Prentice Hall, Inc. © A Human Resource Management Approach STRATEGIC COMPENSATION Prepared by David Oakes Chapter 11 Discretionary Benefits

Prentice Hall, Inc. © Discretionary Costs In 2004  $11,107 per employee  40% of total payroll costs  $15,000 total with legally-required benefits

Prentice Hall, Inc. © Benefit Types  Protection programs  Pay for time-not-worked  Services

Prentice Hall, Inc. © Income Protection  Disability insurance  Life insurance  Pension programs

Prentice Hall, Inc. © Health Protection  Self - funded plans  Health maintenance organizations (HMOs)  Preferred provider organizations (PPOs)  Dental insurance  Vision insurance  Prescription drug plan

Prentice Hall, Inc. © Short-Term Disability  Less than 6 months duration  Unable to perform job  Benefit: 50% - 100% of pre-tax income

Prentice Hall, Inc. © Long-Term Disability  6 months to life  Unable to perform any job qualified for  Benefit 50% - 70% of pre-tax pay  month waiting period  Other benefits used first

Prentice Hall, Inc. © Pension Plan Financing Options  Noncontributory  Contributory  Employee-financed programs  A combination of the three

Prentice Hall, Inc. © Pension Plan Tax Treatment Options  Qualified  Employers get tax deductions for contributions  Employees taxed less at retirement  Nonqualified  Employers & employees receive few tax break

Prentice Hall, Inc. © Qualified Plans  Eligibility  Minimum age 21, & 1 year of service  Nondiscrimination  Limited preferential treatment  Vesting  Usually years  Payout restrictions  Tax penalty if taken before age 59.5

Prentice Hall, Inc. © Defined Contribution Plans  Profit sharing plans  Employee stock ownership (ESOPs)  401(k)s  Savings & thrift plans

Prentice Hall, Inc. © (k)s  Named after IRS code section  Employees invest pre-tax income  Plan limits  $15,000  $15,500  $16,000  $500 yearly increases

Prentice Hall, Inc. © ESOPs  The basis for 401 (k) plans  Contributions invested in company securities  Distributions made in company stock  Like stock bonus plans, except stock is purchased with borrowed funds

Prentice Hall, Inc. © Saving & Thrift Plans  Employers match employees’ contributions  Usually up to 50% of employees’  Tax penalties for early withdrawals  Employees can select investment vehicle  Stocks  Bonds  Money market funds

Prentice Hall, Inc. © Defined Benefit Plans  Guarantees benefits amount  Amount expressed as a monthly sum  % of pre-retirement pay X years of service  Employers’ contributions can vary, but benefit at retirement cannot  Not widely used

Prentice Hall, Inc. © Health Care Programs  Fee-for-service  Managed care  Point of service  Consumer-driven health care

Prentice Hall, Inc. © Fee-For-Service Plans  Indemnity plans  Cover usual, customary, reasonable charges  Hospital expenses  Surgical expenses  Physicians’ fees  Deductibles & coinsurance  Out-of-pocket maximums  Individual or group coverage

Prentice Hall, Inc. © HMOs  Organize, deliver, & finance care  Provides prepaid medical services  May include co-payments  Regulated by Health Maintenance Organization Act of 1973  Prepaid group practices  Individual practice associations

Prentice Hall, Inc. © PPOs  Select group of health care providers  Employees choose from a list  Financial incentives to use list  Physicians must  Meet quality standards  Abides by PPO cost-containment  Accepts PPO fee structure  Does not provide prepaid benefits

Prentice Hall, Inc. © Consumer-Driven Care  Flexible-spending accounts  Health reimbursement arrangements  Health savings accounts

Prentice Hall, Inc. © Flexible-Spending Accounts  Supplemental health coverage  Employee funds account with pre-tax income  Pays for qualified expenses  Unused funds forfeited

Prentice Hall, Inc. © Health Reimbursement Arrangements  Supplemental health coverage  Employees funded  Unused funds carried over

Prentice Hall, Inc. © Prescription Drug Plans  Medical reimbursement plans  Prescription card programs  Mail order prescription drug program

Prentice Hall, Inc. © RELEVANT LEGISLATION  ERISA  COBRA  FLSA  HIPPA

Prentice Hall, Inc. © ERISA  Regulates fringe compensation  Medical Disability  Life insurance Pension  Monitors  Reporting  Disclosure  Funding  Fiduciary & vesting responsibilities

Prentice Hall, Inc. © COBRA  Continues health care coverage to 36 months  Can cost up to 102% of premium  Employers penalized for noncompliance  Exempt employers  Those with less than 20 employees  Churches  Federal government

Prentice Hall, Inc. © HIPPA  Guarantees health coverage  Addresses preexisting conditions  Concerns access to health information  Transfer  Disclosure  Use