Chapter 13

Social Security

-Old age -Survivors -Disability insurance (OASDI) programs

General voluntary benefits

-paid time off (PTO) -vacation or annual leave -sick leave -holiday pay -paid personal leave

HMOs

-provide routine preventative care -in the case of non preventative care, require a review of specific circumstances concerning the individual and their health condition may be completed BEFORE any significant medical testing..etc. -May be limits to where covered employe can live -limits to which doctors and facilities they can use

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)----group health insurance

-requires employers to offer temporary health insurance to individuals who leave their employment for at least 18 months and up to 36 months. -cost of insurance is full rate plus a 2% administrative fee -insurance protection remains without interruption which is important for employees undergoing medical treatment for pre-existing conditions

Today's full social security retirement age

67

Statutory requirements

Federal and state statutes require companies to provide certain benefits -Social Security laws were passed that required companies to provide employees with old age, survivor, and over time disability benefits such as unemployment, workers' compensation, family & medical leave (FMLA), and Affordable Care Act (ACA)

According to the Bureau of Labor Statistics, benefits average roughly 30 % of total employee compensation cost

TRUE

There are many indications that employees who are satisfied with their benefits are more satisfied with their jobs and their companies.

TRUE

Can a person retired earlier than age 65-67?

Yes, but their benefits will be permanently reduced.

Workers' Compensation

an insurance program designed to provide medical treatment and temporary payments to employees who cannot work because of an employment-related injury or illness -normally not permanent (short-term relief) -doesn't necessary mean to injury/illness had to happen at work it just has to be work related Example: traveling through airport for work and hurt back picking up suitcase -Maximum liability of employer is limited by workers' compensation -type of no-fault insurance which means that no matter which party was at fault, the insurance would be paid out to the party harmed (prevents the likelihood of going to court) -EMPLOYEES PAY NONE OF THE COST, ONLY EMPLOYERS PAY

Sick Leave

approximately three or four employers provide sick leave to employers

Vacation or Annual Leave

average vacation time in 2007 was 15 days

Paid time off or "PTO"

avery cost of is approximately $1 for every $10 in direct wages

Social Security and Medicare

by far the largest of statutory programs in both size and cost to employers (and employees)

Defined Contribution Plan

identifies only amount of funds that go into a retirement account, not what employee will receive upon retirement

Benefits

indirect compensation that provides something of value to the employee. -Some are mandatory, due to federal & state statues -Some are optional, based on the firm's desires

Common Voluntary Benefits

retirement account, life insurance, vacation time, ..etc.

Goals of benefits programs

to have a program that increases employee motivation and engagement and helps create a competitive advantage

Traditional Plans

-80/20% -covered individual can live and go to any doctor they choose -plans do not generally cover preventative care such as an annual physical exam

Statutory Benefits

-benefits required by law

Health Insurance Portability and Accountability Act of 1996 (HIPPA)--- group health insurance

-is an employee has group health insurance at a previous job and if new employer has health care coverage, the firm is required to provide opportunity to participate in their health insurance plan -portability of this benefit is advantageous to people who are undergoing treatment for pre-existing conditions

Flexibility

-need to consider how much flexibility we are willing to build into our benefits program because flexible options are very important to today's employees. -allows employees to pick from a set of benefits in some way; the employee can at least for a portion of their benefit package, choose one type of benefit over another in flexible benefit plans. -majority in a survey found flexibility as a key component for benefits

IRAs and Roth IRAs

IRA contributions reduce the employee's taxable income in the year in which they are contributed to the account. When the person withdrawals the money in retirement, they pay taxes on it at that time. Roth IRA works in the opposite way. The employee pays the tax when they contribute the money to the account but doesn't have to pay taxes when they money is withdrawn.

Tax advantages

If the company provides employees with a certain benefit, the firm can sometimes write off all or part of the cost of providing the benefit. -Reduces the tax burden on both the employee and employer in some cases

Employee Retirement Income Security Act of 1974 (ERISA)-----group retirement plan/ and or group health insurance

Major provisions: Eligibility -employees over 21 who has worked in firm for one year Vesting -max time a firm can retain company contributions to employee's account Portability -allows employees to move funds form employer to another qualified fund Fiduciaries -must act under the "prudent man" or Reasonable Person Theory PBGC -Pension Benefit Guarantee Corporation ensures retirement funds against failure

Workers' compensation rates is primarily determined by:

Occupations- what are the risks of injury associated with each job? Experience ratings- a measure of how often claims are made against an insurance policy. Calculated on the frequency/severity of injuries that occur within the company (lower experience rating=lower costs of providing this insurance) Level of benefits payable- based on their particular state's workers compensation rating manual. Provides the required payout rates for various types of injuries.

