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Chapter 13

Benefit Options. Chapter 13. Chapter Topics. Legally Required Benefits Retirement and Savings Plan Payments Life Insurance Medical and Medically Related Payments Miscellaneous Benefits Benefits for Contingent Workers. Exhibit: 13.1 Employee Benefit Preferences. Legally Required Benefits.

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Chapter 13

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  1. Benefit Options Chapter 13

  2. Chapter Topics • Legally Required Benefits • Retirement and Savings Plan Payments • Life Insurance • Medical and Medically Related Payments • Miscellaneous Benefits • Benefits for Contingent Workers

  3. Exhibit: 13.1 Employee Benefit Preferences

  4. Legally Required Benefits Workers’ Compensation Social Security Unemployment Insurance

  5. Exhibit 13.2 Categorization of Employee Benefits

  6. Exhibit 13.3 Participation in Selected Benefits, 2005

  7. Overview: Workers’ Compensation • Form of no-fault insurance • Employer liable for providing benefits to employees that result from occupational disabilities or injuries, regardless of fault • Disability must be work-related • Covered by State, not Federal laws • Employers pay premium to insurance company or state fund • For every dollar insurers take in to cover workplace injuries and illnesses, they pay out $1.21 to cover claims

  8. Workers’ Compensation: Benefits and Laws • Types of benefits: • Permanent total disability and temporary total disability • Permanent partial disability - loss of use of a body member • Survivor benefits for fatal injuries • Medical expenses • Rehabilitation

  9. Exhibit 13.4: Benefits by Type of Injury: New Hampshire

  10. Exhibit: 13.5: Commonalities in State Workers’ Compensation Laws

  11. Issues: Workers’ Compensation Increased costs of medical expenses Cost increases due to . . . Use of workers’ compensation as a surrogate for more stringent unemployment insurance Cost of replacing worker wages has risen

  12. Workers’ Compensation • Social Security • Unemployment Insurance • Family and Medical Leave Act (FMLA) • Consolidated Omnibus Budget Reconciliation Act (COBRA) • Health Insurance Portability and Accountability Act (HIPAA)

  13. Workers’ Compensation (cont.) • Retirement and Savings Plan Payments • Defined Benefit Plans • Defined Contribution Plans • Individual Retirement Accounts (IRAs) • Employee Retirement Income Security Act (ERISA)

  14. Social Security • Provides a basic foundation of security for American workers and their families • For tax purposes, system is split into two programs: • Social Security - 6.2% • Medicare - 1.45%

  15. Issues: Social Security • Number of retired workers is rising without a 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

  16. Issues: Social Security (Cont.) • Reform options: • Increase payroll taxes • Decrease benefits • Use general revenues • Have social security go to an employee’s own account to be earmarked of his/her personal retirement

  17. Benefits under Social Security • Old age or disability benefits • Benefits for dependents of retired or disabled workers • Benefits for surviving family members of a deceased worker, and • Lump sum death payments

  18. Unemployment Insurance • Financing: • Majority of states, unemployment compensation is financed exclusively by employers that pay federal and state unemployment insurance tax • Federal tax amounts to 6.2 percent 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

  19. Unemployment Insurance (cont.) • Coverage: • Eligibility requirements to receive benefits: • Must meet State requirements for wages earned or time worked during an established (one year) period of time referred to as a “base period” • Must be determined to be unemployed through no fault of your own and meet other eligibility requirements of State law

  20. Unemployment Insurance (cont.) • Duration: • Benefit duration involves a complex formula that ensures extended benefits in times of high unemployment • When number of insured unemployed in a State reaches 6 percent • When unemployment rate is greater than 5 percent and at least 20 percent higher than in the same period of the two preceding calendar years and remains that way for 13 weeks • Weekly benefit amount • Controlling unemployment taxes

  21. Family and Medical Leave Act • Coverage: • Employers with 50 or more employees • Eligibility: • 12 months employment with employer in which employee works 1,250 hrs • Qualifying events: • Specified family or medical reasons

  22. Family and Medical Leave Act (cont.) • Eligibility: • Employee must have worked at least 1,250 hours for the employer in the previous year • Common reasons for leave: • Caring for an ill family member or adopting a Child

  23. Consolidated Omnibus Budget Reconciliation Act (COBRA) • Coverage: • Employers with 20 or more employees • Eligibility: • Provides current and former employees and their spouses and dependents with temporary extension of health care benefits • Qualifying events: • Specified events (e.g. layoffs) • Qualifying event coverage: • 18 to 36 months, depending on category of qualifying event

