1. Benefit Options
Chapter 13

2. Chapter Topics Legally Required Benefits
Retirement and Savings Plan Payments
Life Insurance
Medical and Medically Related Payments
Miscellaneous Benefits
Benefits for Contingent Workers
Your Turn: Love Inc.

3. Exhibit: 13.1 Employee Benefit Preferences

4. Legally Required Benefits
Workers’ Compensation
Social Security
Unemployment Insurance

5. Exhibit 13.2 Categorization of Employee Benefits

6. Exhibit 13.3 Participation in Selected Benefits, 2005

7. Overview: Workers’ Compensation
Form of no-fault insurance
Employer liable for providing benefits to employees that result from occupational disabilities or injuries, regardless of fault
Disability must be work-related
Covered by State, not Federal laws
Employers pay premium to insurance company or state fund
For every dollar insurers take in to cover workplace injuries and illnesses, they pay out $1.21 to cover claims

8. Workers’ Compensation: Benefits and Laws
Types of benefits:
Permanent total disability and temporary total disability
Permanent partial disability - loss of use of a body member
Survivor benefits for fatal injuries
Medical expenses
Rehabilitation

9. Exhibit 13.4: Benefits by Type of Injury: New Hampshire

10. Exh. 13.5: Commonalities in State Workers’ Compensation Laws
ISSUE
MOST COMMON STATE PROVISION
Type of law
Compulsory (in 49 states)
Elective (in Texas)
Self-insurance
Self-insurance permitted (in 48 states)
Coverage
All industrial employment
Farm labor, domestic servants, and casual employees usually exempted
Compulsory for all (or most) public sector employees (in 47 states)
Occupational diseases
Coverage for all diseases arising out of and in the course of employment
No compensation for “ordinary diseases of life”
See Exhibit 13.4, page 460

11. Issues: Workers’ Compensation
Increased costs of medical expenses
Cost increases due to . . .
Use of workers’ compensation as a surrogate for more stringent unemployment insurance
Cost of replacing worker wages has risen

12. Workers’ Compensation (cont.)
Retirement and Savings Plan Payments
Defined Benefit Plans
Defined Contribution Plans
Individual Retirement Accounts (IRAs)
Employee Retirement Income Security Act (ERISA)

13. Social Security
Provides a basic foundation of security for American workers and their families
For tax purposes, system is split into two programs:
Social Security - 6.2% - $97,500 in 2007,
$102,000 in 2008
Medicare % - no ceiling

14. Issues: Social Security
Number of retired workers is rising without a corresponding increase in number of contributors to offset costs
Currently, 3.5 workers pay into system for each person collecting benefits
Within next 40 years this ratio drops to about 2 to 1

15. Issues: Social Security (Cont.)
Reform options:
Increase payroll taxes
Decrease benefits
Use general revenues
Have social security go to an employee’s own account to be earmarked of his/her personal retirement

16. Benefits under Social Security
Old age
Disability benefits
Benefits for dependents of retired or disabled workers
Benefits for surviving family members of a deceased worker, and
Lump sum death payments

17. Unemployment Insurance
Financing:
Majority of states, unemployment compensation is financed exclusively by employers that pay federal and state unemployment insurance tax
Federal tax amounts to 6.2 percent of the first $7,000 earned by each worker
States additionally impose a tax above the $7,000 figure
The extra amount a company pays depends on its experience rating

18. Unemployment Insurance (cont.)
Coverage:
Eligibility requirements to receive benefits:
Must meet State requirements for wages earned or time worked during an established (one year) period of time referred to as a “base period”
Must be determined to be unemployed through no fault of your own and meet other eligibility requirements of State law

19. Unemployment Insurance (cont.)
Duration:
Benefit duration involves a complex formula that ensures extended benefits in times of high unemployment
When number of insured unemployed in a State reaches 6 percent
When unemployment rate is greater than 5 percent and at least 20 percent higher than in the same period of the two preceding calendar years and remains that way for 13 weeks
Weekly benefit amount
Controlling unemployment taxes

20. Family and Medical Leave Act
Coverage:
Employers with 50 or more employees
Eligibility:
12 months employment with employer in which employee works 1,250 hrs
Qualifying events:
Specified family or medical reasons

21. Family and Medical Leave Act (cont.)
Eligibility:
Employee must have worked at least 1,250 hours for the employer in the previous year
Common reasons for leave:
Caring for an ill family member or adopting a Child

22. Consolidated Omnibus Budget Reconciliation Act (COBRA)
Coverage:
Employers with 20 or more employees
Eligibility:
Provides current and former employees and their spouses and dependents with temporary extension of health care benefits
Qualifying events:
Specified events (e.g. layoffs)
Qualifying event coverage:
18 to 36 months, depending on category of qualifying event

