1. Employee Benefits Chapter 13
The cost of benefits adds an average of 44.5% to every dollar of payroll, thus accounting for about 30.8% of the total employee compensation package. Controlling labor costs is not possible without controlling benefits costs. Different employees look for different types of benefits. Employers need to regularly reexamine their benefits to see how well they meet current needs.
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2. Learning Objectives Discuss growth and its reasons in benefits costs.
Explain provisions of employee benefits programs.
Compare U.S. and other countries’ employee benefits.
Describe effects of benefits management on cost and workforce quality.
Explain importance of effectively communicating nature and value of benefits to employees.
Describe regulatory constraints that affect the way employee benefits are designed and administered.
Learning Objectives:
Discuss growth and its reasons in benefits costs.
Explain provisions of employee benefits programs.
Compare U.S. and other countries’ employee benefits.
Describe effects of benefits management on cost and workforce quality.
Explain importance of effectively communicating nature and value of benefits to employees.
Describe regulatory constraints that affect the way employee benefits are designed and administered.
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3. Introduction
Average cost of benefits is about 44.5% for every payroll dollar and about 30.8% of total compensation package.
Benefits are unique because:
more regulation of benefits than direct pay.
almost obligatory for employers to provide.
complex for employees to understand.
Employers are passing health care costs increases to employees through higher premiums and deductibles.
Effective management of benefits is crucial for organizations to be competitive, since benefits are a substantial portion of labor costs. In addition, another concern is the rapid increase in the cost of health care. The cost of benefits adds up to about 30.8 % for every payroll dollar. Employers need to regularly reexamine their benefits to see whether they fit the needs of today rather than yesterday employers are increasingly focused on cost control, including charging higher health-care premiums to employees with higher health risk factors. Employers giving more responsibility to employees for retirement planning and other benefits is to increase their understanding of the value of such benefits.
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4. Reasons for Benefits Growth
Laws mandating benefits passed during and after Great Depression
Wage and price controls instituted during WWII and labor shortages
Tax treatment of benefits programs - marginal tax rate is % of an additional earnings that goes to taxes
Cost advantage of groups vs. individual insurance
Organized labor
Employer differentiation
Although cash is preferred by most people, since it is less restrictive, factors that have contributed to less emphasis on cash and more on benefits include: Several laws were passed during and after the Depression that mandated benefits; the tax treatment of benefits is often more favorable for employees than that of wages and salaries; therefore, benefits are perceived as being of value. Acquiring benefits represented a tangible success for unions and was often seen as more important than a small wage increase.
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5. Benefit Programs Social Insurance Private Group Family-Friendly
Policies
Benefits programs usually fall into the following five categories:
social insurance, private group insurance, retirement, pay for time not worked, and family-friendly policies.
Pay For Time Not
Worked
Retirement
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6. Social Security
Social Security provides old-age insurance, unemployment insurance, survivors' insurance, disability insurance, hospital insurance and supplementary medical insurance.
Social Security retirement benefits are free from federal tax and free from state tax in some states.
Full benefits begin at age 65 or a reduced benefit at 62.
Both employers and employees are assessed payroll tax.
Eligibility age for benefits and tax penalty for earnings influence retirement decisions.
Having begun with the Social Security Act of 1935, which only implemented the first two listed, the combined list is now the federal Old Age, Survivors, Disability, and Health Insurance (OASDHI) program. Over 90 percent of American workers are covered; exceptions are railroad and federal, state, and local government employees who often have their own plans.
Social Security retirement benefits are free from federal tax and free from state tax in about one‑half of the states.
Both employers and employees are assessed a payroll tax.
In recent years, many employers have used early retirement to reduce employment.
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7. Unemployment Insurance
4 Objectives of Unemployment Insurance:
offset lost income during involuntary unemployment
help unemployed workers find new jobs
provide incentive for employers to stabilize employment
preserve investments in skills by providing workers with income during short-term layoffs
No state imposes the same tax on every employer.
Unemployed workers are eligible for benefits if they
have a prior attachment to the workforce
are available and actively seeking work
were not discharged for cause, did not quit voluntarily and are not out of work because of a labor dispute.
