Employee Benefits

Vesting for Defined Benefit & Contribution Plans

- employee's nonforfeitable rights to pension benefits - Vesting rights focus on employer contributions - Vesting rights entitle employees to receive any employer contributions made to their retirement accounts

Allowable Tax Deductions for Employers

Condition 1- retirement plans must be qualified Condition 2- employers must make contributions before the due date for their federal income tax returns Condition 3- Deductible contributions should be based on designated amounts set forth in the IRC

The Components of employee benefits

Protection, Paid Time-Off, Accommodations and Enhancements

Merit-pay rewards employees according to their job performance

True

Hybrid Plans

- Combinations of defined benefit and defined contribution plans Types: Cash balance & pension equity, Target benefit, Money Purchase, Age-weighted profit sharing

Coverage Requirements

- Companies demonstrate whether plans meet the coverage requirement by maintaining a nondiscriminatory ratio of non-highly compensated employees to highly compensated employees based on one of the following tests - Ratio Percentage Test - Average Benefit Test

Qualified Plan Provision

- Coverage Requirements - Vesting Rules - Key Employee & Top-heavy provisions - Qualified Survivor Annuities

Nondiscrimination Rules: Testing

- Defined Contribution Plan must meet 1 of 2 safe harbor conditions 1) a uniform allocation formula 2) A uniform points allocation formula for profit-sharing plans

Retirements Plans or Pensions

- Defined Contribution Plans: Both employer and employee make defined contributions based upon % of base pay of the employee that is invested b the employer - Defined Benefit Plans: Specific amount guaranteed per month upon retirement usually based upon the # of years of service multiplied by % of lifetime pay - Hybrid Plans: Combine features of defined contribution and defined benefit plans

3 types of retirement plans

- Deined benefits ( Guaranteed payments) - Defined Contribution plans (depends on portfolio performance) - Hybrid plans (combine features of plans above)

Two Sources of information used in Strategic Benefit Planning

- External Market Environment: Industry prospects, economic conditions, and forecasts,- Employer costs for compensations and benefits -government regulation of employee benefits,- changing demographics of the labor force -Internal company Environment: Workforce demographics, Collective bargaining agreements

Discretionary Benefits

- Income and Health Protections - Paid Time-Off - Accommodation and Enhancement

Compensation Adjustments

- Merit Pay: Pay increased based on Job performance typically on an annual basis -Incentive Pay: Rewards based on attaining predetermined work objectives - Person-Focused Pay: Pays employees for acquiring knowledge or skills

Two Possible Approaches to Strategic Planning

- Top Down: Proactive process, companies regularly review the entire benefits program -Backing In: Reactive process, Companies evaluate the benefits program only when unexpected problems arise

Legally Required Benefits & Laws

- Unemployment Insurance - Workers Comp -Family and Medical Leave -------------------------------- - Social Security Act of 1935 - State Workers Compensation Laws - Family and Medical Leave Act of 1993

Who pays for Benefits & Four Factors

- employees pay for all of their benefits in the form of lower cash wage ------------------------------------ - cash value that employees place on the benefit - employers will increase/decrease their hiring when the market compensation level moves -whether the benefit cost increases for all employers in the market or for a specific employer - whether the hiring decisions of a particular employer affect the market compensation level

Why Offer Benefits

- employer has a cost advantage - it helps in recruiting certain types of workers - Tax incentives

Top- Heavy provisions

- if the accrued benefits or account balances for key employees exceed 60% of.......... The accrued benefits or account balances for all emplyees

Section 403(b) Tax Deferred Annuity

- type of retirement program for employees of public educational institutions or private tax-exempt organizations

SIMPLEs

-(Savings Incentive Match Plans for Employees) with up to 100 employees or fewer employees whose preceding year's compensation totaled at least $5,000

Defined Contribution Plans

-401(k), Roth 401(k), Profit Sharing, SIMPLE, Section 403 (b) Tax Deferred Annuities

Core Compensations & Common Adjustments

-Base Pay (core compensations): Wages & Salary -Cost of Living Adjustments based upon Consumer Price Index to adjust for inflation - Seniority Pay: Pay increases based on Length of Service

