Employee Benefits: Unique Aspects Legal Compliance Tend to become institutionalized Complexity Legal Compliance Tend to become institutionalized Complexity ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N

Growth of Employee Benefits: Percentage of Wages and Salaries ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Percentage % 30% 20% 10%

Employee Benefits in 1993 by Category Source: Adapted from the U.S. Chamber of Commerce Research Center, Employee Benefits (Washington,DC: U.S. Chamber of Commerce), 1991, % Payment for time not worked 28.3% Medical & other insurance 21.1% Legally required 16.0% Retirement plans Paid rest periods (5.6%) Miscellaneous (3.8%) Benefits as % of payroll equals 41.3% Benefits as % of payroll equals 41.3%

Reasons for Benefits Growth New Deal legislationNew Deal legislation Wage and price controls -WW IIWage and price controls -WW II Favorable tax treatmentFavorable tax treatment Cost advantages of group purchasesCost advantages of group purchases Negotiation objective of unionsNegotiation objective of unions New Deal legislationNew Deal legislation Wage and price controls -WW IIWage and price controls -WW II Favorable tax treatmentFavorable tax treatment Cost advantages of group purchasesCost advantages of group purchases Negotiation objective of unionsNegotiation objective of unions ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N

Legally Mandated Benefits Social Security About 8% employer and employee tax on wages Additional Medicaid tax of 1.45% Also includes dependent coverage and Long-term Disability Unemployment Compensation Tax on employers based on use Eligibility: work 1 year - not on strike, quit or fired for cause Workers Compensation Disability,medical care, death benefit & rehabilitation 2/3 of earnings are tax free Based on risk and experience rating Family and Medical Leave Act Social Security About 8% employer and employee tax on wages Additional Medicaid tax of 1.45% Also includes dependent coverage and Long-term Disability Unemployment Compensation Tax on employers based on use Eligibility: work 1 year - not on strike, quit or fired for cause Workers Compensation Disability,medical care, death benefit & rehabilitation 2/3 of earnings are tax free Based on risk and experience rating Family and Medical Leave Act ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N

Private Group Insurance Life Health - most offer –COBRA - provides continuation of health insurance up to 36 months Disability - short and long term Life Health - most offer –COBRA - provides continuation of health insurance up to 36 months Disability - short and long term ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N

Retirement Defined Benefit vs. Defined Contribution ERISA (1974) –funding –vesting –communication –portability Defined Benefit vs. Defined Contribution ERISA (1974) –funding –vesting –communication –portability ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N

©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N Value of Savings at Age 65 for Different Portfolios Value of Savings at 65 (Millions of Dollars) $837,434 $357, $128,253 $214,957 It pays to save early and take some risk Investment portfolio (60% stocks, 30% bonds, 10% cash) Investment portfolio of 100% cash(money market )

Payment For Time Not Worked Vacations - not mandated –usually 10 days per year in U.S. –30 days mandatory in Europe Holidays Family and Medical Leave Act of 1993 Sick leave Vacations - not mandated –usually 10 days per year in U.S. –30 days mandatory in Europe Holidays Family and Medical Leave Act of 1993 Sick leave ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N

Average Annual Hours Worked in Manufacturing Source: U.S. Chamber of Commerce Research Center, Employee Benefits 1990 (Washington DC: U.S. Chamber of Commerce, 1991). Annual Hours Japan United States FranceGermany Does this account for compettitive differences between Pacific Rim countries and Europe?

Managing Benefits Surveys and Benchmarks Cost controls - Managed Care - Coinsurance - Use of HMOs and PPOs Workforce Demographics Communicatiing with employees Flexible Benefit (Cafeteria) Plans Surveys and Benchmarks Cost controls - Managed Care - Coinsurance - Use of HMOs and PPOs Workforce Demographics Communicatiing with employees Flexible Benefit (Cafeteria) Plans ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N

Flexible Benefit (Cafeteria) Plans Advantages more appreciation of benefits offered better match between benefits and employee preference cost reduction to employee Disadvantages increased design and start-up costs Advantages more appreciation of benefits offered better match between benefits and employee preference cost reduction to employee Disadvantages increased design and start-up costs ©a Times Mirror Higher Education Group, Inc., company, 1997 IRWI N