Remember, you are writing a business report to your Senior VP of Human Resources that he/she will share with the CEO. Make sure you write clear, concise and carefully crafted and limit you work to no more that 3 pages.
benefit_exercise_5_and_6_.docx
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MILLER MANUFACTURING COMPANY
CASE STUDY
Assume that you are the Director of Employee Benefits for the Miller Manufacturing
Company (MMC) and report to the Senior VP of Human Resources.
MMC was founded in 2000 and manufactures pumps, valves and mechanical switches
used throughout the world. MMC holds several patents developed by the founder, Harry
Miller, who at age 73, is the Chairman. The day-to-day operation of the business is run
by Mr. Miller’s son, who at age 46 has been the CEO for the past 8 years. MMC has
been consistently profitable, with a 7-year compound growth rate in earnings per share
of 22%, with an average return on capital at 28%. In 2007, the company went public,
with 60% of the shares outstanding held mostly by institutional investors. Six percent of
the shares are held by the MMC Employee Stock Ownership Plan (ESOP) with 34% still
held by the Miller family. MMC has 1600 employees worldwide with all manufacturing
done in two plants located in North Carolina (650 employees) and Ohio (400
employees). The corporate offices consist of 150 salaried exempt and non-exempt
employees located at the Ohio plant. The corporate group includes the corporate staff
and the centralized sales and service function. The balance of the salaried employees
(400) consists of sales and service representatives stationed worldwide. MMC has no
unions at the present time. The current MMC benefits program is detailed later in this
document.
You have just returned from a meeting with the CEO and the Senior VP of Human
Resources. You have learned that MMC has been contacted by Olson-Young
Enterprises, Inc. (OY), located in Santa Clara, California. OY was founded in 2008 by
an electronics engineer who had previously worked for MMC in the mid 2000’s. OY
manufactures electronic switches for pumps and valves. MMC does compete with OY,
but OY has had problems in recent years with product quality and service. The market
for electronic switches is growing at about 30% per year with most of the current market
share held by one company in Japan and one company in West Germany. OY is the
only US manufacturer and has a 5% market share. OY has 300 employees. All are
located in the US. Their sales and service outside of the US is handled by a network of
nonemployee, leased manufacturer representatives. OY is closely held, with only 10
shareholders.
Earnings at OY for the five-year period were reported as follows:
2012
2013
2014
Sales (millions)
Earnings (millions)
14.6
.5
15.3
1.1
12.7
(1.3)
2015
2016
11.5
(2.4)
10.4
.2
OY terminated a defined benefit final average pay pension plan in 2013 with an
unfunded liability at the time of termination of $250,000. They have 10 unionized
employees in the shipping department of the Santa Clara facility represented by the
Teamsters. Details of the OY benefit program are detailed later in the document. Of
note, unionized employees are covered by their Teamsters Union health, welfare and
flat rate defined benefit pension plan.
Benefits costs for the organizations are varied. For MMC salaried employees, the cost
of benefits is $.35 on the $1.00 while for MMC hourly the cost is $.32 on the $1.00. At
OY, the officers and salaried program costs $.42 on the $1.00 while the hourly
Teamster program costs $.40 on the $1.00.
The CEO of MMC thinks that the acquisition of OY would help to position MMC in the
electronic switching business for pumps and valves and that its product line would fit
nicely into its existing world-wide sales and service network. OY holds three particularly
valuable patents on switch design and has revealed a new switch design concept that
had been developed in-house that could revolutionize switch technology and make most
current mechanical switches obsolete. Senior MMC leadership is very interested in OY
and wants to move quickly to finalize the acquisition.
Your boss has asked you to review the available employee benefits information and
report back to him by tomorrow as he is scheduled to be at the OY offices for a meeting
the next day.
Workforce Profiles
MMC
Executives
Professional
Sales Service
Supervisory
Production
Clerical
Unionized
Number
Percent
OY
Male
Female Total
17
3
20
130
30
160
340
60
400
95
15
110
600
210
810
4
96
100
0
0
0
1186
74%
414
26%
1600
100%
MMC
Males Females
Single
8%
12%
Married – no children
12%
40%
Married – children
79%
40%
Single parents
1%
8%
100%
100%
20% married with working spouse
Executives
Professional
Sales Service
Supervisory
Production
Clerical
Unionized
Number
Percent
Male Female Total
5
5
10
15
5
20
10
15
25
5
30
35
10
170
180
0
20
20
9
1
10
54
18%
246
82%
300
100%
OY
Single
Married – no children
Married – children
Single parents
Males Females
23%
40%
60%
20%
15%
30%
2%
10%
100%
100%
60% married with working spouse
Age
MMC
OY
Under 25
25 – 35
36 – 45
46 – 55
Over 55
5%
10%
35%
30%
20%
10%
60%
15%
10%
5%
Service
MMC
Under 1 year
1 – 5 years
6 – 10 years
11 – 20 years
21 – 30 years
Over 30 years
Average Service
5%
10%
35%
30%
15%
5%
13 years
OY
Earnings Distribution
Accidental Death and
Dismemberment
Business Travel Accident
Short-Term Disability
Long-Term Disability
3 years
MMC
Average Pay
Number Earning Over $200,000
Number Earning Over $53,000
Employee Benefits
Life Insurance
18%
80%
2%
OY
$36,000
5
63
$42,000
3
11
MMC
OY
Salaried – Amount equal to 1 times
salary to maximum of $1,000,000
(paid by company)
Officers – $100,000
Salaried – $ 25,000
(both paid by company)
Hourly – $10,000 (paid by
company)
Hourly – Teamster benefits
Optional term insurance equal to 1
or 2 times salary to a maximum of
$1,000,000 (paid by employee)
Salaried and Hourly – Same as life
insurance amount for both groups
(paid by company)
Salaried and Hourly – 4 times
earnings to a maximum of
$500,000 (paid by company)
Salaried – Up to 4 weeks at full pay
then 60% of pay up to six months
(paid by company)
Hourly – 60% of pay up to $650
per week for 26 weeks (paid by
company)
Salaried – 60% of pay after 6
months of disability to a maximum
of $5,000 per month; benefits to
age 65 (paid by company).
