© 2010 by Prentice Hall 12-1 Designing and Administering Benefits Chapter 12 Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall 12-2  Overview of benefits Chapter 12 Overview  Benefit strategy  Legally required benefits  Voluntary benefits  Health and other insurance  Retirement benefits  Paid time off  Employee services  Administering benefits Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall 12-3 Benefits:  Important to employees  Powerful recruiting tool  Help retain talented employees  Some affect managerial decisions (e.g. leave policies)  Important to managers Managerial Perspective Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall 12-4 An Overview of Benefits Employee benefits:  Indirect compensation  Based on group membership  Provide security for employees and family  Costly and becoming costlier  1929: 3% of payroll  2008: 30.3% Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall 12-5 How the Benefit Dollar Is Spent Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall 12-6 Benefit Terminology  Contributions  Coinsurance  Copayment  Deductible  Flex/cafeteria benefits program Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall 12-7 The Cost of Benefits in the U.S.  Federal tax policy  Employers: cost may be deductible  Employees: many free of taxes—others tax deferred  Federal legislation  Union influence  Cost saving of group plans Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall 12-8 The Benefits Strategy Three parts to Benefits Strategy:  Benefits Mix—total package  Compensation strategy  Organization’s objectives  Characteristics of workforce  Benefit Amount  Flexibility of Benefits Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall 12-9 Types of Benefits  Legally required benefits  Health insurance  Retirement  Insurance  Paid time off  Employee services Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall  Social Security  Retirement Income  Disability Income  Medicare  Survivor Benefits Legally Required Benefits  Unemployment Insurance  Actively seeking work  Left job involuntarily  Supplemental unemployment benefits Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall  Workers’ Compensation Legally Required Benefits  Claims and premiums steadily rising  Employers “fighting back”  Role of HR: o Stress safe work procedures o Audit workers’ compensation claims o Coordinate workers’ comp and health insurance benefits o Encourage those partially disabled to return under a modified duty plan Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall Legally Required Benefits  FLMA – Family and Medical Leave Act  Up to 12 weeks unpaid leave  For following reasons: o Birth of a child o Adoption of a child o Care for sick spouse, child or parent o Employee’s own serious health needs  Amended to give up to 26 weeks leave to family of injured military personnel Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall  Health Insurance  COBRA of 1985  HIPAA o Portability o Accountability Voluntary Benefits  Traditional Health Insurance  Health Maintenance Organization (HMO)  Preferred Provider Organization (PPO) Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall Health Insurance Plans Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall  Health Savings Account  Pretax and benefits not taxed Voluntary Benefits  Cost containment  Develop self-funded arrangement  Coordinate health insurance in families with two working spouses  Develop a wellness program Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall Retirement Benefits  Employee Retirement Income Security Act  Pensions:  Defined Benefits Plans  Defined Contribution Plans  Cash Balance Plan (Hybrid)  Defined Contribution Plans  401k and 403b  IRA and SEP IRA  Keogh Plan Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall Defined Contribution Retirement Plans Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall Voluntary Benefits  Life Insurance (term)  Disability insurance  Short and Long-term  Paid Time Off  Sick leave  Vacations  Severance pay  Holiday and other paid time off  Employee Services Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall  Flexible benefits plans  Modular  Core-plus options  Flexible spending accounts Administering Benefits  Challenges with flexible benefits  Adverse selection  Employees who make poor choices  Administrative complexity Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall Administering Benefits Benefits Communication  Programs increasingly complex  Employees need to understand value of benefits NASA Photo. Used with permission. Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 by Prentice Hall  Design benefits to align with overall compensation strategy  Benefits provide security for employees and their families  It is important to:  Provide benefits employees value and appreciate  Communicate value of benefits to employees Summary and Conclusions Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall