Mgmt 383

1. Mgmt 383 Chapter 14 Managing Employee Benefits Spring 2009

2. Strategic Benefits Considerations Competitive Advantage Attract & Retain Strategic Benefits Considerations Benefits Management Benefits Communication

3. Employee Benefits • Employee Benefits - indirect compensation given employees as a condition of organization membership. • Objectives that contribute to a competitive advantage: • Help attract employees. • Help retain employees. • Enhance the organizations image with employees and outside constituencies. • Encourage job satisfaction and organizational commitment.

4. Employee Benefits • Unlike many other countries, in the United States employers have become a major provider of benefits for citizens. • U.S. companies face increasing pressure from federal and state governments as they shift many of the social costs for health care and other expenditures to the private sector.

5. Measures of Benefits Effectiveness • Benefits as a percentage of payroll. • Benefit cost by employee group • Full-time v. part-time. • Union v. nonuniion. • Office, management, professional, etc. • Benefits expenditure per FTE employee. • Benefits administrative costs. • Health-care benefits cost per participating employee.

6. Employee Benefits • Two major categories of employee benefits: • Government Mandated Benefits - employee benefits that are required (mandated by law). • Voluntary - those not required by law.

7. Voluntary Benefits • Voluntary Security Benefits • Severance Pay • Supplemental Unemployment Benefits • Family Security Benefits • Health Care Benefits • Retirement Benefits • Time Off Benefits • Financial & Other Benefits • Family-Oriented Benefits • Social & Recreational Benefits

8. Security Benefits • Can be voluntary or government mandated. • Government Mandated: • Worker’s Compensation. • Unemployment Compensation • Voluntary: • Severance Pay • SUBs

9. Worker’s Compensation • Benefits are provided for employees who experienced work-related injuries/illness. • Cash benefits • Medical care • Rehabilitation services • Employer’s contribution is experience-rated. • Too many fraudulent claims.

10. Worker’s Compensation • Advantage • In exchange for workers' compensation coverage, employees give up the right of litigation for injuries and awards. • Disadvantage • Too many fraudulent claims. • Number one Worker’s Comp claim: Back injuries.

11. Unemployment Compensation • Mandated as part of the Social Security Act of 1935. • Benefits are provided to individuals when jobs are lost due to no fault of their own (economic reasons). • Up to 26 weeks (½ year). • Can be extended by Congress up to 13 more weeks.

12. Eligibility for Unemployment Compensation • Able, available, and actively seeking work. • Cannot refuse suitable employment. • Unemployment cannot result from a labor dispute (except in MI, RI, and NY). • Cannot leave the job voluntarily. • Cannot have been terminated for misconduct or poor performance.

13. Myths About Mandatory Benefits • Must provide breaks for meals. • Must provide paid sick leave. • Must provide vacations. • Must provide health insurance. • Must pay overtime for work performed on federal and state holidays.

14. Severance Pay • Severance Pay- payments to employees who have lost their jobs due to economic reasons. • Lump sum payment. • Time payments - continued regular pay for “x” months after termination. • Golden Parachutes are the ultimate form of severance pay.

15. Supplemental Unemployment Benefits (SUBs) • Employer supplements state unemployment benefits to ensure a guaranteed level of income. • Example: An employer guarantees an 80% SUB. • An employee made weekly salary of $500 (80% = $400) • The maximum Weekly Benefit Amount (WBA) allowed in Mississippi in 2008 is $230.00 Salary $500 SUB $170 State Unemployment $230 $400

16. Health-Care Benefits • Major current problem is rising costs • Uninsured workers account for 18.8% of the workforce. • Many are illegal aliens • 15% to 20% of the U.S. population lacks health coverage an these expenses are shifted to employers providing insurance for their employees. Source: Employee Benefit Research Institute estimates from the March Current Population Survey, 2007 Supplement.

17. Controlling Health Care Costs • Co-Payments - the employee pays a portion of the medical costs (usually 10 - 20% after deductibles) • Deductibles - employee pays 100% of a fixed amount before co-payments kick in • Managed Care - strategies to reduce medical costs. • Preferred Providers Organizations (PPOs) - health care providers contracted to provide services at a fixed rate. • Health Maintenance Organization (HMOs) - medical services are provide for a fixed period on a pre-paid basis.

