Chapter #11 Retirement and Benefit Plans

Retirement Plans

Three ways firms can establish pension plans 1. Defined benefits plan A quantitative amount, Unit formula =% of pay X # of years of work Flat formula=% of final yearlty average of salary 2.Defined contribution plans Both er and ee contribute Funds are invested..not guaranteed Fiduciaries manage accounts 3. Hybrid plans Combinations New….Cash balance plans. In order to recruit more mobile younger workforce

Firms get tax breaks for pension plans ERISA Title I and II

Erisa sets Minimum standards that must be met before tax deductions No discrimination between highly paid ee and lower paid ee No discrimination age race color gender etc. Contribution to retirement plans have decline over the last 15 years down to 42% since Less manufacturing wage earners More doing defined contribution (401K)

PBGC Pension Benefits Guarantee Org. There to guarantee pensions to retired employees if a firm has financial problems or goes bankrupt.

Pension plans have to qualify Look #261 # EE must be over age 21 to participate Ratio test Lower paid employees must not be more than 70% of total Vesting rules Cliff vesting schedule, ee vested after 3 yrs Look at 13 qualifiers Accrual rules. Firm must specify how much money can be earned by participants Safe harbor rules….no preference to highly paid ee

Healthcare Insurance Programs Premiums are paid by er and ee USA has multiple payer system Universal pay system or single pay Government regulates ( Canada Origins of Health Insurance 1930….Great depression 1940…Prepaid premiums on monthly basis 1965 Medicare Do you believe that healthcare is a fundamental right to all US citizens?

HMO Act 1973 Idea is to keep ee healthy to reduce absenteeism and increase productivity and to increase retention 52% of firms have some kind of coverage (2006) Group coverage..annual premiums Experience ratings Copays Primary Care physicians

Fee For Service Plans Ee pays then gets reimbursed by er. Indemnity plans Contract between er and insurer Self funded plans Firms set aside money in advance for health care for ees. Does not have to pay premiiums Depends on financial strength of firm

Types of medical benefits Hospitalization Surgical Physician benefits Terms to know Deductibles Coinsurance Out of pocket Maximums #look278 Preexisting conditions Preadmission certifications Second surgical opinion Maximum Limits

Do you know the difference? HMO Er pays annual fee to med insurer EE pay copay Primary care physicians PPO Choice of doctor from network Higher deducts POS Ee can go outside network but pays more FSA Flexible spending accounts