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