23. Health Insurance Portability and Accountability Act (HIPPA)
Key provisions
Lessens an employer’s ability to deny coverage for a preexisting condition
Prohibits discrimination on the basis of health- related status
Provides stringent privacy provisions

24. Retirement and Savings Plan Payments
Employees rank pensions in the top three of all benefits in terms of importance
Defined benefit plans
Defined contribution plans
Individual Retirement Accounts (IRAs)
Employee Retirement Income Security Act (ERISA)

25. Defined Benefit Plans
Employer provides a specific pension level defined in terms of:
Fixed dollar amount or
Percentage-of-earnings amount that may vary with years of seniority
Employer finances this obligation by:
Following an actuarially determined benefits formula and
Making current payments that will yield the future pension benefit for a retiring employee

26. Defined Benefit Plans (Cont.)
Determination of benefit levels
Average earnings at end of tenure (last 3 – 5 years) or
Average career earnings or
Fixed dollar amount not dependent on earnings

27. Defined Contribution Plans
Require specific contributions by employer
Final benefit received by employees is unknown
Dependent on investment success of plan manager
Three popular forms of these plans
401 (k) plan
Employee Stock Ownership Plan (ESOP)
Profit sharing
Can be considered a defined contribution plan if distribution of profits is delayed until retirement
Cash balance plans hybrid of defined benefit and defined contribution plans

28. Exhibit. 13.10: Relative Advantages of Different Pension Alternatives
See Exhibit 13.8, page 469

29. Individual Retirement Accounts (IRAs)
Tax-favored retirement savings plan that individuals can establish themselves
IRAs are used mostly to store wealth accumulated in other retirement vehicles, rather than as a way to build new wealth

30. Employee Retirement Income Security Act (ERISA)
Eligibility: Employees at least 21 years old
Employers may require 6 months of service as a precondition for participation
Vesting: Length of time employee must work for employer before entitled to employer payments to plan
Any contributions made by an employee to a pension fund are immediately and irrevocably vested
Employer’s contribution must vest according to two formulas

31. Employee Retirement Income Security Act (ERISA) (cont.)
Portability: Issue for employees moving to new companies
Law does not require mandatory portability of private pensions
An employer may voluntarily agree to permit portability (pension rights must be vested)
Pension Benefit Guaranty Corporation (PBGC): Insures payment of certain pension plan benefits

32. How Much Retirement Income to Provide?
What level of retirement income should be set as a target?
Should social security benefits be factored in when considering level of retirement income?
Should other post-retirement income sources be integrated with pension?
How large a role should seniority play in determining pension level?
What can a company afford?

33. Life Insurance One of the most common employee benefits
87% of medium and large companies offer life insurance
Most companies offer term policies
Value of one to two times an employee’s salary
Most plan premiums paid completely by employer
Varying amounts of additional coverage often an option

34. Health and Medical Benefits
General Health Care
Health Care: Cost Control Strategies
Short- & Long- Term Disability
Dental Insurance
Vision Care

35. General Health Care
An employer’s share of health care costs is contributed into one of six health care systems:
Community-based system
Commercial insurance plan
Self-insurance
Health maintenance organization (HMO)
Preferred provider organization (PPO)
Point-of-service plan (POS)

36. Controlling Health Care Costs: Three Strategies
Motivate employees to change their demand for health care via changes in either design or administration of policies
Change structure of health care delivery systems and participate in business coalitions
HMOs
PPOs

37. Controlling Health Care Costs: Three Strategies (cont.)
Promote preventive health programs
No-smoking policies
Healthy food in cafeterias and vending machines

38. Controlling Health Care Costs: Strategy One
Practices related to design and administration of health plan
Increase deductibles
Change coinsurance rates
Reduce maximum benefits
Coordinate benefits with employees and spouses

39. Controlling Health Care Costs: Strategy One (cont.)
Audit health care charges
Require preauthorization for visits to facilities
Require mandatory second opinion for procedures
Use intranet technology to allow employees access to online benefit information

40. Short- and Long-Term Disability
Workers’ compensation covers disabilities that are work-related
Social security has provisions for disability income to those who qualify
Private sources of disability income:
Employee salary continuation plans
Long-term disability plans

41. Miscellaneous Benefits
Paid Time Off During Working Hours
Payment for Time Not Worked
Child Care
Elder Care
Domestic Partner Benefits
Legal Insurance

42. Paid Time Off During Working Hours
Rest periods
Lunch periods
Wash-up time
Travel
Clothes-change time
Get-ready time

43. Pay for Time Not Worked
Paid vacations and payments in lieu of vacation
Payments for holidays not worked
Paid sick leave
Other
National guard
Army, or other reserve duty
Jury duty
Voting pay allowances
Personal reasons

44. Exhibit 13.18: Employees Receiving Leave Time Benefits

45. Exhibit 13.19: Benefits Received: Full-Time vs. Contingent Employees