Unemployment insurance (established by the Social Security Act of 1935) has the following objectives: to offset lost income during involuntary employment, to help unemployed workers find new jobs, to provide an incentive for employers to stabilize employment, and to preserve investments in worker skills by providing workers with income during short‑term layoffs. The program is financed through federal and state taxes on employers. Unemployed workers are eligible for benefits if they have worked steadily in the past (often 52 weeks), are available for and are seeking work, were not discharged for cause, did not quit voluntarily, and/or are not out of work because of a labor dispute. Benefits vary by state, but are usually about 50 percent of a person's earnings in his or her last 26 weeks.
Employers that have a history of laying off a large share of their workforces pay higher taxes than those who do not. In some states, an employer that has had very few layoffs may pay no state tax. Management’s main task is to keep its experience rating low by avoiding unnecessary workforce reductions.
No state imposes the same tax on every employer.
Unemployed workers are eligible for benefits if they
have a prior attachment to the workforce
are available for and actively seeking work
were not discharged for cause, did not quit voluntarily and are not out of work because of a labor dispute
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8. Workers’ Compensation
Workers' compensation laws cover job-related injuries and death.
System is based on no-fault liability.
Covers 90% of U.S. workers.
4 Categories of Benefits:
disability income
medical care
death benefits
rehabilitative services
Workers' compensation laws protect employees who are involved in job related injuries and the families of workers who accidentally die on the job.
Workers' compensation benefits are related to disability income, medical care, death benefits, and rehabilitative services.
Benefits vary by state, but are usually about two‑thirds of predictable earnings and are tax‑free.
Many actions can be taken to reduce claims—making the workplace safer, holding managers accountable for accidents, and monitoring employees' treatment to get them back to work as quickly as possible.
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9. Private Group Insurance
Offered at employer’s discretion; plans not legally required.
2 major types: medical insurance and disability insurance.
Medical insurance-most important benefit; most full-time employees get such benefits.
Disability insurance includes short-term and long-term plans.
Group rates are lower because of economies of scale, ability to pool risks and greater bargaining power of a group.
Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to permit employees to extend health insurance coverage at group rates for up to 36 months following a qualifying event, such as termination.
Private group insurance is offered at the discretion of employers, and plans are not legally required. Group rates are lower because of economies of scale, the ability to pool risks, and the greater bargaining power of a group. Medical insurance tends to be the most important benefit for people. Most organizations offer this benefit. Two major types: medical insurance and disability insurance.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers to permit employees to extend their health insurance coverage at group rates for up to 36 months following a "qualifying event" such as termination (except for gross misconduct), death, and other events. Disability insurance includes short‑term plans that provide coverage for six months or less, at which point long‑term plans take over (often for life). Salary replacement is most often between 50 and 70 percent. Benefits based on employer contributions are taxed.
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10. Retirement Plans Defined Benefit Defined Contribution
Guarantees a specified retirement benefit level to employees.
Insulates employees from investment risk, which is borne by the company.
PBGC guarantees basic retirement benefit in case of financial difficulties.
ERISA increased fiduciary responsibilities of pension plan trustees, established vesting rights and portability provisions and established PBGC.
Defined Contribution
Does not promise employees a specific benefit level upon retirement.
Employers shift investment risk to the employee.
No need to calculate payments based on age and service.
Most prevalent in small companies.
A defined benefit plan guarantees (“defines”) a specified retirement benefit level to employees based typically on a combination of years of service and age as well as on the employee’s earnings level (usually the five highest earnings years). Employers have no obligation to provide retirement plans, although most do. If provided, the plan must meet the standards of Employee Retirement Income Security Act (ERISA). Defined benefit plans insulate employees from investment risk, which is borne by the company.
The Pension Benefit Guaranty Corporation (PBGC) guarantees to pay employees a basic retirement benefit in the event that financial difficulties force a company to terminate or reduce employee pension benefits. PBGC guarantees a basic benefit, not full replacement.
A Defined Contribution Plan does not promise employees a specific benefit level after retirement. Rather, an individual account is set up for each employee with a guaranteed size of contribution. Employers therefore shift investment risk to the employee. Pension Benefit Guaranty Corporation (PBGC) is the agency that guarantees to pay employees a basic retirement benefit in the event that financial difficulties force a company to terminate or reduce employee pension benefits. Employee Retirement Income Security Act (ERISA): increased fiduciary responsibilities of pension plan trustees, established vesting rights and Portability provisions, and established Pension Benefit Guaranty Corporation (PBGC). ERISA does not require organizations to have pension plans, but those that are set up must meet certain requirements. It is important—not to invest too heavily in any single stock; diversify. Examples- Enron, Bear Stearns etc.
