Chapter 13

define-contribution plans

(alternative to defined-benefits) a retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account, rather then the amount to be paid out upon retirement

what are the four categories of workers comp benefits?

-disability income -medical care -death benefits -rehabilitative services *the amount of income varies from state to state but it is typically two-thirds of the workers earnings before disability;the benefits are tax free

a defined-contributions plan is easer to administer because

-employer doesnt need to calculate payments pased on age and service -payments to the PBGC are not required * there is a steady incline of defined-contributions and a steady decline in defined-benefits

whatare the types of employee benefits required by law

-employers must contribute to the Old Age, Survivors, Disability, and Health Insurance programs known as Social Security through a payroll tax shared by employers and employess -Employers must pay federal and state taxes for unemployment insurance, based on each employers experience rating, or percentage of employees a company has laid off in the past -state laws require that employers purchase workers comp insurance -under the FMLA, employees who need to car efor a baby following birth or adoption or for an ill family member must be granted unpaid leave of up to 12 weeks

what is the importance of benefits as a part of employee compensation

-like pay, benefits help employers attract, retain, and motivate employees -the variety of possible benefits also helps employers tailor their compensation packages to attract the right kinds of employees -employees expect at least a minimum level of benefits, and providing more than the minimum helps an org compete in the labor market -benefits are also a significant expense, but employers provide benefits b/c employees value them and many benefits are required by law

what are the different types of retirement plans offered by employers

-retirement plans may be contributory, meaning funded by contributions from employer and employee, or noncontributory, meaning funded only by the employer. -these plans may be defined benefits plans, which guarantee a specified level of retirement income, usually based on the employers years of service, age and earnings level. benefits under these plans are protected by PBGC -alternative is to set up a defined contributions plan, such as a 401 (k) plan. the employer sets up an individual account for each employeeand guarantees the size of the investment into that account, rather then the amount to be paid out on retirement -b/c employees have control over investment decisions, the orgmay also offer financial planning services as an employee benefit -a cash balance plan combines some advantages of defined benefits and defined contribution plans; the employer sets up individual accounts and contributes a percentage of each employees salary, the account earns interest at a predetermined rate, so the contributions and benefits are easier to predict.

workers who meet eligibility requirements recieve the retirement benefits according to their

age and earnings history * if they elect to begin recieving benefits at full retirement age, they can recieve full benefits *if they elect to begin receiving benefits at age 62, they recieve benefits at a permanetly reduced level

how is a domestic partner typically defined

an adult nonrelative who lives with the employee in a relationshipdefined as permanent and financially interdependent

what is the importance of effectively communicating the nature and value of benefits to employees

communicating information about benefits is important so that employees will appreciate the value of their benefits. -communicating their value is the main way benefits attract, motivate, and retain employees. -employers have many options for communicating information about benefits. such as brochures, meeting, intranets, memos, and email; using a combo of these methoda increases employees understanding.

section 401 (k) plans

employees contribute a percentage of their earnings, and employers may make matching contributions. the amoun the employees contribute is not taxed as part of their income until they recieve it from the plan. the federal gov't limits the amount that may be contributed each year;for 2007/2008 thelimit was $15,500, it may increase by up to $500/year through 2010,depending on inflation rate. the contribution rates are higher for those 50 and older.

Family and Medical Leave (FMLA) (definition)

federal law requirinf orgs to provide up to 12 weeks of unpaid leave for childbirth, adoption or serious illness

Family and Medical Leave Act (FMLA)

federal law requiring orgs with 50 or more employees within a 75-mile radius to provide up to 12 weeks of unpaid leave after childbirth or adoption; to care for a seriously ill family member; or for an employee's own serious illness *employees must also guarantee these employees the same or comparable job when they return to work.

vesting rights

guarantee that when employees become participants in a pension plan and work a specified amount of years, they will recieve a pension at retirement age, regardless of whether they remained with the employer

what are the different kinds of defined-contribution plans available?

money purchase plan, profit-sharing and employee stock ownership plans, section 401 (k) plans

under what principle do the laws of workers compensation operate under

no-fault liability; meaning that an employee does not need to show that the employer was grossly negligent in order to recieve workers comp, and the employer is protected from lawsuits

whatare the most widely offered benefits ?

paid leave for vacation and holidays, life and medical insurance, and retirement plans *in general benefits packages tend to be more limited for smaller companies

benefits packages are more complex than

pay structures; making them harder for employees to understand and appreciate

"top heavy" pension plan

pension benefits for key employees (top paid managers) exceed a government-specified share of total pension benefits; requires faster vesting for nonkey employees

Workers Compensation Insurance (definition)

state programs that provide benefits to workers who suffer work-related injuries or illnesses, or to their survivors

why dont orgs just pay employees cash and the employees can get their own benefits/insurance?

the law requires employers to provide certain benefits (social security and unemployment insurance) , and there are tax laws that make benefits more favorable to employees (employees do not pay tax on the benefits they recieve) *also, employers, especially large ones, often get a better deal on insurance or other programs than employees can obtain on their own

what are the objectives of the unemployment insurance program related to?