  24. 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 • Provides stringent privacy provisions

  25. Retirement and Savings Plan Payments • Employees rank pensions in the top three of all benefits in terms of importance • Defined benefit plans • Defined contribution plans • Individual Retirement Accounts (IRAs) • Employee Retirement Income Security Act (ERISA)

  26. Defined Benefit Plans • Employer provides a specific pension level defined in terms of: • Fixed dollar amount or • Percentage-of-earnings amount that may vary with years of seniority • Employer finances this obligation by: • Following an actuarially determined benefits formula and • Making current payments that will yield the future pension benefit for a retiring employee

  27. Defined Benefit Plans (Cont.) • Determination of benefit levels • Average earnings at end of tenure (last 3 – 5 years) or • Average career earnings or • Fixed dollar amount not dependent on earnings

  28. Defined Contribution Plans • Require specific contributions by employer • Final benefit received by employees is unknown • Dependent on investment success of plan manager • Three popular forms of these plans • 401 (k) plan • Employee Stock Ownership Plan (ESOP) • Profit sharing • Can be considered a defined contribution plan if distribution of profits is delayed until retirement • Cash balance plans hybrid of defined benefit and defined contribution plans

  29. Exhibit. 13.10: Relative Advantages ofDifferent Pension Alternatives

  30. Individual Retirement Accounts (IRAs) • Tax-favored retirement savings plan that individuals can establish themselves • IRAs are used mostly to store wealth accumulated in other retirement vehicles, rather than as a way to build new wealth

  31. Employee Retirement Income Security Act (ERISA) • Eligibility:Employees at least 21 years old • Employers may require 6 months of service as a precondition for participation • Vesting:Length of time employee must work for employer before entitled to employer payments to plan • Any contributions made by an employee to a pension fund are immediately and irrevocably vested • Employer’s contribution must vest according to two formulas

  32. Employee Retirement Income Security Act (ERISA) (cont.) • Portability: Issue for employees moving to new companies • Law does not require mandatory portability of private pensions • An employer may voluntarily agree to permit portability (pension rights must be vested) • Pension Benefit Guaranty Corporation (PBGC): Insures payment of certain pension plan benefits

  33. How Much Retirement Income to Provide? • What level of retirement income should be set as a target? • Should social security benefits be factored in when considering level of retirement income? • Should other post-retirement income sources be integrated with pension? • How large a role should seniority play in determining pension level? • What can a company afford?

  34. Life Insurance • One of the most common employee benefits • 87% of medium and large companies offer life insurance • Most companies offer term policies • Value of one to two times an employee’s salary • Most plan premiums paid completely by employer • Varying amounts of additional coverage often an option

  35. General Health Care Health Care: Cost Control Strategies Short- & Long- Term Disability Dental Insurance Vision Care Health and Medical Benefits

  36. General Health Care • An employer’s share of health care costs is contributed into one of six health care systems: • Community-based system • Commercial insurance plan • Self-insurance • Health maintenance organization (HMO) • Preferred provider organization (PPO) • Point-of-service plan (POS)

  37. Controlling Health Care Costs: Three Strategies • Motivate employees to change their demand for health care via changes in either design or administration of policies • Change structure of health care delivery systems and participate in business coalitions • HMOs • PPOs

  38. Controlling Health Care Costs: Three Strategies (cont.) • Promote preventive health programs • No-smoking policies • Healthy food in cafeterias and vending machines

  39. Controlling Health Care Costs: Strategy One • Practices related to design and administration of health plan • Increase deductibles • Change coinsurance rates • Reduce maximum benefits • Coordinate benefits with employees and spouses

  40. Controlling Health Care Costs: Strategy One (cont.) • Audit health care charges • Require preauthorization for visits to facilities • Require mandatory second opinion for procedures • Use intranet technology to allow employees access to online benefit information

  41. 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

  42. Miscellaneous Benefits Paid Time Off During Working Hours Payment for Time Not Worked Child Care Elder Care Domestic Partner Benefits Legal Insurance

  43. Paid Time Off During Working Hours • Rest periods • Lunch periods • Wash-up time • Travel • Clothes-change time • Get-ready time

  44. Pay for Time Not Worked • Paid vacations and payments in lieu of vacation • Payments for holidays not worked • Paid sick leave • Other • National guard • Army, or other reserve duty • Jury duty • Voting pay allowances • Personal reasons

  45. Exhibit 13.18: Employees Receiving Leave Time Benefits

  46. Exhibit 13.19: Benefits Received: Full-Time vs. Contingent Employees

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