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11. Types of Defined Contribution Plans
Money Purchase
Employee Stock
Ownership
Profit-sharing
Two types of defined contribution plans are a money purchase plan and a 401(k). A money purchase plan is when an employer specifies a level of annual contribution, and at retirement the employee receives the contribution and investment returns. Employees typically purchase an annuity rather than taking the money as a lump sum. Section 401(k) plans (the term comes from the tax code section) permit employees to defer compensation on a pretax basis.
The Pension Protection Act of 2006 requires defined contribution plans holding publicly traded securities to provide employees with (1) the opportunity to divest employer securities and (2) at least three investment options other than employer securities.
Cash Balance Plan Retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employee’s salary; the account earns interest at a predefined rate. The term “money purchase” stems from the fact that employees often use the money to purchase an annuity rather than taking it as a lump sum. Profit-sharing plans and employee stock ownership plans are also often used as retirement vehicles. Both permit contributions (cash and stock, respectively) to vary from year to year, thus allowing employers to avoid fixed obligations that may be burdensome in difficult financial times. Section 401(k) plans (named after the tax code section) permit employees to defer compensation on a pretax basis.
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12. Cash Balance Plans
An employer sets up an individual account for each employee and contributes a percentage of the employee’s salary.
Account earns % at a predefined rate.
Cash balance plans occur when an employer sets up an individual account for each employee and contributes a percentage of the employee’s salary. The account earns interest at a predefined rate. The money in the cash balance plan earns interest according to a predetermined rate, such as the rate paid on U.S. Treasury bills. Employers guarantee this rate as in a defined benefit plan. This arrangement helps employers plan their contributions and helps employees predict their retirement benefits. If employees change jobs, they generally can roll over the balance into an individual retirement account.
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13. Funding, Communication and Vesting Requirements
Summary plan description (SPD) obligates employers to describe plan's funding, eligibility requirements, risks etc.
ERISA guarantees that employees, after working a certain number of years, earn the right to a pension upon retirement, referred to as vesting rights.
Vesting schedules that may be used:
Employees are vested after five years of service.
Employers may vest employees over a three-to seven-year period, with at least 20% in the third year and each year thereafter.
Summary Plan Description (SPD) A reporting requirement of the Employee Retirement Income Security Act (ERISA) that obligates employers to describe the plan’s funding, eligibility requirements, risks, and so forth within 90 days after an employee has entered the plan. Besides specifying termination procedures as mentioned, ERISA requires certain guidelines to be met on management and funding. Employers are required to fund future obligations sufficiently. There are a number of reporting and disclosure requirements to the IRS, Department of Labor, and employees. Even if an employee leaves the organization before retirement, the contributions are vested. Employee contributions are always vested. These requirements were designed to prevent organizations from terminating employees right before retirement or before they vest in the plan.
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14. Pay for Time Not Worked Vacation:
In Europe 20 days minimum vacation is mandated.
U.S. has no legal minimum; 10 days is common.
Sick Leave Programs provide full salary replacement for a limited period of time, usually not exceeding 26 weeks. Amount based on length of service, accumulating with service.
In the European Community, 20 days minimum vacation is mandated and as many as 30 days of vacation is not uncommon. By contrast, there is no legal minimum in the United States, but 10 days is typical for large companies.
Some employers may see little advantage to paid vacation, holidays, sick leave, and so on, since there may be little (tangible) return. Sick leave programs often provide full salary replacement for a limited period of time, usually not exceeding 26 weeks. The amount of sick leave is often based on length of service, accumulating with service. Organizations try to avoid this by encouraging employees to accumulate sick days or pay employees (often a portion) for unused sick days.
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15. Family-Friendly Policies
To ease employees’ conflicts between work and non-work, organizations may use family-friendly policies such as family leave policies and child care.
Family and Medical Leave Act (FMLA):
Applies to organizations with 50 or more employees within a 75-mile radius.
Applies to childbirth or adoption; care for a seriously ill child, spouse, or parent; or for an employee's own serious illness.
Employees are guaranteed the same or comparable job when they return to work.
