Copyright South-Western College Publishing Module Why Study Employee Benefits? Benefits are a tool used by human resource management to attract and retain employees Benefits make up over 40% of employees’ total compensation! Although benefits are transactional in nature, benefits strategy requires planning, implementing and evaluating changes.

Copyright South-Western College Publishing Module Defining Employee Benefits Total Compensation = Direct Compensation + Indirect Compensation Benefits are the main component of indirect compensation. A broad definition of employee benefits includes government programs towards which the employer contributes

Copyright South-Western College Publishing Module Total Compensation Components for 1996

Copyright South-Western College Publishing Module The Regulatory Environment: ERISA The most comprehensive piece of benefits legislation in the United States Designed to protect employees ERISA-qualified plans receive tax advantages

Copyright South-Western College Publishing Module Provisions of ERISA Include: reporting and disclosure fiduciary standards employee eligibility vesting plan termination insurance

Copyright South-Western College Publishing Module Examples of Vesting

Copyright South-Western College Publishing Module The Regulatory Environment COBRA - federal legislation requiring employers to permit continuation of health care coverage FMLA - federal legislation requiring up to 12 weeks of unpaid leave for qualified reasons. Medical benefits must be available on the same basis as prior to the leave HIPAA - federal legislation that restricts pre- existing condition clauses from being used when a new employee can certify having recent previous coverage

Copyright South-Western College Publishing Module Social Security and Medicare Designed for the elderly, survivors, and people with disabilities Facing a cost crisis –soon-to-retire baby boomers –increased longevity –fewer younger workers entering the workforce Government is addressing ways to increase income to the programs and reduce costs

Copyright South-Western College Publishing Module Other Social Insurance Programs Unemployment Insurance Workers’ Compensation Insurance Temporary Disability Insurance

Copyright South-Western College Publishing Module Retirement Benefits Three-legged stool –Social Security –employer retirement plan(s) –private savings Two basic types of employer-provided retirement benefits –defined benefit –defined contribution

Copyright South-Western College Publishing Module Defined Benefit and Defined Contribution Approaches

Copyright South-Western College Publishing Module Medical Benefits Costs are a major issue Managed care alters the delivery of care in a way that controls costs Quality is also an issue with managed care

Copyright South-Western College Publishing Module Indemnity Plan vs. HMO Indemnity Plan participant chooses any doctor at point of service reimbursement for incurred costs using claim forms cost sharing in the form of coinsurance little or no preventive care HMO participant only receives benefits if using an HMO physician or facility. Need to primary care physician before seeing specialists copayment due at time of service; no claim forms preventive care

Copyright South-Western College Publishing Module Additional Health Benefits Dental Prescription Drug Vision Hearing

Copyright South-Western College Publishing Module Other Welfare Benefits Group Life Insurance –for employee –for dependents –AD&D component Disability Insurance Long Term Care Insurance

Copyright South-Western College Publishing Module Work/Life Benefits Flexibility Child and Elder Care Assistance Adoption Benefits Employee Assistance Program (EAP) \ Convenience Benefits Additional Emerging Benefits

Copyright South-Western College Publishing Module Flexible Benefit Plans Based on choice among benefits The choice between nontaxable benefits and “cash” does not generally result in a taxable event for employees Employees can “reduce” their salaries to pay for benefits or receive extra cash if they do not use the full value of their benefit credits A health care spending account also can be used with a flexible benefits plan

Copyright South-Western College Publishing Module Funding Insurance Contract vs. Self-funding ERISA has funding standards for retirement plans.

Copyright South-Western College Publishing Module Administration