Assignment
Chelsea29440
Ch10_Martocchio_6e.pptxPart Four: Extending Employee Benefits: Design and Global Issues
Chapter Ten: Managing the Employee-Benefits System
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Learning Objectives
In this chapter you will gain an understanding of:
differences between the traditional and flexible approaches to benefits designs.
essentials of communicating the benefits program.
methods for managing benefits costs.
outsourcing employee benefits.
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Overview
Chapter ten begins with a comparison of traditional and flexible benefits plans.
Followed by a discussion of communicating the employee benefits program.
Managing the costs of employee benefits is then discussed.
The chapter concludes with a look at outsourcing the benefits function.
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A Comparison of
Traditional Benefits Plans
Contain the same set of benefits for each worker.
Creates administrative ease.
Represents a one-size-fits-all approach.
Flexible Benefits Plans
More companies are using flexible benefit plans
Gives employees a choice of benefits.
A cafeteria plan is one example.
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Exhibit 10.1
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Traditional Benefit Plan Structure
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Exhibit 10.2
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Comprehensive Cafeteria Plan
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A One-Size-Fits-All Approach
Traditionally, every employee in a company received the same benefits.
Regardless of needs or preferences.
Differences in needs and preferences influences the adequacy of these benefits.
Most companies use cafeteria plans to ensure employees’ needs and preferences are met.
Benefit alternatives aid recruitment and retention.
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Employer Choice to Customize Benefits
With Flexible benefits or cafeteria plans
employees choose from a set of designated benefits and different levels of these benefits.
Employees may accept or reject certain benefits.
Companies implement these plans to meet the challenges of diversity.
Limited evidence suggests positive reactions to flexible plans.
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Cafeteria Plans under Section 125
IRC Section 125 requires:
participants must be given a choice between at least one taxable benefit and one qualified benefit.
Qualified benefits are employer-sponsored benefits for which an employee may exclude the cost from federal income tax calculation.
For the purposes of Section 125 cafeteria plans, some choices are not qualified benefits.
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Exhibit 10.3
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Allowable and Prohibited Qualified Employee Benefits in Section 125 Cafeteria Plans
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Additional Guidelines for Section 125 Plans
The plan must:
Be in writing.
Allow a choice between two or more benefits,
At least one non taxable and one taxable benefit.
Permit only current and former employees to participate.
Require a yearly benefit choice.
Prohibit any benefit that defers an employee’s receipt of compensation.
Meet nondiscrimination requirements.
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Additional Guidelines for Section 125 Plans
Nondiscrimination rules
prohibit preferential treatment to highly compensated and/or key employees.
Failure to meet these rules eliminates tax benefits.
Three possible violations relate to:
Eligibility – companies have at least some non-key employees in the plan.
Benefits – all should receive the same amount.
Concentration – key employee benefits should not exceed 25 percent of the total benefits.
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Types of Flexible Benefit Plan Arrangements
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The four most common types include:
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Salary reduction plans
Modular plans
Core-plus-option plans
Mix-and-match plans
Pretax Salary Reduction Plans
Pretax salary reduction plans
permit employees to set aside a portion of wages on a pretax basis for qualified benefits expenses.
Two well-known versions are:
Flexible spending accounts permit employees to pay for certain benefit expenses.
Premium-only plans enable employees to pay their share of the cost for company-sponsored plans.
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Types of Flexible Benefit Plan Arrangements
With modular plans
employers offer numerous fixed benefit packages to meet the needs of different employee groups.
Core-plus-option plans
extends a mandatory core package and employees choose optional benefits.
Mix-and-match plans
employees purchase benefits with flexible credits.
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Exhibit 10.6
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A Sample Core-Plus-Option Plan
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Communicating the Employee-Benefits Program
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There are two broad considerations:
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Meeting legally mandated requirements
“Good business sense” communication issues
Legal Considerations in Benefits Communication
Employers must satisfy disclosure requirements set fourth under ERISA.