Employees with less than a year of service or those who work less than 25 hours a week are not covered.
Organizations are more frequently taking steps beyond work schedules to ease the family-work conflicts. These include child care and family leave policies.
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16. Family-Friendly Policies
Family and Medical Leave Act requires organizations with 50 or more employees within a 75-mile radius to provide as much as 12 weeks of unpaid leave after childbirth or adoption; to care for a seriously ill child, spouse, or parent; or for an employee’s own serious illness.
Child Care: employers may provide some type of child care support to employees:
supplies and helps employees collect information about child care,
vouchers or discounts for existing child care facilities or
child care facility at or near worksites.
Family and Medical Leave Act requires organizations with 50 or more employees within a 75-mile radius to provide as much as 12 weeks of unpaid leave after childbirth or adoption; to care for a seriously ill child, spouse, or parent; or for an employee’s own serious illness Employees are guaranteed the same or a comparable job on their return to work. Employees with less than one year of service or who work under 25 hours per week or who are among the 10 percent highest paid are not covered. Many employers had already taken steps to deal with this issue. Employers may provide some type of child care support to employees: a clearing house of child-care information, financial contribution to cost of child care, or subsidized on-site child care. Matching the work force needs to the program should choose the appropriate alternative. Firms using family-friendly policies have better quality management practices overall that are positively associated with organization’s performance.
U.S. companies increasingly provide some form of child care support to their employees several forms that vary in their degree of organizational involvement. 38% of companies supplies and helps employees collect information about the cost and quality of available child care. 2% of companies provide vouchers or discounts for employees to use at existing child care facilities. 7% of companies provide child care at or near their worksites.
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17. Managing Benefits: Employer Objectives and Strategies
Surveys and Benchmarking
Company should know what competition is doing.
Survey information is available from private consultants, Bureau of Labor Statistics (BLS) and Chamber of Commerce.
Cost control
Larger the benefit cost, greater the savings possibility.
Growth rate may result in serious future costs.
Cost containment efforts work to extent that the employee has significant direction in choosing how much to spend in a benefit category.
Although some constraints are imposed legally, organizations have a great deal of latitude and need to evaluate the payoff of benefits. If organizations do not meet the expectations of employees, however, they violate an "implicit contract" between employer and employees. The company should know what the competition is doing.
The larger the cost of a benefit, the greater the possibility for savings. Rate of growth must also be monitored since there may be future problems. Cost containment is possible only if the employer has discretion in revising benefits. Some legally required benefits can be controlled by experience ratings, which impose higher taxes on employers with high rates of unemployment or workers’ compensation claims. Medical and other insurance stands out as a target for cost control for two reasons. Costs and growth in costs are high. Employers have options for attacking costs and improving quality, and the Affordable Care Act makes these issues even more salient for employers.
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18. Importance of Employee Benefits Objectives
Control health care-related costs
Retain employees
Reduce cost of benefits administration
Increase employee productivity
Attract employees
Increase employee satisfaction with value of your overall benefits package
Help employees make better benefits decisions
Address diverse benefits needs of your employee population
Increase enrollment in voluntary and/or optional plans
(Reference: Table 13.5) This provides an example of one organization’s written benefits objectives.

19. Employee Benefits Cost by Category, Civilian Workers
Figure 13.4 Employee Benefits Cost by Category, Civilian Workers, provides information on benefits costs for specific categories as well as breakdowns by industry, occupation, union status, and organization size.
Portion of Benefits Compensation:
Legally required = 7.8
Retirement and savings plans = 4.7
Medical and other insurance = 8.9
Payments for time not worked = 7.0
Supplemental pay = 2.4
Total Benefits = $9.49, 30.8% of total compensation ($30.84)

20. Healthcare: Controlling Costs and Improving Quality
U.S. spends more on health care than any other country
Health-care expenditures have risen from 5.3% of GNP in to 18% (about $2.7 trillion) today.
Percentage of full-time workers receiving job-related health benefits has declined, with more than 53 million Americans currently uninsured
Trend is to shift costs to employees through use of deductibles, coinsurance, exclusions and limitations and maximum benefits.
In the United States, health‑care expenditures have gone from 5.3 percent of the GNP ($27 billion) in 1960 to 18 percent (approximately 2.7 trillion). Yet the percentage of full-time workers receiving job-related health benefits has declined, with more than 53 million Americans currently uninsured. United States also trails Japan and western Europe on measures of life expectancy and infant mortality.