18. Controlling Health Care Costs • .Utilization Review - Identifying medical services that are unnecessary, incorrectly billed, or deliberately overcharged. • Mini-Medical Plans –Provides only limited coverage for employees • Limits number of doctor visits • Covers on some prescription drugs • Only limited hospital coverage • Total annual health benefits are capped (usually <$10,000.

19. Consumer-Driven Health Plans • Consumer-Driven Health (CDH) plan(a.k.a., defined contribution health plans) – employer provides financial contribution to employee’s health-related expenses. • Health Savings Accounts (HSAs) – high-deductible health plans providing federal tax advantages. • The funds contributed to the account are not subject to federal income tax at the time of deposit.

20. Consumer-Driven Health Plans • Health Reimbursement Arrangements (HRAs) - IRS-sanctioned arrangements that allow an employer, as agreed to in the HRA plan document, to reimburse for medical expenses paid by participating employees. • HRAs reimburse only those items (copays, coinsurance, deductibles and services) agreed to by the employer which are not covered by the company's selected standard insurance plan. • Non reimbursed medical.

21. Health Care Legislation • COBRA (Consolidated Omnibus Budget Reconciliation Act) Provides for extended health care coverage for: • Employees who voluntarily quit (not those terminated for misconduct). • Widowed or divorced spouses. • Retirees & spouses. • May charge up to 102% of premium cost.

22. Duration of Continued Coverage under COBRA • Duration of continued coverage under COBRA: • 18 months. • 29 months if the terminated employee is disabled. • 36 months for the employee’s former spouse and dependents when the qualifying event is the employee’s death or divorce (to include legal separation). • The maximum age for a dependent child to be eligible is 18. Should a child reach that age within the 36-month period, he or she is no longer covered. Source: 29 U.S.C. § 1162(2)(A) et. seq.

23. Health Care Legislation • HIPAA(Health Insurance Portability and Accountability Act) Provides for employees switching health coverage from one company to another regardless of pre-existing conditions.

24. Retirement Benefits • Social Security Act of 1935 • Objectives: • Old age benefits (Medicare) • Survivors benefits • Disability benefits • Retirement benefits (x = $1049.40/mo. in 2007) Source: Social Security Administration (2007). Master Beneficiary Record, 100 percent data. http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

25. Year of Birth 1937 or earlier 1938 1939 1940 1941 1942 1943 – 1954 1955 1956 1957 1958 1959 1960 or later Full Retirement Age 65 65 and 2 months 65 and 4 months 65 and 6 months 65 and 8 months 65 and 10 months 66 66 and 2 months 66 and 4 months 66 and 6 months 66 and 8 months 66 and 10 months 67 Social Security

26. Social Security • Social Security Act of 1935 • Cost to employers (10.58%): • Employer matches employee’s 7.65% contribution. • FICA-M (Medicare tax) is 2.93% • Eligibility for benefit: • Must contribute a minimum amount (roughly $500), • Minimum 40 quarters (10 years of work) of contribution.

27. Social Security • The Solvency of Social Security • Around the year 2017 the fund actually will begin spending more than it takes in. • During 2004, an estimated 157 million people had earnings covered by Social Security and paid payroll taxes. • By the year 2041, according to the Congressional Budget Office, the trust fund will be depleted. • Source: 2005 Trustees Report. SSA (March 23, 2004). • In 1950, 16 workers paid into the system for every beneficiary. In 2004, it was 3.3 workers. In 2034, it will be 2 workers.

28. Retirement Benefits • Contributory arrangements • Contributory plan - employee pays all or part of the pension contribution. • Noncontributory plan - employer pays all of the pension contribution. • Benefit arrangements • Defined Contribution - a specific amount of money is paid to the employee’s pension account each pay period.

29. Retirement Benefits • Benefit arrangements • Defined benefit - a guaranteed benefit arrangement is promised the employee based on age and service. • Example: 2% for each year of service of the average salary of the highest three years of service upon reaching age 60. • Assume a 60 year-old employee with 23 years of service. • Best three years: $28,000; 28,500; $28,700.

30. Retirement Benefits • Retirement Benefits • Defined Benefit Pensions $28,000 x = $28,400 $28,500 $28,700 $85,200 Years of Service: 23 x .02 = .46 [entitlement threshold] $28,400x .46 =$13,064 [defined benefit] or $1,088.67 per mo.