To satisfy these requirements employers provide written:
summary plan descriptions, and
summaries of material modifications.
ERISA specifies that written notices be so the “average” participant can understand them.
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Summary Plan Description
A summary plan description describes:
administrative contact information,
an explanation of benefits,
disclosure of employee rights under ERISA,
eligibility criteria and disqualification conditions,
claims procedures, and
if a retirement plan is insured by the PBGC.
ERISA also sets disclosure time deadlines.
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Summary of Material Modification
A summary of material modification describes changes to the plan, including:
plan administrators, claims procedures, eligibility rules, and vesting provisions.
ERISA requires employers distribute summaries within 210 days after the end of the year in which material change occurred.
Summaries go to employees and the Department of Labor.
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The “Good Business Sense” of Benefits Communication
Effective communication programs should have three primary objectives:
To create an awareness of current benefits.
To provide understanding of available benefits.
To encourage the wise use of benefits.
A variety of media can be used to communicate such information.
Brochures, meetings, presentations, counseling.
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Managing the Costs of Employee Benefits
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Some alternative methods to mange costs:
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Employee contributions
Waiting periods
High deductible plans
Employee education
Utilization reviews
Case management
Provider payment systems
Lifestyle interventions
Employee Contributions
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Employees typically share the cost of benefits with pretax or after-tax contributions.
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Pre-tax contributions
employees may exclude contributions from income before calculating tax obligations
After-tax contributions
do not reduce the amount of annual income subject to income tax
Waiting Periods
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Often correspond to the length of probationary periods.
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Waiting periods
specify the minimum amount of time an employee must remain employed before becoming eligible for one or more benefits
The Affordable Care Act limits waiting periods for health-care plans to a maximum of 90 days
High-Deductible Plans
High-deductible plans shift more of the expense from employer to employee.
Lower premiums means employers save money.
Some companies have adopted high-deductible workers’ compensation plans.
Companies pay a lower premium in exchange for agreeing to pay a predetermined deductible.
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Employee Education
Employees typically overused their benefits.
Employers used to enjoy lucrative tax breaks and employees took benefits for granted.
Fee-for-service plans, common decades ago, allowed freedom to go to any doctor, anytime.
Employers absorbed rising costs but competitive pressures force cost cuts.
Increase employee contributions and educate them on the costs and the reasons for rising costs.
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Utilization Reviews
Utilization reviews evaluate the quality of specific health-care services.
Performed by doctors and nurses.
Three types may be considered.
Prospective reviews or precertification reviews
evaluate the appropriateness of proposed medical treatment as a condition for authorizing payment.
Concurrent reviews focus on current hospital patients.
Retrospective reviews take place prior to payment.
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Case Management
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Serious health problems may be acute or chronic.
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Case management
many plans use independent case management companies to ensure participants receive essential care on a cost-effective basis
Provider Payment Systems
Provider payment systems are arrangements between insurers and health care providers.
May include one of more cost savings features.
Percentage discounts reduces providers’ usual charges.
Capped fee schedules sets maximum dollar amounts for each service.
Partial capitation pays physicians a fixed dollar amount for each patient assigned to them.
Full capitation also pays a fixed amount but that amount may vary from patient to patient.
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Lifestyle Interventions
Lifestyle interventions refer to any activity that changes how a person lives life.
Most companies allow employees to choose whether to participate in wellness programs.
Some companies feel it is their responsibility to decide whether intervention is mandatory.
Scotts Miracle-Gro Company.
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Outsourcing the Benefits Function
Outsourcing
refers to an agreement where an employer transfers responsibility to a third-party provider.
Independent companies with expertise.
Outsourcing is on the rise with the top reason being for the expertise.
Can be expensive in the short run.
Efficient arrangements can be less costly than handling plans within the company.
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Summary
Chapter ten began with a comparison of traditional and flexible benefits plans.
Followed by a discussion of communicating the employee benefits program.
Managing the costs of employee benefits was then discussed.
The chapter concluded with a look at outsourcing the benefits function.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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