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Managing Employee Benefits

Learning Outcomes

Distinguish between mandated and voluntary benefits and list three examples of each

Discuss the trends in retirement plans and compare defined benefit and defined contribution plans

Explain the importance of managing the costs of health benefits and identify some methods of doing so

Describe the growth of financial, family-oriented, and time-off benefits and their importance to many employees

Benefits

Benefit: Tangible indirect rewards provided to an employee or group of employees for organizational membership

Part-Time Employee Benefits

Part time employees:

Most do not receive employee benefits

Employers create their own full- and part-time thresholds

Based on generally accepted standards likely held by the Department of Labor and the Internal Revenue Service, “consistently working” 35 hours per week is a common threshold for the designation of employees as full time.

Flexible Benefits Plan

Employers offer both legally mandated and voluntary benefits

Flexible Benefits Plan (Cafeteria benefit plan)

Employees are given a budget and can purchase the bundle of benefits most important to them from the “menu” of options offered by the employer

Core vs. Non-core Benefits

Core Benefits (Traditional)	Non-core Benefits (Voluntary – Elective)
Health Insurance	Dental
Prescription Drugs	Vision
Basic Life Insurance	Supplement Life, Dependent Life
Vacation	Long-term care insurance
Holidays	Auto-homeowners insurance
Sick Pay	Mortgage services/discounts
Disability	On-site daycare
	Tuition reimbursement
	Yes, even Pet Insurance

Typically, employees are offered a basic or core benefits package of life and health insurance, sick leave, and vacation.

Requiring a core set of benefits ensures that employees have a minimum level of coverage to protect against unforeseen financial hardships.

Employees are then given a certain amount of funds to purchase whatever other benefits they need through the plan.

Administering Benefits

Program can be costly and time consuming

Managing the benefits program on an online platform becomes easier

Types of Benefits

The Age Discrimination in Employment Act of 1967 Older Workers Benefits Protections Act (OWBPA) The OWBPA, which is part of the Age Discrimination in Employment Act (ADEA), safeguards older workers' employee benefits from age discrimination. Among other things, this means that employers must take certain precautions when seeking a release from older workers that waives rights under the ADEA.

Military Leave of Absence

XYZ is committed to protecting the job rights of employees absent on military leave. In accordance with federal and state law, it is the Company’s policy that no employee or prospective employee will be subjected to any form of discrimination on the basis of that person's membership in or obligation to perform service for any of the Uniformed Services of the United States. Specifically, no person will be denied employment, reemployment, promotion, or other benefit of employment on the basis of such membership. Furthermore, no person will be subjected to retaliation or adverse employment action because such person has exercised his or her rights under applicable law or this policy. If any employee believes that he or she has been subjected to discrimination in violation of this policy, the employee should immediately contact the Employee Benefits Representative responsible for the employee's division, or the Representative's supervisor if the Representative is unavailable or unable to be of assistance.

Bereavement leave is leave taken by an employee due to the death of another individual, usually a close relative. The time is usually taken by an employee to grieve the loss of a close family member, prepare for and attend a funeral, and/or attend to any other immediate post-death matters. Currently, there are no federal laws that require employers to provide employees either paid or unpaid leave. Also, only one state, Oregon, has passed a law requiring employers to provide bereavement leave (it took effect January 1, 2014). The other 49 states, plus the District of Columbia, do not require employers to provide employees either paid or unpaid bereavement leave.

Employers, at their discretion, may maintain bereavement leave policies or practices and, in certain circumstances, may be obligated to comply with their established policy or practice. Employers must comply with bereavement leave policies that are part of individual employment contracts or collective bargaining agreements.

Social Security Benefits

It includes:

Retirement benefits

Retirement age: 67

Fully insured

Disability benefits

Disability has lasted or is expected to last for at least one year or to result in death.

Survivor’s benefits

The amount depends on the worker’s age at death and lifetime earning

Watch: Franklin Roosevelt Social Security

Employees and employers share in the cost of Social Security through a tax on employees’ wages or salaries.

In 2018, you receive one credit for each $1,320 of earnings, up to the maximum of four credits per year.

Not all employees work in jobs covered by Social Security. Examples of some of these employees are: • Most federal employees hired before 1984 (since January 1, 1983, all federal employees have paid the Medicare hospital insurance part of the Social Security tax); • Railroad employees with more than 10 years of service; 6 • Employees of some state and local governments that chose not to participate in Social Security; or • Children younger than age 21 who do household chores for a parent (except a child age 18 or older who works in the parent’s business).

SSA looks at your income in the 35 highest-earning years of your career (capping the figures at the maximum taxable amount for each year and adjusting them for inflation). Then it takes the average of those 35 adjusted income figures and divides it by 12 to produce your "average indexed monthly earnings," or AIME.