Attempts at cost control have come through employers, since most health care is provided through organizations rather than through national health care as in Western Europe and Canada. Another trend is to shift costs to employees through the use of deductibles, coinsurance, exclusions and limitations, and maximum benefits.
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21. Health Care: Controlling Costs and Improving Quality
Health Maintenance Organizations (HMO)
focus on preventive care and outpatient treatment.
require employees to use only HMO services and provide benefits on a prepaid basis.
physicians and health-care workers paid a flat salary to reduce incentive of raising costs.
Preferred Provider Organizations (PPOs)
contract with employers and insurance companies to provide care at reduced fees.
do not provide benefits on a prepaid basis.
employees often are not required to use just PPOs.
less expensive than traditional health care but more expensive than HMOs.
The use of alternative providers has increased health maintenance organizations (HMO) focus on preventive care and outpatient treatment, requiring employees to use only HMO services and providing benefits on a prepaid basis. HMOs pay physicians and other health‑care workers on a flat salary basis to reduce incentives to increase patient visits or tests.
Preferred provider organizations (PPOs) are groups of health‑care providers who contract with employers, insurance companies, and so on, to provide health care at reduced fees. They do not provide benefits on a prepaid basis, and employees often are not required to use just the PPOs. Employers will provide incentives to use PPOs. PPOs tend to be less expensive than traditional health care but more expensive than HMOs.
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22. Employee Wellness Programs
Focus on changing behaviors on and off work time that could lead to future health problems.
2 Classes of EWPs:
Passive-use little or no outreach to individuals and provide no ongoing motivational support.
Active-assume that behavior change requires not only awareness and opportunity, but also support and reinforcement.
3 Types of Employee Wellness Designs
Health education
Fitness facilities
Outreach and follow-up model
Employers may also vary employee contributions based on the employee's health and risk factors. Employee wellness programs (EWPs) focus on changing work and non-work behaviors that may lead to future health problems. There are two broad classes of EWPs, passive and active. Passive programs use little or no outreach to individuals and provide no ongoing motivational support. Active wellness centers assume that behavior change requires not only awareness and opportunity, but also support and reinforcement.
Figure 13.5 , all three models, health education, physical fitness facilities and outreach and follow-up models, are effective in reducing the risk factors associated with cardiovascular disease (obesity, high blood pressure, smoking, and lack of exercise). However, the follow-up model is significantly better than the other two in reducing the risk factors. In 2012, the average annual premium for family coverage was $15,745, with employers paying $11,429 (73%) and employees paying $4,316 (37%) on average.
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23. 2 Phenomena in Cost Control Efforts
Piecemeal programs
Pareto Group
20% of employees responsible for generating 60 to 80% of health care costs
Since 2002, premium costs have increased 98% (versus 27% inflation. Two important phenomena are often encountered in cost control efforts. First, piecemeal programs may not work well because steps to control one aspect (such as medical cost shifting) may lead employees to “migrate” to other programs that provide medical treatment at no cost to them (like workers’ compensation). Second, there is often a Pareto group, which refers to a small percentage (perhaps 20 percent) of employees being responsible for generating the majority (often 60 to 80 percent) of health care costs. Obviously, cost control efforts will be more successful to the extent that the costs generated by the Pareto group can be identified and managed effectively.
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24. Staffing Responses to Control Benefits Cost Growth
Because benefit costs are fixed, benefits cost per hour can be reduced by having employees work more hours.
Classify employees as exempt, since they can reduce their benefit costs per hour without having to pay overtime.
Classify workers as independent contractors rather than employees, eliminating the employer's obligation to provide legally required benefits.
Employers may change staffing practices to control benefits costs. Because benefit costs are fixed, the benefits cost per hour can be reduced by having employees work more hours. Organizations may try to have their employees classified as exempt, since they can then reduce their benefit costs per hour without having to pay overtime. Employers may be more likely to classify workers as independent contractors rather than employees, which eliminates the employer's obligation to provide legally required benefits. The IRS looks at several factors, including the permanency of the relationship between employer and worker, how much control the employer exercises in directing the worker, and whether the worker offers services to only that employer. Permanency, control, and dealing with a single employer are viewed by the IRS as suggestive of an employment relationship.
