CASE STUDY – 10 Points

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%. 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:
2013 2014 2015 2016 2017

Sales (millions) 14.6 15.3 12.7 11.5 10.4
Earnings (millions) .5 1.1 (1.3) (2.4) .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

Male Female Total Male Female Total
Executives 17 3 20 Executives 5 5 10
Professional 130 30 160 Professional 15 5 20
Sales Service 340 60 400 Sales Service 10 15 25
Supervisory 95 15 110 Supervisory 5 30 35
Production 600 210 810 Production 10 170 180
Clerical 4 96 100 Clerical 0 20 20
Unionized 0 0 0 Unionized
9 1 10
Number 1186 414 1600 Number 54 246 300
Percent 74% 26% 100% Percent 18% 82% 100%

Males Females Males Females
Single 8% 12% Single 23% 40%
Married – no children 12% 40% Married – no children 60% 20%
Married – children 79% 40% Married – children 15% 30%
Single parents 1% 8% Single parents 2% 10%
100% 100% 100% 100%

20% married with working spouse 60% married with working spouse

Under 25 5% 10%
25 – 35 10% 60%
36 – 45 35% 15%
46 – 55 30% 10%
Over 55 20% 5%

Service MMC

Under 1 year 5% 18%
1 – 5 years 10% 80%
6 – 10 years 35% 2%
11 – 20 years 30%
21 – 30 years 15%
Over 30 years 5%
Average Service 13 years 3 years

Earnings Distribution
Average Pay $36,000 $42,000
Number Earning Over $200,000 5 3
Number Earning Over $53,000 63 11

Employee Benefits MMC OY
Life Insurance Salaried – Amount equal to 1 times salary to maximum of $1,000,000 (paid by company)

Hourly – $10,000 (paid by company)

Optional term insurance equal to 1 or 2 times salary to a maximum of $1,000,000 (paid by employee) Officers – $100,000
Salaried – $ 25,000
(both paid by company)

Hourly – Teamster benefits
Accidental Death and Dismemberment Salaried and Hourly – Same as life insurance amount for both groups (paid by company) All Officers and salaried employees covered for $100,000 (paid by company)

Hourly – Teamster benefits
Business Travel Accident Salaried and Hourly – 4 times earnings to a maximum of $500,000 (paid by company) None for either group
Short-Term Disability 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 and Hourly – 10 sick days per year. Any unused days paid in cash at end of calendar year (paid by company)

Long-Term Disability 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
MMC 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
Health Care Insured indemnity plan with Aetna with claims paid by Aetna

Covers Salaried and Hourly employees

Employee Contributions: Employee – none; Dependent – $15.00 per week

One HMO available with 6% of employees participating

Except for HMO’s, no wellness benefits Self-insured PPO with stop loss insurance at $100,000 per employee. Claims paid by third party administrator (UHC)

Covers Officers and Salaried employees. Hourly employees covered by Teamster benefits

Employee Contributions: Employee only – $10 per week Employee and 1 dependent – $20 per week
Employee and 2+ dependents – $30 per week

Four HMOs available with 37% of employees participating

Except for HMO’s, no wellness benefits
Medical Plan – In Hospital 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
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.

Medical Plan – Out of Hospital Deductible at $250 per year per employee or $500 per family

Reimbursement at 80% up to a $5,000 out of pocket

RX coverage is subject to deductible and reimbursed at 80% 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

RX coverage is tiered program managed by a PBM with in and out of network copays

Hourly – Teamster benefits
Dental Benefits 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 No deductible and 100% preventive, 80% diagnostic, 50% for basic and major restorative

$750 annual maximum
No orthodontic coverage

Hourly – Teamster benefits

Retirement Salaried – DB plan with 2% of 5 year FAE times years of services (fully integrated with Social Security)

Eligibility on date of hire
Vesting at 100% after 5 years of service

Hourly – DB flat rate of $12 per month per year of service

Eligibility on date of hire
Vesting at 100% after 3 years of service

Both Salaried and Hourly participate in MMC ESOP Salaried and Hourly – Profit Sharing Plan with 10% of net profits in excess of $1,000,000.

Eligibility is at 1 year of service
Vesting is 20% per year

DB FAE Pension Plan was terminated in 2013

Hourly employees participate in OY Profit Sharing as well as a DB flat rate pension with Teamsters
Executive Physical Exams 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?

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 2 or 3 pages.

You should turn your assignment in on Sakai, at the Assignment Tab and ensure your answer is saved as a Word document. Good luck.


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