Your AIME is then plugged into a formula to determine your primary insurance amount -- that is, the monthly benefit you'll be eligible to receive at your full retirement age. As of 2017, a retiree's primary insurance amount is determined by adding up the following:

90% of the first $885 in AIME

32% of AIME between $885 and $5,336

15% of AIME above $5,336

I'll spare you the mathematics of calculating the highest possible Social Security benefit: At full retirement age, the maximum benefit is $2,687. However, since you can earn a delayed-retirement credit of 8% per year for waiting, until as late as age 70, people reaching this age now can get a maximum benefit of $3,547 per month.

The average monthly retirement benefit was recently $1,368. That amounts to $16,416 per year. If your earnings have been above average, you'll collect more than that -- but the overall maximum monthly Social Security benefit for those retiring at their full retirement age in 2017 is still just $2,687 -- or about $32,000 for the whole year.

Medicare

Medicare – government-operated health insurance for Americans 65 and older

Taxed on both employer and employee

Social security tax is 6.2% (total of 12.4%)

Medicare tax is 1.45% (total of 2.9%)

Additional 0.9% Medicare tax for higher-income employees

An additional Medicare tax of 0.9% for individuals who earn higher incomes was instituted in 2013; employers are expected to withhold this tax for compensation that exceeds $200,000 per year.

Workers’ Compensation Insurance

State-mandated insurance where employers purchase private or state-funded insurance to cover employees injured at work

Covers:

Injuries on the job, regardless of fault

Work-related illnesses

What is Workers Compensation Insurance?

Rates based on the company’s frequency and severity of employee injuries

Workers’ compensation regulations require employers to provide cash benefits, medical care, and rehabilitation services to employees for injuries or illnesses that occur within the scope of their employment. In exchange, employees give up the right to pursue legal actions and awards.

Workers’ compensation programs are funded at the employer’s expense; workers cannot be required to make financial contributions for this coverage.

Unemployment Insurance

Provides employees with some income continuation during periods of involuntary unemployment

Workers fired for misconduct or those not actively seeking employment are generally ineligible.

Apply for UI Benefits in California

Funded by employers who pay combined federal and state tax

Tax varies based on organization’s unemployment experience: the more layoffs, the higher the rate

workers fired for misconduct or those not actively seeking employment are generally ineligible.

The minimum weekly benefit amount is $40 and the maximum weekly benefit amount is $450. For more information about how the Department calculates a UI claim, review, How Unemployment Benefits are Computed (DE 8714AB), A Guide to Benefits and Employment Services (DE 1275A), and the California Employer’s Guide (DE 44).

Family and Medical Leave Act (FMLA)

Requires employers with 50 or more employees to allow up to 12 weeks of unpaid leave for family or medical reasons

On return from FMLA leave, employee must be restored to his original job or to an equivalent job

FMLA covers:

Employers with 50 or more employees who live within 75 miles of the workplace

Employees who have worked at least 12 months and 1,250 hours in the previous year

FMLA leave provisions:

Maximum of 12 weeks of unpaid, job-protected leave during any 12-month period for the following situations:

Childbirth and newborn care within one year of birth

Adoption or foster care placement of a child

Caring for a spouse, child, or parent with a serious health condition

Retirement Programs

The Three-Legged Stool of Retirement Income

While traditional pension plans that provided a defined amount for retirement at a defined age were the norm for decades, since the early 1980s, fewer companies have provided these plans. Instead, employee-funded retirement accounts have become standard.

in 1979, of all private-sector employees, 62% of those who had retirement benefits were enrolled solely in pension plans, 16% were enrolled solely in defined contribution plans, and 22% were utilizing both programs. In comparison, by 2011, a mere 7% had pension plans, 69% had defined contribution plans, and a percentage similar to the one reported in 1979 participated in both programs.

Retirement Programs

No law mandating retirement age in United States for most professions

Phased retirement: Program that allows its employees to gradually cut their hours before retiring

Phased retirement programs allow employees to work part time and withdraw some retirement funds at the same time.

Retirement Plan Concepts

Vesting: Benefit that cannot be taken away

No pension rights accrue if they have not been employed long enough to be vested

Portability: Retirement plan feature that allows employees to move their retirement benefits from one employer to another

Comparison of Defined Benefit and Defined Contribution Retirement Plans

Types of Retirement Plans

Employees are promised a pension amount based on age and years of service

Defined Benefit Plan

Employer and/or employee makes an annual payment to employee’s retirement account.

The actual amount of retirement benefits provided to an employee depends on the amount of the contributions as well as the gains or losses of the account.

Defined Contribution Plan

A defined benefit plan that defines the benefit in terms of a stated account balance.

Cash Balance Plan

Defined-Benefit Pension Plans A “traditional” pension plan, in which the employer makes the contributions and the employee will get a defined amount each month upon retirement, is no longer the norm in the private sector. Through a defined-benefit plan, employees are promised a pension amount based on age and service. A defined-benefit plan gives employees greater assurance of benefits and greater predictability in the amount of benefits that will be available for retirement. Defined-benefit plans are often preferred by workers with longer service, as well as by small business owners

Defined-Contribution Pension Plans In a defined-contribution plan, the employer makes an annual payment to an employee’s pension account. The key to this plan is the contribution rate; employee retirement benefits depend on fixed contributions and employee earnings levels.

