copyright 2000 - south-western college publishing module 18 - 1 why study employee benefits?...
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Copyright 2000 - South-Western College Publishing Module 18 - 1
Why Study Employee Benefits?
• Benefits are a tool used by human resource management to attract and retain employees
• Benefits make up over 40% of employees’ total compensation!
• Although benefits are transactional in nature, benefits strategy requires planning, implementing and evaluating changes.
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Copyright 2000 - South-Western College Publishing Module 18 - 2
Defining Employee Benefits
• Total Compensation = Direct Compensation + Indirect Compensation
• Benefits are the main component of indirect compensation.
• A broad definition of employee benefits includes government programs towards which the employer contributes
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Copyright 2000 - South-Western College Publishing Module 18 - 3
Total Compensation Components for 1996
Wages58%
Miscellaneous6%
Payment for Time not Worked
10%
Retirement Benefits6%
Legally Required Payments
9%Medical Benefits
10%Life Insurance and Death Benefits
<1%
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Copyright 2000 - South-Western College Publishing Module 18 - 4
The Regulatory Environment: ERISA
• The most comprehensive piece of benefits legislation in the United States
• Designed to protect employees
• ERISA-qualified plans receive tax advantages
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Copyright 2000 - South-Western College Publishing Module 18 - 5
Provisions of ERISA Include:
reporting and disclosure
fiduciary standards
employee eligibility
vesting
plan termination insurance
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Copyright 2000 - South-Western College Publishing Module 18 - 6
Examples of Vesting
0
20
40
60
80
100
1 2 3 4 5 6 7
Years
% V
este
d Cliff
Graded
Other
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Copyright 2000 - South-Western College Publishing Module 18 - 7
The Regulatory Environment
• COBRA - federal legislation requiring employers to permit continuation of health care coverage
• FMLA - federal legislation requiring up to 12 weeks of unpaid leave for qualified reasons. Medical benefits must be available on the same basis as prior to the leave
• HIPAA - federal legislation that restricts pre-existing condition clauses from being used when a new employee can certify having recent previous coverage
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Copyright 2000 - South-Western College Publishing Module 18 - 8
Social Security and Medicare
• Designed for the elderly, survivors, and people with disabilities
• Facing a cost crisis– soon-to-retire baby boomers– increased longevity– fewer younger workers entering the workforce
• Government is addressing ways to increase income to the programs and reduce costs
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Copyright 2000 - South-Western College Publishing Module 18 - 9
Other Social Insurance Programs
• Unemployment Insurance
• Workers’ Compensation Insurance
• Temporary Disability Insurance
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Copyright 2000 - South-Western College Publishing Module 18 - 10
Retirement Benefits
• Three-legged stool– Social Security– employer retirement plan(s)– private savings
• Two basic types of employer-provided retirement benefits– defined benefit– defined contribution
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Copyright 2000 - South-Western College Publishing Module 18 - 11
Defined Benefit and Defined Contribution Approaches
DB DC0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
DB DC
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Copyright 2000 - South-Western College Publishing Module 18 - 12
Medical Benefits
• Costs are a major issue
• Managed care alters the delivery of care in a way that controls costs
• Quality is also an issue with managed care
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Copyright 2000 - South-Western College Publishing Module 18 - 13
Indemnity Plan vs. HMO
Indemnity Plan
• participant chooses any doctor at point of service
• reimbursement for incurred costs using claim forms
• cost sharing in the form of coinsurance
• little or no preventive care
HMO• participant only receives
benefits if using an HMO physician or facility. Need to primary care physician before seeing specialists
• copayment due at time of service; no claim forms
• preventive care
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Copyright 2000 - South-Western College Publishing Module 18 - 14
Additional Health Benefits
• Dental
• Prescription Drug
• Vision
• Hearing
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Copyright 2000 - South-Western College Publishing Module 18 - 15
Other Welfare Benefits
• Group Life Insurance– for employee– for dependents– AD&D component
• Disability Insurance
• Long Term Care Insurance
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Copyright 2000 - South-Western College Publishing Module 18 - 16
Work/Life Benefits
• Flexibility
• Child and Elder Care Assistance
• Adoption Benefits
• Employee Assistance Program (EAP) \ Convenience Benefits
• Additional Emerging Benefits
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Copyright 2000 - South-Western College Publishing Module 18 - 17
Flexible Benefit Plans• Based on choice among benefits
• The choice between nontaxable benefits and “cash” does not generally result in a taxable event for employees
• Employees can “reduce” their salaries to pay for benefits or receive extra cash if they do not use the full value of their benefit credits
• A health care spending account also can be used with a flexible benefits plan
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Copyright 2000 - South-Western College Publishing Module 18 - 18
Funding
• Insurance Contract vs. Self-funding
• ERISA has funding standards for retirement plans.
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Copyright 2000 - South-Western College Publishing Module 18 - 19
Administration
Employee/Participant
Human ResourcesDepartment
Government
Vendors