Large payouts to the state’s retiring higher education employees are under the microscope at the Capitol.
At a Thursday meeting headed by Sen. Mike Parry, R-Waseca, a legislative subcommittee addressed their concerns that Minnesota State Colleges and Universities officials and employees had received excessive payouts from unused sick and vacation time accrued over a number of years.
Parry, chairman of the Subcommittee on Employee Relations, called for the hearing after the Pioneer Press reported in November that the state paid out about $57 million for unused sick time and roughly $32 million for vacation time between January 2008 and June 2011. Payouts for unused sick time are put into a tax-free health care savings account.
Of the 20 largest payouts, 18 went to MnSCU employees, according to a letter from Parry.
At the meeting, legislators said it’s uncommon for private-sector employees to receive built-up sick time in the form of a payout.
Parry said companies usually force employees to use their vacation time so that they’re rested and perform well on the job.
“I’m forced to take [my two weeks], why aren’t they forced to take theirs?” Parry said after the meeting.
MnSCU Vice Chancellor for Finance and Chief Financial Officer Laura King defended the payouts at the hearing.
“MnSCU is not providing compensation that is out of line with the market,” King said.
She added that the retirement payouts are necessary to retain the most talented employees.
“We know we are losing talent to states that offer more competitive compensation packages,” King said.
She said that MnSCU is the fifth-largest higher education system in the nation but that “compensation for our leaders and faculty is at or below average both nationally and well below the average when compared with other Minnesota higher education institutions.”
In addition, King said that in comparison to payroll, the numbers are relatively small. Together, sick time and vacation payouts account for less than half a percent of payroll, she said.
According to data from the University of Minnesota, the University paid out about $21 million in unused vacation time between 2008 and 2011. Kathy Brown, vice president of human resources at the University, said it’s a common practice to pay out for unused vacation time in public and private institutions.
The original Pioneer Press investigation found that MnSCU paid out $32 million for vacation time between January 2008 and June 2011.
Unlike MnSCU, the University does not pay out sick time, Brown said, adding that the University encourages employees to use the time to maintain healthy employees.
Brown also stressed that the amount paid out to employees for retirement is minimal. For one two-week pay period, the University pays out $54 million to its employees, she said.
Members on the subcommittee asked why MnSCU employees don’t receive higher salaries as opposed to the payouts. Rep. Steve Drazkowski, R-Mazeppa, said the payouts make MnSCU employees’ actual income unclear.
“My worry is that many of these things are not transparent to the people,” Drazkowski said.
King said that she was open to reshaping employee contracts as long as they maintained competitive compensation.
In a Dec. 15 letter to MnSCU Chancellor Steven Rosenstone, Parry noted his concerns of the payouts and urged Rosenstone to “place limitations on retirement payouts in your next contract.”
“If reforms are not made in the interest of protecting the taxpayers … we retain the authority to modify the contract,” Parry said in the letter.
In his letter, Parry criticized the former Democratic-Farmer-Labor-led Subcommittee on Employee Relations for quickly approving MnSCU’s plan in 2009.
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