Some employers have changed traditional pension plans to hybrids based on ideas from both defined benefit and defined contribution plans. One such plan is a cash balance plan, a retirement program in which benefits are based on accumulated annual company contributions, expressed as a percentage of pay, plus interest credited each year. With these plans, retirement benefits accumulate at the same annual rate until an employee retires. Since cash balance plans spread funding across a worker’s entire career, these plans work better for mobile younger workers. The plans are gaining in popularity, especially among small businesses, which account for 84% of these plans.

A cash balance pension plan is a pension plan under which an employer credits a participant's account with a set percentage of his or her yearly compensation plus interest charges. A cash balance pension plan is a defined-benefit plan. As such, the plan's funding limits, funding requirements and investment risk are based on defined-benefit requirements: as changes in the portfolio do not affect the final benefits to be received by the participant upon retirement or termination, the company solely bears all ownership of profits and losses in the portfolio.

Although the cash balance pension plan is a defined-benefit plan, unlike the regular defined-benefit plan, the cash balance plan is maintained on an individual account basis, much like a defined-contribution plan. The cash balance plan acts similar to a defined-contribution plan also because changes in the value of the participant's portfolio does not affect the yearly contribution. Read more: Cash Balance Pension Plan https://www.investopedia.com/terms/c/cashbalancepensionplan.asp#ixzz5HZaoqfWA Follow us: Investopedia on Facebook Read more: Cash Balance Pension Plan https://www.investopedia.com/terms/c/cashbalancepensionplan.asp#ixzz5HZZPtBeQ Follow us: Investopedia on Facebook

Common Defined Contribution Plans

401(k) plan: Plan allows for a percentage of an employee’s pay to be withheld and invested in a tax-deferred account

403(k) plan

Profit-Sharing Plans: A profit-sharing plan accepts discretionary employer contributions.

Employee Stock Ownership Plans (ESOPs)

Health Care Benefits

Key Provisions of Patient Protection and Affordable Care Act

Congress has attempted to repeal the ACA, but it is still the law of the land.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Requires that most employers with 20 or more full-time and/or part-time employees offer extended health care coverage to certain groups

Understanding COBRA Health Insurance

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires that most employers (except churches and the federal government) with 20 or more full-time and/or part-time employees (partial count based on hours needed to work for full-time status, or hours worked/full-time hours) offer extended health care coverage to certain groups, as follows:42 • Employees who voluntarily quit or are terminated • Widowed or divorced spouses and dependent children of former or current employees • Retirees and their spouses and dependent children whose health care coverage ends • Any child who is born or adopted by a covered employee • Other individuals involved in the plan such as independent contractors and agents/directors

The Health Insurance Portability and Accountability Act (HIPAA) Care Legislation

Allows employees to switch their health insurance plans when they change employers, and to get new health coverage with the new company regardless of preexisting health conditions.

Requires employers to:

Provide privacy notices to employees

Not disclose of health information without authorization

Consider an entity that handles health information a business associate

Consider any disclosure of information a breach

Controlling Health Care Benefit Costs

Reducing or Dropping Benefits

Cost Sharing with Employees

Sponsoring Wellness Programs

Fostering Employee Health Education

Changing Prescription Drug Programs

Consolidating of Benefits Packages

Increasing Employee Contributions

Managed care: Approaches that monitor and reduce medical costs through restrictions and market system alternatives

Most common forms of managed care:

Health maintenance organizations (HMO)

Preferred provider organizations (PPO)

Managed Care Plans HMO VS. PPO

Generally speaking, the difference between HMO and PPO plans includes the size of the plan network, ability to see specialists, plan costs, and coverage for out-of-network service.

https://abcmedicareplans.com/hmo-vs-ppo/

Containing Medical Benefits Costs

Health Savings Accounts (HSA)

Individual employees can set aside pretax amounts for medical care into an HSA.

Unused amounts in an individual’s account can be rolled over annually for future health expenses.

Health Reimbursement Account (HRA)

Employer sets aside money in a health reimbursement account to help employees pay for qualified medical expenses.

A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you can lower your overall health care costs.

An HSA can be used only if you have a High Deductible Health Plan (HDHP) — generally any health plan (including a Marketplace plan) with a deductible of at least $1,350 for an individual or $2,700 for a family. When you view plans in the Marketplace, you can see if they’re "HSA-eligible."

For 2018, you can contribute up to $3,450 for self-only HDHP coverage and up to $6,900 for family HDHP coverage. HSA funds roll over year to year if you don't spend them. An HSA may earn interest, which is not taxable.

Containing Medical Benefits Costs (con’t)

Flexible Spending Account (FSA)

Employees can divert some pretax income into flexible spending accounts to fund certain additional benefits.

At the end of the year or grace period, you lose any money left over in your FSA.

Wellness Programs