Income Protection Programs

-Disability Insurance: Employees unable to work on a regular basis due to accident, -Life Insurance: Payments upon death of employee

Discretionary Benefits Features

-Eligibility Provisions - Kinds of Benefits -Level of Benefits -Waiting Period -Financing Benefits -Employee Choice -Communication

401(k) plans

-Employees do not pay tax on their contributions until they withdraw funds -Employers deduct their contributions from taxable income -Investment gains not taxed until participants receive payments

Individual Accounts

-Employer contributions that are expressed as a percentage of an employee's wage or salary - Employee contributions that are also expressed as a percentage of the employees wage or salary - Forfeitures that come from accounts of employees who terminated their employment to earning vesting rights -return on investments

Strategic Planning

-Strategic decisions -Tactical Decisions - Competitive Strategy refers to the planned use of company resources (technology, capital, and human resources) to promote and sustain competitive advantage - Human resource strategies specify the use of multiple HR practices and they must be concurrent with the overall plan

Flat &Unit Benefit

-Three percent rule (participants accrued benefit cannot be less than 3% -133 1/2 rule (annual rate cannot exceed 133 1/2% of the rate of accrual for any prior year)

Psychological Contract Continuum

-Transactional Psychological contracts: Employees expectations from the employer are more economic and extrisic in nature (high pay for hard work) - Relational Contracts- employee's expectations can be economic or non economic or also emotional (job security in exchange for loyalty to employer)

Psychological Contracts

-an employee's subjective perceptions of the relationship of mutual obligations with the employers/company - Psychological contracts implicitly establish terms of employment -Employee benefits can be a part of the employer's obligations to them in exchange for their work efforts - results in employees holding a range or continuum of expectations from the employer, ranging from pay and promotions to career development and family welfare

Reasons why group insurance rates decrease as group size increases

1- As an insured group gets larger, the risk becomes less and the total medical expenses become more predictable 2- High risk patients are "balanced out" by healthier ones (avoid adverse selection problems) 3- Economies of Scale (administrative cost per employee drops) 4- Adverse selection: The tendency for insurance companies to attract "bad risks" and discourage participation of "good Risks"

Which of the following is a tax benefit associated with 401(k) plans?

Employees do not pay taxes on their contributions

Which of the following is not a reason why insurance rates decrease as group size increases?

High-risk policy holders are driven away

Which of the following is not closely associated with the nature of transactional psychological contracts?

Long term Relationship

Which of the following is a hybrid plan?

Money Purchase, Cash balance, Target Benefit. NOT STOCK OPTION

Discretionary benefits can be categorized into programs that

Protect health and income, allow for paid time-off, provide accommodation and enhancement benefits

Which three are the three fundamental roles that characterize discretionary benefits

Protection programs, paid time-off, accommodation and enhancement programs

Qualified survivor Annuities

Qualified Joint and Survivor Annuity- is an annuity for the life of the participant with the survivor annuity for the spouse Qualified pre-retirement survivor annuity- probides payments for the life of the participants surviving spouse if the participant dies before she receives retirement benefits

The 133 1/2% rule refers to what?

The annual accrual rate for defined benefits plans

Savings incentive match plans for employees (SIMPLEs) have the following characteristics

The company has fewer than 100 employees, the employees' preceding year's compensation totaled at least $5,000, the company has no other employer-sponsored retirement plan

In insurance terms, what does adverse selection refer to?

The tendency of an insurance pool to disproportionately attract "bad risk" employees and discourage "good risk" employees

Flexible work schedules are considered part of accommodation and enhancement benefits packages

True

Health insurance or other legally required benefits would form a part of employees' transactional expectation

True

Job security, recognition, and support in exchange for commitment and loyalty to the employer more pertain to relational psychological contracts.

True

The major distinction between the unit and flat defined benefit formulas is the use of the employee's years of service.

True

Vesting rights focus on employer contributions?

True

Which two make up the internal environmental factors?

Workforce demographics, collective bargaining agreements

Psychological Contract Violation

causes: -Reneging and Incongruence: incongruence occurs when the employer and the employee have different conceptualizations of the employment relationship