1. Copyright 2000 - South-Western College Publishing Module 18 - 1 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.

2. Copyright 2000 - South-Western College Publishing Module 18 - 2 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

3. Copyright 2000 - South-Western College Publishing Module 18 - 3 Total Compensation Components for 1996

4. Copyright 2000 - South-Western College Publishing Module 18 - 4 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

5. Copyright 2000 - South-Western College Publishing Module 18 - 5 Provisions of ERISA Include: reporting and disclosure fiduciary standards employee eligibility vesting plan termination insurance

6. Copyright 2000 - South-Western College Publishing Module 18 - 6 Examples of Vesting

7. Copyright 2000 - South-Western College Publishing Module 18 - 7 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

8. Copyright 2000 - South-Western College Publishing Module 18 - 8 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

9. Copyright 2000 - South-Western College Publishing Module 18 - 9 Other Social Insurance Programs Unemployment Insurance Workers’ Compensation Insurance Temporary Disability Insurance

10. Copyright 2000 - South-Western College Publishing Module 18 - 10 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

11. Copyright 2000 - South-Western College Publishing Module 18 - 11 Defined Benefit and Defined Contribution Approaches

12. Copyright 2000 - South-Western College Publishing Module 18 - 12 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

13. Copyright 2000 - South-Western College Publishing Module 18 - 13 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

14. Copyright 2000 - South-Western College Publishing Module 18 - 14 Additional Health Benefits Dental Prescription Drug Vision Hearing

15. Copyright 2000 - South-Western College Publishing Module 18 - 15 Other Welfare Benefits Group Life Insurance –for employee –for dependents –AD&D component Disability Insurance Long Term Care Insurance

16. Copyright 2000 - South-Western College Publishing Module 18 - 16 Work/Life Benefits Flexibility Child and Elder Care Assistance Adoption Benefits Employee Assistance Program (EAP) \ Convenience Benefits Additional Emerging Benefits

17. Copyright 2000 - South-Western College Publishing Module 18 - 17 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

18. Copyright 2000 - South-Western College Publishing Module 18 - 18 Funding Insurance Contract vs. Self-funding ERISA has funding standards for retirement plans.

19. Copyright 2000 - South-Western College Publishing Module 18 - 19 Administration