OASDI

Old-Age Survivor and Disability Insurance

One of the reasons with the way SS is set up and why it need to be constantly reevaluated

SS program was designed around a 6 percent retiree population but that has more than doubled and will continue to rise for many years to come -changes in life span and income that have occurred over th east 70 years have made the program unsustainable in its current form -large number of baby boomers who are starting to retire, with fewer younger workers paying in the SS system.

If we CHOOSE to provide some benefits to our employees, there are mandatory laws that we have to follow as well. (Example: retirement benefit plans must comply with ERISA)

TRUE

Most employees don't understand the true cost and value of the benefits that organizations provide and, as a result, don't perceive the value that they get from having the organization provide their benefits.

TRUE

Providing employees with knowledge concerning their benefit package will help to create and maintain trust in the organization as well as improve job satisfaction on he part of those employees

TRUE

Retirement benefits are not mandatory, but if provided, firm must comply with ERISA provisions.

TRUE

The common recommendation is to start when you get your first full-time job by putting 10 percent of your income in a retirement fund every month, no matter who low or high your income is, and always take advantage of matching benefits from your employer.

TRUE

We have some control over benefit costs, and as HR managers we wan to make sure that we get the best return possible- in loyalty, job satisfaction, and employee engagement- for our money

TRUE

SEPs

primarily of self-employed persons or owners of small companies. The employer contributes directly to traditional individual retirement accounts for all employees

Defined Benefit Plan

provided retiree with a specific amount ad type of benefit that will be available when employee retires.

Considerations in providing benefits programs

-Amounts -Mix -Flexibility

Influence of organized labor

-National Labor Relations Act -allows employees to bargain collectively with their employers. -A large part of employee bargaining is focused on employee benefits, and once union members gain such benefits, employees in other companies use this leverage to have the same benefits added to their workplace, even if not unionized.

Examples of Statutory Benefits

-Social Security (OASDI programs) -Medicare (national healthcare program for elderly or disabled) -Retirement -Disability/survivor benefits -Workers' compensation (provides medical treatment and temporary payments to employees who are injured on job or become ill because of job)

Unemployment Insurance

-Statutory benefit -federal program managed by states. -provides payments from their state for a fixed period to employees who lost their jobs through no fault of their own -tax on employers -happens through downsizing, layoff, or other processes and usually have worked in four of the last five quarters and met minimum income guidelines in each of those quarters -generally about 60 percent of what they would normally be making

Patient Protection and Affordable Care Act of 2010 (PPACA)

-Statutory benefit -requires employers with more than 50 employees to provide health insurance their full-time employees or face significant penalties levied by federal government -those not covered by a health care plan at work are required to go to the state health exchange where they can purchase individual coverage

Family Medical Leave Act of 1993 (FMLA)

-Statutory benefit -unpaid leave employers must provide to "eligible employees" when they or immediate family member have medical issues. -normally 12 workweeks for newborn, adoption, taking care of spouse, child..etc -in 2007 63% of employers reported abuse of intermittent FMLA by employees -one problem is definition of a serious health condition is seriously abused

Why are benefits growing as a portion of overall compensation?

-Tax advantages -Statutory requirements -Influence of organized labor -Buying in bulk

Strategic Value of Benefits Program

-Today's workers are demanding more benefits and an improved mix of choices and flexibility to better fit with their lifestyles and that of their family -This has made it more difficult for firms to keep track and control benefits costs. -Because people demand more, companies add new benefits to what they have historically offered which causes HR to spend more time monitoring the costs as well as providing an incentive to our employees to continue working for us. -Increase job satisfaction and engagement because when employees are taken care of, they work harder and take good care of our customers and the organization

Healthy maintenance organizations (HMOs)

-a health care plan that provides both health maintenance services and medical care as part of the plan. -generally require individual to use doctors and facilities in the managed care network -usually just pay a copayment every time and other costs are paid for through insurer -choose "primary care physician"

