Chapter 12 and 13 - Benefit Process and Options
pros and cons of IRAS?
Advantages: Doesn't require an employer to set up People not the workforce can also establish and IRA Used mostly to store wealth accumulated in other retirement vehicles Disadvantages Does not build new wealth
A number of factors affect employer preference in determining desirable components of a benefit package:
Any evaluation of employee benefits must be placed in the context of total compensation costs. Costs relative to benefits Competitor offerings Role of benefits in attraction, retention, motivation Legal requirements
disadvantages of defined contribution plans?
Bad investment decisions mean lower retirement income Many employees don't invest enough Investment risk is borne by employees since they manage their own investments No protection if economy tanks
Provides current and former employees and spouses and dependents with a temporary extension of group health insurance when coverage is lost due to qualifying events (layoffs) Extends healthcare benefits to employees not working due to a qualifying event, such as layoff. Employers with 20 or more employees must comply.
COBRA (Consolidated Omnibus Budget Reconciliation Act)
What types of benefits do employees value most?
Five different studies found that employees generally value medical benefits the most, followed by generous retirement plans and extra vacation days.
protects pensioners from org going bankrupt or in some way failing to meet its vested pension obligations.
Pension Benefit Guaranty Corporation
withdrawals are tax free, no age limits or mandatory withdrawal, income eligibility restrictions
ROTH IRA
ADVANTAGES of defined benefit plans?
Retirement benefit is defined and promised Investment risk is borne by employer Cost does not vary with ability to pay Employee is responsibility-free Encourages retention
The growth of benefits is also due to belief of their cost effectiveness in two situations:
The first cost advantage is that most employee benefits are not taxable. A second cost-effectiveness component of benefits arises because many group-based benefits (e.g., life, health, and legal insurance) can be obtained at a lower rate than could be obtained by employees acting on their own.
Employee Benefit Communication revolves around four issues:
What is communicated, to whom, how it's communicated, and how frequently
pulls together a group of providers willing to provide services at an agreed upon rate in exchange for the employer limiting employees to these providers for health care.
health maintenance organization (HMO)
(employer pays total costs)
noncontributory costs
tax deductible contributions up to a certain amount based on income Pay taxes on withdrawals Mandatory withdrawals at age 70.5
traditional IRA
T or F: Some experts speculate that a key element in reward attractiveness (and benefits) may be their visibility.
true
Offsets lost income during involuntary unemployment Helps unemployed workers find new jobs Provides an incentive for employers to stabilize employment Preserves investments in worker skills by providing income during short-term layoffs Allows workers to return to their employer rather than start over with another employer Financing Financed exclusively by employers that pay federal and state unemployment insurance tax
unemployment compensation
refers to the length of time an employee must work for an employer before he or she is entitled to other employer payments made into the pension plan
vesting
Covers injuries and diseases that arise out of and while in the course of employment Medical care needed to treat job injury or illness Helps replace lost wages Compensates for any permanent effects Survivor death benefits Rehabilitation and training
workers compensation
expanded coverage through both an individual and an employer mandate. Employers with 50 or more must provide insurance to all full-time employees.
Affordable Care Act of 2010
What are the employee factors when it comes to determining benefits?
Equity Personal needs as linked to age, sex, marital status, number of dependents
Designed to lessen an employer's ability to deny coverage for a preexisting condition and prohibit discrimination on the basis of health-related status Lessen ability to deny coverage due to a preexisting condition. Prohibit discrimination on the basis of health-related status.
HIPAA (Health Insurance Portability and Accountability Act)
There are three general strategies available to benefit managers for controlling the rapidly escalating costs of healthcare:
Organizations can motivate employees to change their demand for health care, through changes in either the design or the administration of health insurance policies Changing the structure of health care delivery systems and participating in business coalitions Link incentives to healthy behaviors - (Awarding people who lose weight or take care of their health in some way - Wellness programs)
Passed in 2010 50 or more employees in a company need to have health insurance provided Employer mandate is still in effect
Patient Protection and Affordable Care Act (PPACA)
protect employees' retirement income as well as transfer some responsibility for retirement savings from the employer to the employee
Pension Protection Act of 2006 (PPA)
One way to control costs is to encourage employees to USE ...
