IPPTChap 013

Chapter 13
Benefit Options
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Learning Objectives
• Legally required benefits
• Retirement and savings plan payments
• Life insurance
• Medical and medically related payments
• Miscellaneous benefits
• Benefits for contingent workers
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may 13-0
Employee Benefits
• Legally required payments (employers’ share
only)
• Retirement and savings plan payments
(employers’ share only)
• Life insurance and death benefits (employers’
share only)
• Medical and medical-related benefit payments
(employers’ share only)
Employee Benefits
• Paid rest periods, coffee breaks, lunch periods,
wash-up time, travel time, clothes-change
time, get ready time
• Payments for time not worked
• Miscellaneous benefit payments
Legally Required Benefits
Workers’ Compensation
Social Security
Unemployment Compensation
Workers’ Compensation
• Form of no-fault insurance
• Covers
• Medical care for work-related injuries
• Temporary disability benefits
• Permanent partial and permanent total disability
benefits
• Survivor benefits
• Rehabilitation
• Covered by State, not Federal laws
Exhibit 13.4- Commonalities in State
Workers’ Compensation Laws
Source: www.ncci.com
Social Security
• Provides a foundation of basic security for
American workers and their families
• Money comes from contributions made by:
• Employees
• Employers
• Self-employed people during working years
Social Security
• Problem
• Number of retired workers is rising
• No corresponding increase in number of
contributors to offset costs
• Currently, 3.5 workers pay into system for each person
collecting benefits
• Within next 40 years this ratio drops to about 2 to 1
Social Security
• Advantages
• Old age or disability benefits
• Benefits for dependents of retired or disabled
workers
• Benefits for surviving family members of a
deceased worker
• Lump-sum death payments
Unemployment Insurance
• Financed by:
• Employers that pay federal and state
unemployment insurance tax
• Federal tax- 6.2% of the first $7,000 earned by each
worker
• States additionally impose a tax above the $7,000
figure
• The extra amount a company pays depends on its
experience rating
• Coverage - Eligibility requirements to receive
benefits include:
• Meeting requirements for wages earned or time
worked during a base period
• Being unemployed through no fault of the
individual
• Meeting other eligibility requirements of State
law
• Duration
• Emergency Unemployment Compensation
Program (EUC08)
• First two tiers - Provide benefits up to 34 weeks
• Third and fourth tiers - Provide benefits up to 47 weeks
• Weekly benefit amount
• Controlling unemployment taxes
Family and Medical Leave Act (FMLA)
• Coverage
• Employers with 50 or more employees
• Eligibility
• Must have worked at least 1,250 hours for the
employer in the previous year
• Qualifying events
• Specified family or medical reasons
• Qualifying event coverage
• Unpaid leave up to 12 weeks per year
Consolidated Omnibus Budget
Reconciliation Act (COBRA)
• Coverage
• Employers with 20 or more employees
• Eligibility
• Current and former employees
• Their spouses and dependents
• Qualifying events
• Specified events (e.g. layoffs)
• Qualifying event coverage
• 18 to 36 months, depending on category of event
Health Insurance Portability and
Accountability Act (HIPPA)
• Key provisions
• Lessens an employer’s ability to deny coverage
for a preexisting condition
• Prohibits discrimination on the basis of health-
related status
Retirement and Savings
Plan Payments
• Employees rank pensions as one of the more
important benefits
• Generic types of pension plans
• Defined benefit plans
• Defined contribution plans
• Individual retirement accounts (IRAs)
• Employee retirement income security act
(ERISA)
Defined Benefit Plans
• Provide a specific pension level defined in
terms of:
• Fixed dollar amount or percentage-of-earnings
amount
• Financed by:
• Following an actuarially determined benefit
formula
• Making current payments that will yield the
future pension benefit
Defined Benefit Plans
• Determination of benefit levels
• Calculate average earnings over last 3 – 5 years
for a prospective retiree
• Offer a pension that is about one-half this
amount
• Reasons for decline of DB plans
• Need for early investment
• Disproportionate cost increases
• Unfavorable accounting rules
Defined Contribution Plans
• Popular forms of plans
• 401 (k) plan
• Savings plan in which employees are allowed to defer
pretax income
• Employee stock ownership plan (ESOP)
• Basic ESOP - Company makes a tax-deductible
contribution of stock shares
• ESOP as a pension vehicle - Cash at retirement based
upon the stock value at that time
• Profit sharing plan
• Defined contribution pension plan
Defined Contribution Plans
• Qualified deferred compensation plan
• Employer receives an income tax deduction for
contributions made
• Problematic during recruitment of high-talent
executives
• Cash balance plans
• Hybrid of defined benefit and defined