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25. Nature of the Workplace
Assessing employee benefits preferences is essential.
Market research methods assess employees’ preferences same way consumers’ demand for products and services is assessed.
Care must be taken not to raise employee expectations regarding future changes.
Methods to determine employee preferences include interviews, focus groups and questionnaires.
What benefits are most important to you?
If you could choose one new benefit, what would it be?
If you were given X dollars for benefits, how would you spend it?
Methods include personal interviews, focus groups, and questionnaires. Assessments of employee benefit preferences need to be done. Demographics will have consequences for benefits that employees want; however, it may be misleading to make decisions on demographics alone. Methods such as personal or group interviews, focus groups, or questionnaires can be used to find out what benefits are important to employees. Relevant questions might include:
What benefits are most important to you?
• If you could choose one new benefit, what would it be?
If you were given x dollars for benefits, how would you spend it?
Organizations must be willing to act on the basis of this information and should consider the messages sent by benefits and the implications of these signals for workforce composition.
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26. Communicating With Employees
Benefits Communication Methods
Enrollment materials (online or paper)
Group employee benefits communications with an organizational representative
Internet
Direct Mail
Newsletters (online and paper)
Benefit fairs
Social Media
Group employee benefits communications with your vendor
Other
(Reference: Table 13.9) This shows alternative methods used by organizations to communicate benefits. Effective communication of benefits information to employees is critical if employers own health insurance, and are to realize sufficient returns on their benefits investments. Employees will be least satisfied with their benefits if their cost is high and they are not well informed. Current employees and job applicants often have a poor idea of what benefits provisions are already in place and the cost or market value of those benefits.
An employer should consider that more than 27 million employees in the United States may be functionally illiterate. There are many alternative ways to communicate benefits information. Given that the private-sector organizations spend an average of more than $18,000 per worker per year on benefits, together with the complex nature of many benefits and the poor understanding of most employees, the typical communication effort may be inadequate. Organizations are increasingly using Web-based tools to personalize and tailor communications to individual employees and to provide answers to many benefit questions have eliminated some benefit-related jobs.

27. Flexible Spending Accounts
Permit employees to choose types and amount of benefits.
Advantages include:
employees more aware and appreciative of their benefits package
better match between package and employee's needs, which improves satisfaction and retention
cost reductions
Disadvantages include:
administrative cost
adverse selection
Rather than a single standard benefits package for all employees, flexible benefit plans (flex-plans or cafeteria-style plans) permit employees to choose the types and amounts of benefits they want for themselves. Some of the advantages are that employees are more aware and appreciative of their benefits package, that there is a better match between the package and the employee's needs, which improves satisfaction and retention, and cost reductions are often achieved. Plans vary according to such things as whether minimum levels of certain benefits (such as health care coverage) are prescribed and whether employees can receive money for having chosen a “light” benefits package (or have to pay extra for more benefits). These accounts permit pretax contributions to an employee account that can be drawn on to pay for uncovered healthcare expenses.
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28. Flexible Spending Accounts
Permits pretax contributions to an employee account that can be drawn on to pay for uncovered health care expenses.
Funds must be spent during the year or they revert to the employer.
Major advantage is take-home pay increases.
Funds must be spent during the year or they revert to the employer (employees should therefore have predictable expenses). The major advantage is that take‑home pay increases. Flexible spending accounts also permit pretax contributions to an employee account that can be drawn on to pay for uncovered health care expenses. They allow funds to be spent during the year or they revert to the employer.
A separate account of up to $2,500 per year is permitted for pretax contributions to cover dependent care expenses. The federal tax code requires that funds in the health care and dependent care accounts be earmarked in advance and spent during the plan year. Remaining funds revert to the employer. The accounts work best to the extent that employees have predictable expenses.
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29. Affordable Care Act: Impact on Employers
Major impact on employer cost control efforts.
Employers with 50 or more workers must offer health care coverage to full-time employees or else pay a penalty.
Impacts taxes, coverage of dependents and wellness programs
Some employers are looking at ways to avoid being covered by the new law.
Affordable Care Act as a major impact on employer cost control efforts. Refer to text, Table The Affordable Care Act: Impact on Employers)
Employers with 50 or more workers must offer health care coverage to full-time employees or else pay a penalty.