-minimizing the hardships of unemployment -provides payments to offset lost income during involuntary unemployment -helps unemployed workers find new jobs

Benefits Required by law are:

-social security -unemployment insurance -workers compensation insurance -family and medical leave (FMLA)

on average, out of every dollar spent on compensation, how many cents to the dollar go to benefits?

30; and has grown over the past decades

how many pensions does the PBGC protect

44 million worker pensions

what is the full retiremnent age of a person born in 1940?

65 years old and 6 months

what is the full retirement age of a person born in 1960 or later?

67

cafeteria-style plans

a benefits plan that offers employees a set of alternatives from which they can choose and types and amount of benefits they want

Summary Plan Description(SPD)

a report that describes a pension plan's funding, eligibility requirements, risks and other details

benefits contribute to

attracting, retaining, and motivating employees

exempt amount

benefits may be reduced if the worker is still earning wages above a maximum *Example: in 2008, the amount was $13,560 for beneficiaries under full retirement age-earning more then that amount results in a reduction in their benefits

what is one way to legally minimize pension costs?

by choising a vesting schedule; if many employees leave after 3 or 4 years of employment, the five-year vesting schedule would minimize pension costs

how can orgs minimize the cost of their workers comp premiums?

by keeping working placees safe, and making employees and their managers conscious of safety issues

what can minimize layoffs and keep an orgs experience rating favorable?

careful HR planning

employee benefits

compensation in forms other then cash

what are some examples of employee benefits

corporate fitness centers, paid vacation time, employer-paid health insurance, and pension plans

which countries typically require paid family leave?

countries in Western Europe and Japan

Social Security (definition)

eligible persons recieve retirement benefits according to their age and earning history

what options do employers have for communicating information about benefits?

employers can combine several media; such as brochures, question-and-answer meetings, intranet pages, memos and email. There is also paychekc inserts, retirement or health coaching, training programs, and benefits fairs

how is the PBGC funded?

employers must make annual contributions of $33 per fund participant

most of the funding for unemployment insurance comes from

federal and state taxes on employers

social security is free from

federal income taxes and state taxes in about half the states

employer-sponsored retirement plans

for private businesses (nongovernment jobs), most common for higher-earning employees; among employees earning the top one-fifth of incomes, almost three-quarters have pension plans, and about one out of six employees in the bottom fifth have pensions.

decisions about which benefits to includeshould take into account the orgs

goals, budget and the expectations of the orgs current employees and those it wishes to recruit in the future.

the important role of benefits is one reason that benefits are subject to

governement regulation; legally required benefits and tax laws can make benefits favorable

how can using 'years of service' as part of the basis for calculating benefits be effective?

it gives employees incentive to stay with the org as long as they can, so it can help reduce voluntary turnover

retirement checks amount to how much of a retired persons income?

less then half

the FMLA law does not cover employees who:

less then one year of service, work fewer then 25 hours a week, or are among the orgs top 10 percent highest paid

employees have come to expect that benefits will help them

maintain economic security

Who much are premiums for low-risk occupations

may be less then 1 percent of payroll

how much are premiums for high-risk occupations?

me be as high as 100 percent of payroll

defined-benefits plans are most generous to

older employees with many years of service

contributory plan

retirement plan funded by contributions from the employer and employee

noncontributory plan

retirement plan funded entirely by contributions from the employer

cash balance plans

retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employees salary; the account earns interest at a predefined rate

why must orgs communicate benefits information to employees?

so employees will appreciate the value of their benefits; this is essential so that benefits can achieve their objective of attracting, motivating and retaining employees

what types of plans help employees prepare for retirement

social security contributions, pensions, and retirement savings plans

what will the amount recieved by the retiree depend on if its a defined-contribution plan?

the accounts performance

the cost of workers comp insurance depends on what?

the kinds of occupations involved, the state where the company is located, and the employers experience rating

health insurance benefits are often estend to employees'

themselves, their spouses and dependent children *today most companies are covering domestic partners, either defined by local law or by the companies themselves

how do insurance plans help employees?

they help by protecting them from unexpected costs such as hospital bills

If workers meet the requirements for unemployment compensation, then what?

they recieve benefits at the level set by the state-typically half of the persons previous earnings-for a period of 26 weeks -offer can be extended for up to 13 weeks -all states have minimum and maximum weekly benefit levels -compensation ranges from 50-70% of base salary up to a mximum weekly amount which varies by state- it is also fully taxable which limits the benefits

Pregnancy discrimination act

when an employee expereince pregnancy or childbirth, employers must comply with this act; if an employee is temporarily unable to perform her job due to pregnanacy, the employer must treat her in the same way as any other temporarily disabled employee; may have to provide modified tasks, alternative assignments, disability leave or leave without pay

when does the employer lose protection under the no-fault liability principle for workers comp?

when the employer intentionally contributes to a dangerous workplace

when is an employee not eligible for workers comp?

when thier injurires are self-inflicted or if they result from intoxication or "willful disregard of safety rules"

cash balance plans are most generous to

young employees who will have many years ahead in which to earn interest

The Social Security program covers what percent of the US employees; what are the exceptions

90; railroad andfederal, state, and local gov't employees, who oftern have their own plans

Unemployment Insurance (definition)

a federally mandated program to offset the hardships of unemployment

in 2006, what provided a significant share of persons over the age of 65?

pensions

how do you choose the contents of an employee benefits package?

