Tuition aid that makes the grade - includes related article on tuition benefit benchmarks and on Section 127 tax credits

HR Magazine, April, 1999 by Dale K. DuPont

Last year, Michigan Consolidated Gas Co. of Detroit launched a revamped tuition reimbursement program that has more than doubled enrollment.

"We didn't leave anything sacred," says Lori Beavers, human resource consultant. "We just rethought everything," including finances, grade requirements and qualifying courses.

In an especially bold move, the Detroit firm raised the annual payment cap from $1,500 to the $5,250 limit for nontaxable reimbursement. While the lower amount had seemed prudent, employees were taking forever to finish school and consequently were costing the company more in the long run, Beavers says.

More companies are paying closer attention to their tuition reimbursement programs, says Denise George, research consultant for Hewitt Associates, a Lincolnshire, Ill., firm that recently completed a tuition reimbursement study updating one done five years ago.

With tuition costs increasing faster than inflation over the past five years and the emphasis on recruiting and retention in an economy at nearly full employment, employers are more mindful of both the costs and lure of tuition reimbursement benefits.

Employers also are considering options such as classes on the Internet and equivalency tests, which reduce both class time and costs.

And they're increasingly looking at the skills they need from their employees, so they tend to restrict reimbursements more to business-related courses, George says. "They're not spending less money. They just want to make sure the money they are spending is helping their business."

Matching Business Needs

Faith Ivery, president of Educational Advisory Services (EAS), a Scottsdale, Ariz.-based consulting firm, calls tuition aid "the black hole of benefit planning."

Many employers "are not managing the money, they're funding a program," says Ivery, whose company helped Michigan Consolidated evaluate and redesign its program.

Indeed, because tuition reimbursement is a fraction of the cost of health and pension plans, most companies have developed programs on their own, rather than called in consultants, George says. "Plans are all over the board, so there isn't one best design."

What works for a high-tech company also may suit insurers or land developers. The variables are upper management's commitment, a company's specific job needs or finances and the marketplace.

"To stay on the cutting edge, our staff has to be school smart and street smart," says Alain Hebert, PHR, director of HR for InoTech, a systems and network management firm based in Fairfax, Va. "We really push for technical expertise," Hebert says. "Most of the engineers we run into are very eager to learn more."

The fast-growing high-tech company will prepay up to $7,500 for tuition and books for anyone who's been on the job for 90 days.

InoTech's compensation system embraces education as an objective, so everyone at every level is encouraged to take courses. The number of courses is up to the employee. InoTech is flexible about class time, Hebert says, "as long as they get their work done."

While InoTech concentrates on business-related expertise, USAA is branching out.

Last summer, the San Antonio-based insurance and financial services company expanded reimbursement eligibility from only business or job-related degrees to other topics, such as English, Spanish, political science, history and mathematics.

Impetus for the change came from the top. "The chief executive wants to make sure everyone understands he's very supportive of education," says John Clark, manager of workforce development services.

"It doesn't mean we're approving all degrees," he says. But USAA values skills that complement business savvy, such as the ability to communicate and write well.

"We have a very intelligent membership," Clark says of the firm that primarily serves people in the U.S. military and their families. Thirty percent of its 20,000 employees nationwide are taking advantage of USAA's program.

When and How to Pay

USAA is in the minority of employers that prepay tuition, in its case directly, to the schools. That approach is especially helpful, for example, for a single parent trying to make ends meet who just doesn't have a lump sum to pay tuition. "It levels the playing field for all employees," Clark says.

But most firms reimburse employees after they complete courses. "You have to spend money before you get money," says Raj Beekie, training and development consultant at Minnesota Life Insurance Co.

The company, which reimburses up to $4,000 annually, has 20 percent participation from the approximately 2,500 employees at its St. Paul headquarters. "People come and stay because we do have a reasonable reimbursement program," he says. Employees are paid in full for a grade of "C" or better, a policy followed by many employers.

Other employers that don't vary reimbursements based on grades say grades can be very subjective and may measure test-taking ability more than actual learning.

But everyone expects employees to take the courses seriously. Hewitt Associates found that 63 percent of the companies surveyed require at least a C to earn reimbursement.