31. Retirement Benefits • Portability – the ability to move ones pension benefits form one employer to another. • TIAA/CREF • Individual Retirement Accounts (IRA) –tax deferred retirement program (funds are not taxed until drawn at retirement). • 401(k) Plan – employees may have up to $12,000 of their salaries withheld in a special tax-deferred retirement account. • Keogh Plan – a tax-deferred retirement program for self-employed individuals. The lesser of $40,000 or 100% of compensation.

32. Legal Requirements for Retirement Benefits • Employee Retirement Income Security Act (ERISA) of 1974 Regulates defined benefit programs. • Participation requirements (who must be covered). • Vesting requirements ( how long the person must work to be entitled to the benefits). • How much money the employer is required to se aside to fund the plan.

33. ERISA • Plans must meet minimum funding requirements. • Employers must pay termination insurance to ensure employee pensions will be there even if the company goes out of business. • Accrued benefits must be given to employees when they retire or leave.

34. Pension Protection Act • Pension Protection Act of 2006 – requires employers who have underfunded their pension plans to pay higher premiums to the Pension Benefit Guaranty Corporation (PBGC) and extends the requirement of providing extra funding to the pension systems of companies that terminate their pension plans.

35. Insurance Benefits • Life insurance – usually pays 150% to 200% of the deceased employee’s annual salary • Disability insurance – provides income protection if employee is disabled and unable to work. • Short-term and long-term variants. • Long-term care insurance - cover the costs of long-term assisted-living. • Legal insurance

36. Financial Services and Other Benefits • Financial Benefits • Credit unions • Purchase discounts • Stock-investment plans • Social & Recreational Benefits • Sports teams • Gymnasiums/weight rooms • Recreation centers

37. Educational Benefits • Educational Benefits • Educational assistance • Tuition • Books

38. Family and Medical Leave • Eligibility Requirements for FMLA • Must work for a covered employer (private with 50+ employees, state governments and agencies, or the federal government. • Employee must have worked for at least 12 months for a covered employer. • Employee must have worked in excess of 1,250 hours to be eligible. [156.25 work days, 31.25 work weeks] • Work at a facility with 50 or more employees who live within 75 miles of the place of employment.

39. Benefits under FMLA • 12 weeks unpaid leave. • Employee must be allowed to return to his/her previous (or equivalent) job. • Employee is entitled to health insurance coverage during the leave period.

40. Qualifying Events for Family Medical Leave • Qualifying events for FMLA benefits: • Childbirth • Adoption • Family Serious Health Condition • Spouse • Child • Parent • Personal Serious Health Condition • A 30-day advanced notice is required for foreseeable situations.

41. Serious Health Conditionunder FMLA • Serious Health Condition: • In-patient care. • Hospital care. • Hospice care. • Residential medical care • Continuing physician care.

42. Options under FMLA • Employer Options: • Employer can require employees to use up all paid vacation, personal leave, and paid sick leave before taking the unpaid leave under the FMLA.

43. Family-Oriented Benefits • Child care • Referral services - assistance in locating day care facilities. • Subsidies - vouchers or discounts. • Sick-child programs in hospitals. • In-site child care. • Elder care

44. Family-Oriented Benefits • Domestic Partners • Domestic Partnership. Domestic Partners are two adults who have chosen to share one another's lives in an intimate and committed relationship of mutual caring, who live together, and who have agreed to be jointly responsible for basic living expenses incurred during the Domestic Partnership. They must sign a Declaration of Domestic Partnership, and establish the partnership under Section 62.3 of this chapter. San Francisco Administrative Code § 62.2. • Benefits for domestic partners or spousal equivalents (unmarried partners).

45. Domestic Partners • Effective June 1, 1997, Chapter 12B of the San Francisco Administrative Code was amended to prohibit the City and County of San Francisco from entering into contracts or leases with any entity that discriminates in the provision of benefits between employees with domestic partners and employees with spouses, and/or between the domestic partners and spouses of employees. • Entities recognizing homosexual domestic partners: • San Francisco - mandatory • States of HI, VT, MA – mandatory • Disney – voluntary

46. Time-Off Benefits • Holiday pay • Vacation Pay • Paid Leaves of Absence • Paternity/maternity leave • Paid and Unpaid Medical & Sick Leave • Well-pay(extra pay for not using sick pay) • Other Leave • Military • Election • Jury duty

47. Proposed Government-Mandated Benefits • Universal health-care benefits for all workers. • Child-care assistance. • Pension coverage that can be transferred by workers who change jobs. • Core benefits for part-time workers working at least 500 hours (12.5 weeks) per year. • Paid time off for family leave.