- a logical place to begin is to establish organizational objectives and select benefits that support those objectives -orgs should also consider employees expectations and values -at a minimum, orgs offer the benefits employees have come to view as basic; some orgs go as far as to match extra benefits to individual employees' needs and interests -cafeteria-style plans are an intermediate step that gives employees control over the benefits they recieve. Employers must also weigh the costs of benefits, which are significant

social security eligibility

-benefit payments are based on age and emplyoee's lifetime earnings; spouses covered even if no covered earnings -benefit amount rises anually with the Consumer Price Index (CPI) -full retirement age

what are reasons as to why people using do not take the full 12-week unpaid leave?

-cannot afford 3 months of not being paid; especially when responsible for the expenses that accompany childbirth, adoption, or serious illness, worried that long away from a job will result in missing out on career opportunites,many are eager to return

to recieve unemployment compensation, workers must meet what conditions?

-demonstrate that they had been employed -they are available for work -they are actively seeking work and registered at the local unemployment office -they were not discharged for cause, did not quit voluntarily, and are not out of work because of a labor dispute (on strike)

Social Security Benefits

-the federal Old Age, Survivors, Disability and Health Insurance (OASDHI) program which combines: old age (retirement) insurance, survivor's insurance, disability insurance, hospital insurance (medicare Part A) and supplementary medical insurance (medicare Part B)

Pension Benefit Guarantee Corporation (PBGC)

a federal agency that insures retirement benefits and guarantees retirees a basic benefit if the employer experiences financial difficulties

Defined-benefits plans must meet the funding requirement of the Employee Retirement Income Security Act (ERISA) of 1974, what is this?

a federal law the increased the responsibility of pension plan trustess to protect retirees,established certain rights related to vesting (earning a right to recieve the pension) and portability (being able to move retirement savings when changing employers), and created the Pension Benefit Guarantee Corporation (PBGC)

employers and emplyess share the cost of social security through

a payroll tax;percentage is set by law and has changed from time to time

Defined-benefit plan

pension plan that guarantees a specified level of retirement income; usually the amount is calculated for each employee based on the employee's years of service, age, and earnings level; these calculations typically result in pension payments that range from 20% of final salary for an employee who is relatively young and has few years of service to 35% of the final salary of an older employee who has spent many years with the org

Workers' Compensation

state programs that provide benefits to workers who suffer work-related injuries or illnesses, or to their survivors

an org managing its labor costs must pay careful attention to

the costs of its employee benefits

orgs offering coverage to domestic partners often require

the domestic partner to sign a document stating they meet the requirements for a domestic partnership *domestic partners do not hav ethe same tax advantages as benefits provided to spouses; partners benefits are taxed as wages of the employee recieving the benefits

what does it mean if a plan is underfunded, what happends when this occurs

the employer does not contribute enough to the plan each yearto meetfuture obligations;employers must pay an additional premium tied to the amount by which the plan is underfunded

money purchase plan

the employer specifies a level of annual contributions (i.e. 10% of salary). these contributions are invested, and when the employee retires, he/she is entitled to recieve the amount of the contrbutions plus the investment earnings; "money purchase" refers to the fact that when employees retire, they often buy an annuity with the money, rather then taking it as a lump sum

ERISA's reporting and disclosure requirements involve

the internal revenue service (IRS), the dept. of labor, and employees;within 90 days of an employee entering a plan, they must recieve a Summary Plan Description(SPD)

experience rating

the number of employees a company has laid off in the past and the cost of providing them with unemployment benefits * the size of the unemployment insurance tax imposed on each employer is based on this

Profit-sharing and employee stock ownership plans

these payments may be set up so that the money goes into retirement plans.by defining its contributions in terms of stock or a share of profits, the org has more flexibility to contribute less dollar value in learn years and more in good years

multiemployer pension plans

these plans do not need to provide vesting until after 10 years of employment

what is the intent of vesting requirements?

to protect employees by preventing employers from termination them before they meet retirement age in order to avoid paaying pension benefits

what is an increasingly popular way to combine the advantages of defined-benefits plans and defined-contribution plans

using cash balance plans

what kinds of benefits programs are optional

various kinds of insurances,retirement plans, and paid leave *part time employees often recieve fewer benefits