Impacts taxes, coverage of dependents and wellness programs
Some employers are looking at ways to avoid being covered by the new law.

30. Nondiscrimination Rules and Qualified Plans
All benefits packages must meet certain rules to be classified as qualified plans.
A qualified plan receive more favorable tax treatment than a nonqualified plan.
Rules must be satisfied for a plan to obtain qualified status
A benefit cannot discriminate in favor of “highly compensated employees.”
The favorable tax treatment is designed to encourage employers to provide important benefits to a broad spectrum of employees. Nondiscrimination rules discourage owners or top managers from adopting plans that benefit them exclusively. Benefits packages must meet certain rules to be classified as qualified plans.
What are the advantages of a qualified plan? Basically, it receives more favorable tax treatment than a nonqualified plan. In the case of a qualified retirement plan, for example, these tax advantages include (1) an immediate tax deduction for employers for their contributions to retirement funds, (2) no tax liability for the employee at the time of the employer deduction, and (3) tax-free investment returns (from stocks, bonds, money markets, or the like) on the retirement funds.
What rules must be satisfied for a plan to obtain qualified status? Each benefit area has different rules. All benefits packages must meet certain rules to be qualified for more favorable tax treatment. These rules discourage top management from developing plans that benefit only themselves. Ensuring equal treatment for men and women in areas besides pregnancy is related to pensions.

31. Sex, Age, and Disability
It is illegal for companies to require women to contribute more to a pension plan than men.
Employers cannot discriminate against employees over age 40 in pay or benefits.
Employees with disabilities have equal access to same health insurance coverage as other employees.
Under the Age Discrimination in Employment Act (ADEA) and later amendments, employers cannot discriminate against employees over the age of 40 in terms of pay or benefits.
The Americans with Disabilities Act (ADA) went into effect in It specifies that employees with disabilities have equal access to the same health insurance coverage as other employees.
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32. Monitoring Future Benefits Obligations
Financial Accounting Statement (FAS) 106-any benefits (excluding pensions) provided after retirement cannot be funded on a pay-as-you-go basis; must be paid on an accrual basis.
Requires that any benefits (excluding pensions) provided after retirement (the major one being health care) can no longer be funded on a pay-as- you-go basis
Balance interests of shareholders, current employees, and retirees.
The Financial Accounting Statement (FAS) 106 issued by the Financial Accounting Standards Board went into effect in Any benefits (excluding pensions) provided after retirement, such as health care, cannot be funded on a pay‑as‑you‑go basis. They must be paid on an accrual basis and entered as future cost obligations on financial statements. The effect on financial statements can be substantial.
The need to balance the interests of shareholders, current employees, and retirees in this area will be one of the most difficult challenges facing managers in the future.
Increasing retiree health care costs (and the change in accounting standards) have also led some companies to require white-collar employees and retirees to pay insurance premiums for the first time in history and to increase copayments and deductibles. Survey data indicate that some companies are ending retiree health care benefits altogether.

33. Summary
Benefits costs are substantial and continue to grow rapidly, most notably health care.
Employers must offer a benefits package that permits them to compete in the labor market. Beyond investing more money in benefits, this attraction and retention of quality employees can be helped by better communication of the value of the benefits package and by allowing employees to tailor benefits to their own needs through flexible benefits plans.
Employees will increasingly become responsible for their own economic security are being asked to increase proportion of costs that they pay and to use data on health care quality to make better choices about health care.
Effective management of employee benefits is an important means by which organizations successfully compete. Benefits costs are substantial and continue to grow rapidly in some areas, most notably health care. Control of such costs is necessary to compete in the product market. At the same time, employers must offer a benefits package that permits them to compete in the labor market. Beyond investing more money in benefits, this attraction and retention of quality employees can be helped by better communication of the value of the benefits package and by allowing employees to tailor benefits to their own needs through flexible benefits plans.
Employers continue to be a major source of economic security for employees, often providing health insurance, retirement benefits, and so forth. Changes to benefits can have a tremendous impact on employees and retirees. Therefore, employers carry a significant social responsibility in making benefits decisions. At the same time, employees need to be aware that they will increasingly become responsible for their own economic security. Health care benefit design is changing to encourage employees to be more informed consumers, and retirement benefits will depend more and more on the financial investment decisions employees make on their own behalf.
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