SAVINGS ACCOUNTS! THEY REDUCE PRETAX INCOME
Four major administration issues arise in setting up a benefits package:
Who should be protected or benefited? How much choice should employees have from an array of benefits? How should benefits be financed? Are the chosen benefits legally defensible?
what are defined contribution plans?
a benefit option or package in which the employer negotiates a dollar maximum payout.
controlling costs through policies such as seeking competitive bids for program delivery
administrative cost containment
what is cost containment?
an attempt made by organizations to contain benefit costs
what is claims processing?
arises when an employee asserts that a specific event has occurred and demands that the employer fulfill a promise of payment.
it is not uncommon to limit disability income payments to some maximum percentage of income and to limit medical/dental coverage for specific procedures to a certain fixed amount
benefit limitations
through companies like Prudential or Aetna. Pay for service plans à can choose any health care provider
commercial insurance plan
workers who do not expect their jobs to last or who report their jobs as temporary, and represent 1.3 to 3.8% of the workforce
contingent workers
(costs are shared between employer and employee)
contributory costs
benefits that are voluntarily offered by employers to an employee's unmarried partner; includes fairness to all employees regardless of their sexual orientation or marital status
domestic partner benefits
employee pays for total costs for some benefits - by law the organizations must pay the costs for certain benefits
employee financed costs
What is a flexible benefit plan?
employees are allotted a fixed amount of money and permitted to spend that amount in the purchase of benefit options.
Entitles all eligible employees to receive unpaid leave up to 12 weeks per year for specified family or medical reasons Newborn Seriously ill spouse, child, parent
family and medical leave act
controlled by employer Less flexibility Balances do not transfer over Can only make certain adjustments to your account of benefit options at certain times
flexible savings accounts
controlled by employees Has a lot more benefits Account balances roll over to the next year Portable
health savings accounts
a type of plan that offers lower monthly premiums but requires that the employee pay a higher deductible. In other words, you pay more of the health care costs before insurance starts to pay its share.
highly deductible plan
What are defined benefit plans?
include a benefit option of package in which the employer agrees to give the specified benefit without regard to cost maximum
tax-favored retirement savings plans that individuals can establish themselves
individual retirement accounts
Majority of plans provide routine legal services (divorce, real estate, wills, traffic violations_ but exclude provisions covering felony crimes, largely because of the expense and potential for bad publicity
legal insurance
insurance plans that provide payments to replace lost income through an inability to work that is not covered by other legally required disability income plans
long-term disability plans
the practice of hiring outside vendors to perform functions that do not directly contribute to business objectives and in which the organization does not have a comparative advantage
outsourcing
a hybrid plan combining HMO and PPO benefits. The plan permits individuals to choose which plan to seek treatment from at the time services are needed, providing the economic benefit of the HMO with the freedom of the PPO. Still have to get a referral
point of service plan
transferability of pension benefits for employees moving to a new organization
portability
employers select providers who agree to price discounts and submit to strict utilization controls and charges high fees if employees make selections outside the provider network. more flexibility than HMO but not as cheap. Does not require referrals to see specialist
preferred provider organization (PPO)
excluding new employees from benefit coverage until some term of employment (three months) is completed
probationary period
major requirements of ERISA are:
requires that employees be eligible for a pension plan beginning at age 21. Any contributions made by the employee to the pension fund are immediately and irrevocably vested ERISA does not require mandatory portability of private pensions
copay
requiring that employees pay a fixed or percentage amount for coverage
benefit options that provide some form of protection for disability. Some are legally required such as workers' compensation provisions for work-related disability and social security disability income provisions for those who qualify
salary continuation plans
Advantages of defined contribution plans?
savings plan that defers pretax income Profit sharing Employer contribution is defined/promised Investment risk borne by employee Cost varies with ability to pay Employee must manage investments Facilitates mobility Faster to vest More portable Potential for greater rewards More appealing to younger workers
pays a percentage of salary (about 60%) for temporary disability due to sickness or injury. On-the-job injuries are covered by workers' compensation.
short term disability
Paid to replace part of the lost family earnings A foundation for basic security for American seniors and their families Old-age or disability benefits Benefits dependents of retired or disabled workers Benefits for surviving family of a deceased worker Lump-sun death payments
social security