contribution plans
Individual Retirement Accounts (IRAs)
• Tax-favored retirement savings plan
• Can be established by individuals themselves
• Used to store wealth accumulated in other
retirement vehicles
Employee Retirement Income Security
Act (ERISA)
• Eligibility
• Employees at least 21 years old
• Employers may require 6 months of service
• Vesting
• Length of time employee must work for employer
before entitlement to payments
Act (ERISA)
• Components of vesting
• Employee contributions to pension fund are
immediately and irrevocably vested
• Employer’s contribution must vest using one of
the two formulas:
• Full vesting after 3 years (down from 5 years
previously)
• 20 % after 2 years (down from 3 years) and 20 %
each year thereafter, resulting in full vesting after 6
years
Act (ERISA)
• Portability: Benefit issues for employees
moving to new companies
• ERISA does not require mandatory portability of
private pensions
• An employer may voluntarily agree to permit
portability
• Pension Benefit Guaranty Corporation
(PBGC)
• Guarantees payment of vested benefits to
employees :
• Formerly covered by terminated pension plans
Act (ERISA)
• The Pension Protection Act of 2006 (PPA)
• Protects employees’ retirement income
• Transfers some responsibility for retirement
savings to the employee
How Much Retirement Income
to Provide?
• What level of retirement income should be set
as a target?
• Should social security be considered
• Should other postretirement income sources
be integrated
• How should seniority be factored into the
payout formula?
• What can a company afford?
Life Insurance
• Most companies offer term policies
• Value 1-2 times an employee’s salary
• Most plan premiums are paid completely by
employer
• Companies make retiree coverage forfeitable at
the time of departure
• Is heavily affected when shifting to flexible
benefit program
General Health Care
• Employer’s share of health care costs are
contributed into:
• Community-based system
• Insurance rates are based on the medical experience of
the entire community
• Commercial insurance plan
• Guarantees fixed payment to the insured for hospital
service
• The insured in turn reimburses the hospital
General Health Care
• Self-insurance
• Cost of medical coverage is directly related to usage
level
• Employer payments go directly to medical care
providers
• Health maintenance organization (HMO)
• Comprehensive benefits for a fixed fee
• Preferred provider organization (PPO)
• Direct contractual relationship between and among:
• Employers, health-care providers, and third-party payers
General Health Care
• Point-of-service plan (POS)
• Hybrid plan combining HMO and PPO benefits
• Permits an individual to choose which plan to seek
treatment from
• Health reimbursement arrangements (HRAs)
• Employer sets up an account for a specified amount
• Qualified medical costs, are submitted for
reimbursement until the account is depleted
General Health Care
• Customized plans
• Employee chooses among a menu of health-care
products
• Employer subsidizes part of the premium
• Design your own products
• Employees select their own providers and benefit
• Employer subsidizes up to a set level
• Health savings accounts (HSAs)
• Tax-exempt account built up by contributions of the
employee, employer, or both
Exhibit 13.9 - How Health Insurance
Options Differ on Key Dimensions*
*Overview of the four most common health-care options.
Health Care: Cost Control Strategies
• Motivate employees to change their demand
for health care via:
• Changes in design or administration of policies
• Change structure of health care delivery
systems
• Participate in business coalitions
• HMOs
• PPOs
• Promote preventive health programs
Short- and Long-Term Disability
• Workers’ compensation covers disabilities that
are work-related
• Social security has provisions for disability
income to those who qualify
• Private sources of disability income
• Employee salary continuation plans
• Long-term disability plans
Short- and Long-Term Disability
• Short - term disability
• Pays a percentage of salary for temporary
disability because of sickness or injury
• Long - term disability
• Applicable after the short-term plan expires
• Provides 60 to 70 percent of pre-disability pay
• Dental insurance
• Vision care
Miscellaneous Benefits
Paid Time Off During Working Hours
Payment for Time Not Worked
Child Care
Elder Care
Domestic Partner Benefits
Legal Insurance
Benefits for Contingent Workers
• Contingent work relationships include:
• Working through a temporary help agency
• Working for a contract company
• Working on call
• Working as an independent contractor
• Contracting offers a viable way to meet rapidly
changing environmental conditions by:
• Reducing costs
• Permitting easier expansion and contraction of
production/services

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Chapter 13

*Overview of the four most common health-care options.

Payment for Time Not Worked

Domestic Partner Benefits

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