.31
2009 % of
Total
0.0%
22.0%
6.2%
44.0%
13.9%
0.3%
0.5%
3.5%
0.0%
0.1%
1.3%
0.0%
0.1%
1.2%
0.9%
5.1%
0.7%
0.1%
100.0%
2010 Amount
2,119,964.36
12,669,137.98
3,595,722.41
28,793,480.78
8,058,046.29
183,606.45
283,865.69
1,659,150.85
3,901.83
52,931.01
845,810.67
193.69
78,986.76
667,720.61
545,794.43
3,204,990.72
413,245.33
60,732.28
63,237,282.14
2010 % of
Total
Change
'09-'10
3.4%
20.0%
5.7%
45.5%
12.7%
0.3%
0.4%
2.6%
0.0%
0.1%
1.3%
0.0%
0.1%
1.1%
0.9%
5.1%
0.7%
0.1%
100.0%
N/A
(6.7%)
(6.7%)
6.0%
(6.3%)
(5.0%)
(0.7%)
(22.5%)
(45.7%)
(23.1%)
2.8%
(25.4%)
(5.2%)
(7.7%)
(4.9%)
1.0%
(7.2%)
(31.2%)
2.3%
Attachment 1
2011 Amount
10,653,169.30
13,165,076.36
3,697,769.22
30,344,184.72
8,809,714.86
177,960.26
275,130.87
1,731,699.65
177,433.35
44,964.53
755,632.40
198.27
93,723.21
685,598.41
527,517.26
3,249,105.74
452,482.91
64,928.09
74,906,289.41
2011 % of change '10Total
'11
14.2%
17.6%
4.9%
40.5%
11.8%
0.2%
0.4%
2.3%
0.2%
0.1%
1.0%
0.0%
0.1%
0.9%
0.7%
4.3%
0.6%
0.1%
100.0%
402.5%
3.9%
2.8%
5.4%
9.3%
(3.1%)
(3.1%)
4.4%
4447.4%
(15.1%)
(10.7%)
2.4%
18.7%
2.7%
(3.3%)
1.4%
9.5%
6.9%
18.5%
Source data: Financial Link - Distribution of Payroll Expense
Notes
1) Participating funds are 19900A, 19906A, 19924A
2) During FY 2009/10 there were 10 months of furloughs which temporarily decreased costs in that year and artificially inflated the year-over-year
change between 10/11 and 09/10.
BRWG, Discussion Item - General Funds Employee Benefits Budget
11/28/11
GF Compensation Expense by Vice Chancellor and Employee Type -- FY 2008/09 thru FY 2010/11
2009
Total Pay
Salary
Benefits
GF = 19900/19906/19924
FTE
2010
Total Pay
Salary
Benefits
FTE
Attachment 2
2011
Total Pay
Salary
Benefits
FTE
Grand Total
Ladder-Rank Faculty
Other Academics
Staff
Total
939.81 $
909.94
2,464.18
4,313.93 $
114,024,667 $
59,218,966
141,031,917
314,275,550 $
19,365,855
6,424,127
36,028,668
61,818,650
940.64 $
863.26
2,269.17
4,073.07 $
109,783,812 $
55,002,221
126,785,965
291,571,998 $
20,712,338
6,209,021
36,316,652
63,238,011
936.74 $
832.25
2,165.30
3,934.29 $
115,080,033 $
56,273,022
126,694,564
298,047,619 $
25,937,558
7,821,774
41,146,957
74,906,289
Academic Affairs
Ladder-Rank Faculty
Other Academics
Staff
Total
829.0
789.4
1,227.1
2,845.5
92,684,572
42,997,194
66,596,784
202,278,551
16,574,727
3,983,373
16,780,151
37,338,251
827.6
755.1
1,126.7
2,709.3
89,686,764
40,895,724
58,895,226
189,477,714
17,754,913
3,921,118
16,876,171
38,552,202
822.5
710.4
1,062.1
2,594.9
93,537,641
40,109,192
57,306,881
190,953,714
21,989,092
4,552,041
18,863,421
45,404,554
Ladder-Rank Faculty
Other Academics
Staff
Total
65.0
62.4
191.1
318.5
15,067,819
10,077,892
12,234,647
37,380,358
1,814,899
1,487,877
3,042,216
6,344,992
66.7
54.0
187.7
308.4
13,988,498
8,313,437
11,598,453
33,900,387
1,892,577
1,309,506
3,199,638
6,401,721
65.7
71.9
180.9
318.5
15,043,186
10,341,419
12,019,745
37,404,350
2,534,072
2,031,419
3,687,863
8,253,354
Ladder-Rank Faculty
Other Academics
Staff
Total
45.9
50.8
91.8
188.5
6,264,775
5,952,289
6,115,009
18,332,073
975,664
950,351
1,483,436
3,409,451
46.4
50.6
88.8
185.7
6,108,550
5,696,225
5,732,312
17,537,087
1,064,848
976,303
1,538,683
3,579,834
48.6
50.0
87.3
185.8
6,499,206
5,798,281
6,009,626
18,307,113
1,414,393
1,236,359
1,847,171
4,497,924
Ladder-Rank Faculty
Other Academics
Staff
Total
9.8
9.8
7,500
636,919
644,419
566
161,659
162,224
8.4
8.4
557,763
557,763
157,198
157,198
6.9
6.9
473,963
473,963
152,598
152,598
Ladder-Rank Faculty
Other Academics
Staff
Total
55.7
55.7
4,397,342
4,397,342
889,263
889,263
53.0
53.0
4,099,890
4,099,890
897,615
897,615
55.6
55.6
4,336,185
4,336,185
1,164,163
1,164,163
Ladder-Rank Faculty
Other Academics
Staff
Total
283.5
283.5
19,746,385
19,746,385
4,825,460
4,825,460
259.3
259.3
17,466,166
17,466,166
4,774,132
4,774,132
253.6
253.6
18,108,681
18,108,681
5,587,427
5,587,427
Ladder-Rank Faculty
Other Academics
Staff
Total
424.9
424.9
21,708,271
21,708,271
6,453,770
6,453,770
381.0
381.0
19,822,255
19,822,255
6,544,387
6,544,387
370.4
370.4
20,001,555
20,001,555
7,311,856
7,311,856
Ladder-Rank Faculty
Other Academics
Staff
Total
7.3
180.3
187.6
191,591
9,596,561
9,788,152
2,526
2,392,714
2,395,240
3.6
164.4
168.0
96,836
8,613,899
8,710,735
2,094
2,328,829
2,330,924
148.4
148.4
24,130
8,437,928
8,462,058
1,955
2,532,459
2,534,414
Health Sciences
Marine Sciences
Academic Senate
Chancellor
Ext & Bus Affairs
Res Mgmt & Plng
Student Affairs
Source data: Financial Link -- Distribution of Payroll Expense
BRWG, DIscussion Item - General Funds Employee Benefits Budget
11/28/11