Hourly – No LTD
All Officers and salaried employees
covered for $100,000 (paid by
company)
Hourly – Teamster benefits
None for either group
Salaried and Hourly – 10 sick days
per year. Any unused days paid in
cash at end of calendar year (paid
by company)
Officers covered by individual
policies that provide $8,000 per
month after 13 weeks of disability;
benefits to age 65 (paid by
company).
Salaried and Hourly – No LTD
MMC
Health Care
Medical Plan – In Hospital
Medical Plan – Out of
Hospital
Self-insured PPO with stop loss
insurance at $100,000 per
employee. Claims paid by third
party administrator (UHC)
Covers Salaried and Hourly
employees
Covers Officers and Salaried
employees. Hourly employees
covered by Teamster benefits
Employee Contributions:
Employee – none;
Dependent $15.00 per week
Employee Contributions:
Employee only – $10 per week
Employee and 1 dependent – $20
per week
Employee and 2+ dependents $30 per week
One HMO available with 6% of
employees participating
Four HMOs available with 37% of
employees participating
Except for HMO’s, no wellness
benefits
Room at 100% of semi-private rate
for 120 days; 100% of other
hospital charges.
Surgical at 100% of scheduled
benefit up to $50,000.
Doctors Visits (in hospital) at $100
per visit
Diagnostic X-rays and Lab at 100%
up to $1,500 per year
Except for HMO’s, no wellness
benefits
In Network – All expenses covered
at 80% after satisfaction of a
$500 deductible per
admission.
Out of network – All expenses at
60% after satisfaction of a
$1,500 deductible per
admission.
Deductible at $250 per year per
employee or $500 per family
In network deductible at $250 per
year per covered member with
reimbursement at 80% to
$1,500 out of pocket
maximum
Out of network deductible at $500
per year per covered member
with reimbursement at 60% to
$3,000 out of pocket
maximum
Reimbursement at 80% up to a
$5,000 out of pocket
RX coverage is subject to
deductible and reimbursed at
80%
Dental Benefits
OY
Insured indemnity plan with Aetna
with claims paid by Aetna
Deductible at $25 per covered
member, reimbursement at 80%
for preventive and diagnostic with
50% for basic and major
restorative.
$1000 annual maximum
$1000 separate lifetime orthodontic
maximum
RX coverage is tiered program
managed by a PBM with in
and out of network copays
Hourly – Teamster benefits
No deductible and 100%
preventive, 80% diagnostic, 50%
for basic and major restorative
$750 annual maximum
No orthodontic coverage
Hourly – Teamster benefits
MMC
Retirement
Executive Physical Exams
OY
Salaried – DB plan with 2% of 5
year FAE times years of
services (fully integrated with
Social Security)
Salaried and Hourly – Profit
Sharing Plan with 10% of net
profits in excess of
$1,000,000.
Eligibility on date of hire
Vesting at 100% after 5 years of
service
Eligibility is at 1 year of service
Vesting is 20% per year
Hourly – DB flat rate of $12 per
month per year of service
DB FAE Pension Plan was
terminated in 2013
Eligibility on date of hire
Vesting at 100% after 3 years of
service
Hourly employees participate in OY
Profit Sharing as well as a DB
flat rate pension with
Teamsters
Both Salaried and Hourly
participate in MMC ESOP
None
Executive entitled to an annual
physical at the physician of their
choice (paid by the company)
Questions to answer for your boss:
1. What do you think the benefits strategy of MMC has been? How does the benefits
strategy match what you know about your organization?
2. What do you think the benefits strategy of OY has been? How does the benefits
strategy match what you learned about the company?
3. Identify 3 benefit challenges and 3 benefit opportunities that are apparent when
looking at combining the benefit plans at the two companies?
4. Identify 3 benefit challenges and 3 benefit opportunities that would exist if the OY
employees were to become covered by the MMC benefit program.
5. Identify 3 benefit funding opportunities that are available at either company.
6. Assume the acquisition of OY goes through. Select 3 benefit programs and provide
your recommendation on harmonizing those programs for the combined company.
7. Assume the acquisition of OY falls through. Identify 3 benefit changes that should be
considered by MMC anyway?
…
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