Full-choice plans

-allow the employee complete freedom of choice; "moral hazard", "adverse selection," and high management costs

HSA/MSA

-allows employer & employer to fund a medical savings account from which the employee can pay medical expenses each year with pretax dollars. -when $$ runs out, the individuals becomes responsible for all medical costs until they reach a large deductible -once deductible is reached, an HDHP takes over and pays the remaining costs for the year

Buying in bulk

-buying in larger quantity makes them cheaper (Sam's Club, Costco), so buying benefits in bulk works the same way. -Spreads costs and allows companies to negotiate better -The cost of providing benefits never goes down, it just keeps going up

Preferred Provider Organizations (PPOs)

-do not require a referral from PCP -have networks on physicians and medical facilities and encourage you to go to them but do not require -hybrid between traditional fee-for-free service plans and HMOs.

Medicare

-employers and employees BOTH require to provide funds for -1.45 % of employees pay

Social Security benefit cost

-employers and employees BOTH required to provide funds for -each pay 6.2 % of employee's total pay per pay period into OASDI -need "40 credits" over lifetime in order to become eligible for Social Security retirement

Social Security Act of 1935 created

-employers and employees provide funds for SS benefits -created a series of programs for the social welfare of the population (OASDI, medicare for elderly and disabled individuals, and several others) -1.45% of all income to Medicare fund -6.2% of all income with 118,500 cap (book says 117,000 though)

401(k) & 403(b)

-for employees of large corporations 401(k) -for employees of nonprofits 403(b) -the employee and employer are allowed to contribute funds to the account up to a max amount -contributions are made on a "pretax basis"- when funds are put into the account, they do not count as taxable income for individual. -once individual retires and begins to withdrawal their funds, they then pay income taxes on the money they received

Medicare

-four components to medicare -not completely free to retiree, the covered person has to pay copayments and deductibles of various types, the details which are beyond the scope of the text. -not a full coverage program by any means

PPOs

-hybrid between HMOs and traditional -prefers you see doctors/facilities in their network but not required -can go outside network if you are willing to pay a high % of the cost of care

Disability and Survivor Benefits

-if an employee becomes disables or dies and it otherwise eligible, the employee or their survivors will get payments each month roughly equal to what the employee would have gotten in retirement based on their historical earnings. -disability must last at least 12 months or be expected to ultimately cause the covered person's death -survivor benefits can go to widow/widower over age 60, any child or grandchild who is a dependent of the deceased and is under age 18, or any dependent parent over 62.

Mix

-need to know what types of benefits to offer -the # of different types of benefits has exploded over the past 40 years -today the number and type of benefits available in some company programs is limited only by the imagination of the employees of the firm (Facebook-doggy day care, Google- nap room energy pod) -Various mixes include retirement benefits, health care, dental care, life insurance, public transportation vouchers, on site wellness centers, child care...etc.

Considering amounts (affordability to firm)

-need to understand how much money the company is willing to spend to provide employee benefit program bc if we tell them we can then don't deliver it will only hurt motivation and engagement -Make sure we absolutely have the funds available if we commit to providing the benefit

denfined contribution plans

-only identify what is going to go into the retirement fund, not what will be received from it upon retirement. -companies are shifting to this because it shifts the risk related to the investment of the retirements funds form the company to the individual. -risk of slow growth of the investment shifts to employee

Modular plans

-provide several basic modules form which each employee chooses -no option outside of modules

Core-Plus plans

-provides a base set of benefits to all employees (core) and then other options that the employee can choose from freely to meet their personal desires and needs

Defined benefit retirement plan

-the retiree knows exactly what benefits they will receive when they retire. -funds do not grow at the expected rate= employer must add money to retirement accounts to make the promise retirement payments.

Types of Voluntary Group Health Insurance

-traditional health care plans -health maintenance organization -preferred provider organization -health or medical savings accounts

Voluntary Benefits (Health Insurance)

-traditional health care plans -health maintenance organization -preferred provider organization -health or medical savings accounts

Traditional health care plans

-typically cover a set % of feeds for medical services- for either doctors or in-patient-care. -80/20 is most common % split b/t insurance plan and individual -Advantage: allow employees go to any doctor or provider they want without a referral to see specialists; can live anywhere -Disadvantage: high overall costs of medical care today

Types of Paid time off

-vacation time/annual leave -severance pay -personal time off -sick days -holidays