Analysis of MMC and OY Employee Benefits

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 is the Chairman. The day-to-day operation of the business is run by Mr. Miller's son, Harry Jr., who at age 46 has been the CEO for the past 8 years. MMC has been consistently profitable, with a 10-year compound growth rate in earnings per share of 22%. In 2010, the company went public, with 60% of the shares held by institutional investors. Six percent of the shares are held by the MMC Employee Stock Ownership Plan (ESOP) and the remaining 34% 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 centralized sales and customer service functions. The balance of 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 early 2000s. 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 customer 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 Germany. OY is the only US manufacturer and has a 15% market share. OY has 300 employees; all are located in the US. Their sales and service outside of the US are handled by a network of nonemployee, contracted representatives. OY is closely held, with only 10 shareholders.



Earnings at OY for the five-year period were reported as follows:



2016 2017 2018 2019 2020

Sales in Millions 14.6 15.3 12.7 11.5 10.4

Earnings in Millions 0.5 1.1 (1.3) (2.4) 0.2

OY terminated a defined benefit final average pay pension plan in 2016 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 a flat rate defined benefit pension plan.



Benefits costs for organizations are varied. For MMC salaried employees, the cost of benefits is $.35 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.



Your CEO 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 worldwide 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. 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 provide a report to him by tomorrow as an acquisition meeting is scheduled at the OY offices the following day.



Workforce Profiles



MMC OY

Male Female Total Male Female Total

Executives



17 3 20 5 5 10

Professional 130 30 160 15 5 20

Sales Service 340 60 400 10 15 25

Supervisory 95 15 110 5 30 35

Production 600 210 810 10 170 180

Clerical 4 96 100 0 20 20

Unionized 0 0 0 9 1 10

Number 1186 414 1600 54 246 300

Percent 74% 26% 100% 18% 82% 100%





MMC OY

Males Females Males Females

Single 8% 12% 23% 40%

Married - No Children 12% 40% 60% 20%

Married - Children 79% 40% 15% 30%

Single Parent 1% 8% 2% 10%

Total 100% 100% 100% 100%





Age MMC OY

Under 25 5% 10%

25 - 35 10% 60%

36 - 45 35% 15%

46 - 55 30% 10%

Over 55 20% 5%





Service MMC OY

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 MMC OY

Average Pay $45,000 $52,000

Number Earning Over $200,000 5 3

Number Earning Over $75,000

63 11





Employee Benefits MMC OY

Life Insurance

Salaried - Amount equal to 1 times salary to a maximum of $1,000,000 (paid by the company).

Hourly - $10,000 (paid by the 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 the company)

Hourly – Teamster benefits

Accidental Death and Dismemberment

Salaried and Hourly - Same as life insurance amount for both groups (paid by the company).

All Officers and salaried employees covered for $100,000 (paid by the company).

Hourly – Teamster benefits

Business Travel Accident

Salaried and Hourly - 4 times earnings to a maximum of $1,000,000 (paid by the 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 the company).

Hourly - 60% of pay up to $650 per week for 26 weeks (paid by the company).

Salaried and Hourly - 10 sick days per year.

Any unused days paid in cash at end of the calendar year (paid by the company).

Long-Term Disability

Salaried - 60% of pay after 6 months of disability to a maximum of $15,000 per month; benefits to age 65 (paid by the company).

Hourly - No LTD.

Officers covered by individual policies that provide $8,000 per month after 6 months of disability; benefits to age 65 (paid by the 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 the third-party administrators (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 benefits up to $50,000.

Doctors Visits (in hospital) at $100 per visit.

Diagnostic X-rays and Labs 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 $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 a tiered program managed by a PBM within and out of network copays.

Hourly - Teamster benefits.

Dental Benefits

Deductible at $25 per covered member, reimbursement at 100% for preventive and diagnostic with 50% for basic and major restorative.

$2,000 annual maximum.

$2,000 separate lifetime orthodontic maximum.

No deductible and 100% preventive, 80% diagnostic, 50% for basic and major restorative.

$1,750 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 $15 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 immediate.

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:



What do you think the benefits strategy of MMC has been? How does the benefits strategy match what you know about the organization?

What do you think the benefits strategy of OY has been? How does the benefits strategy match what you learned about the company?

Identify 3 benefit challenges and 3 benefit opportunities that are apparent when looking at combining the benefit plans at the two companies?

Identify 3 benefit challenges and 3 benefit opportunities that would exist if the OY employees were to become covered by the MMC benefit program.

Identify 3 benefit funding opportunities that are available at either company.

Assume the acquisition of OY goes through. Select 3 benefit programs and provide your recommendation on harmonizing those programs for the combined company.

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 your work to no more than 3 to 4 pages.

Remember, you are writing a business report to your Senior VP of Human Resources that he/she will share with