2 Discussions 1 Weekly summary and 1 Case Study

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Learning Outcomes

Detect strategies companies use to develop benefits plans that are cost effective
Identify and explain the employee benefits required by law
Describe the types of work/life benefits that employers may provide
Describe the different types of retirement programs and pension plans and the regulations related to them

Elements of a Successful Benefits Program

Many forces are weighed and kept in balance for benefits programs to succeed
Needs of employees are considered as they can differ from firm to firm

Selecting Benefits

When designing benefit programs, company can:
Purchase detailed compensation data
Hire outside firms to aid in the designing process
Involve employees’ participation
Conduct opinion survey
Establish committees to over look the program

Flexible Benefits

Flexible benefits plans
Enable individual employees to choose benefits best suited to their particular needs
Prevent certain benefits from being wasted on employees who have no need for them
Employees are offered core benefits package of life and health insurance, sick leave, and vacation
Give certain amount of funds to purchase other benefits needed through the plan

Advantages of Flexible Benefits

Employees select benefits of greatest value to them
Employers manage benefits costs by limiting the dollars being spent
Employees are compensated by funds for other benefits
Prepaid legal services
Financial planning
Dental insurance
Long-term care insurance

Administering Benefits

Program can be costly and time consuming
Managing the benefits program on an online platform becomes easier
Online benefits system is called employee self-service (ESS)
Results in significant cost savings
Feedback of different online systems being trialed, can be obtained

Communicating Employee Benefits

Improved with passage of Employee Retirement Income Security Act (ERISA) in 1974
Requires employees to be informed about their pension and other benefits in a understandable manner
Allows suing of employers for misleading about health and welfare benefits
Using multiple media techniques
Firms mail out printed benefit statements with detailed explanation of an employee’s benefits

Designing Benefits Information

Avoid complex language when describing benefits
Explain purpose of a benefit, its value for employees, and pros and cons of different benefit plans
Use graphics to make information understandable at a glance
Provide numerous examples illustrating how a benefit choice might affect different types of employees

Cost Containment Strategies

Firms require employees to pay part of the cost of their benefits
Increase amounts paid for benefits in the form of premiums, copays, and deductibles
Large companies cut health care plans, formerly provided to retirees

Containing Medical Benefits Costs

Overuse of costly health care services have lead firms turn to
Health savings accounts
High-deductible health insurance plans (HDHP)
Insurance plan characterized by high deductibles and low premiums
Amounts contributed is deducted from their earnings when paying income taxes

Containing Medical Benefits Costs

Health care spending account (HSA) along with HDHP
Employers and employees contribute to on a pretax basis
Advantage - Funds belonging to the employee remain in the account until the end of the year, even if he or she leaves the company
Disadvantage of HDHP
On receiving a treatment, employee has to pay a deductible
Percentage of the employee’s care or all of it until a high threshold is met

Containing Medical Benefits Costs

Health maintenance organizations (HMO) and preferred provider organizations (PPOs) serve as vehicles for reducing costs
Reason - Offer discounted rates
HMO: Organizations of physicians and health care professionals that provide a wide range of services to subscribers and dependents on a prepaid basis
PPO: Network of physicians who establish an organization that guarantees lower health care costs to employers and their employees

Containing Medical Benefits Costs

HMO and PPO are couple with tax advantaged accounts
Health reimbursement account (HRA) - Allows employees to be reimbursed by their companies for their out-of-pocket expenses
Flexible spending account (FSA) - Used by employees to pay for health-related expenses

Containing Dental, Optical, and Mental Health Benefits Costs

Dental plans
Help pay for dental care costs
Encourage employees to receive regular dental attention
Optical benefits
Cover or offset cost of seeing an optometrist once or twice a year, cost of contacts lenses and glasses purchased periodically
Mental Health Parity and Addiction Equity Act
Requires group health plans to treat mental health benefits the same way they do medical and surgical benefits

Containing Additional Costs

To combat obesity and related problems, companies offer lower health care premiums
Firms are penalizing employees for unhealthy habits such as smoking, by charging them higher health care premiums
Companies are waiving deductibles and copays if employees are travelling abroad for medical procedures

Value-Based Health Initiatives

Focus on more than cost-cutting
Look at medical care their employees use and need
Target benefits and health programs based on those requirements

Wellness Programs

Sponsored by employers
Designed to encourage employees to maintain and improve health and well-being by
Getting regular checkups
Eating properly
Exercising
Managing stress levels

Disease Management Programs

Provide patients and their caregivers with information on monitoring and treating medical conditions
Coordinating communication between them, their health care providers, employers, and insurers

Employee Assistance Programs

Services provided by employers to help workers cope with a wide variety of problems that interfere with the way they perform their jobs
Provides diagnosis, counseling, and referral for advice or treatment related to
Alcohol or drug abuse
Emotional difficulties
Financial or family difficulties
Counselling services are provided by some companies

Employee Benefits Required by Law

Social Security Insurance

Protect workers against the loss of earnings resulting from old age and unemployment
Amended to include disability or dependents, incase of death of the worker supporting them
Together known as Old Age, Survivors, and Disability Insurance (OASDI)

Social Security Insurance

Supported by tax levied against an employee’s earnings
Matched by employer in each pay period
Tax revenues are used to pay major benefits
Retirement
Disability
Survivors’
Medicare

Unemployment Insurance

Protects workers who lose their jobs through no fault of their own
Eligible workers:
Submit an application for unemployment compensation with state employment agencies
Register for available work
Willing to accept any suitable employment that may be offered to them

Workers’ Compensation Insurance

State-mandated insurance provided to workers to defray the loss of income and cost of treatment due to work-related injuries or illness
Covers
Injuries on the job
Work-related illnesses

COBRA Insurance

Mandates that employers make health care coverage at the same rate the employer would pay
Available to employees, their spouses, and their dependents on termination of employment, death, or divorce
Coverage offered for 18 to 36 months depending on qualifying guidelines

Benefits Provided by the Patient Protection and Affordable Care Act

Firms that employ fifty or more people working for thirty hours or more per week, but do not offer them health insurance are required to pay a penalty to the government
Employers must offer coverage for employee’s children until they turn twenty-six
Copays or deductibles cannot be charged to employees and dependents for preventive care related services

Benefits Provided by the Patient Protection and Affordable Care Act

Lifetime dollar limits on key health care benefits are not allowed
Employees cannot lose insurance coverage solely because of an honest mistake made on insurance applications

Family and Medical Leave Act (FMLA)

Employer must grant an eligible employee up to 12 workweeks of unpaid leave in a 12-month period for
Birth of and care for a newborn child
Adoption or foster care placement of a child
Care for an immediate family member
Serious health condition of the employee
On return from FMLA leave, employee must be restored to his original job or to an equivalent job

Work-Life Discretionary Benefits

Organizations seek to create a work/life organizational climate that allows employees to balance work with personal needs
Organization are adapting work-life programs to accommodate the entrance of Generation Y employees into the workplace

Child and Elder Care

Child care - Provided to a child by an employee who remains actively at work
Elder care: Provided to an elderly relative by an employee who remains actively at work
Backup care program: Employer provides or subsidizes temporary care for its employee’s elders or children when their regular arrangements fall through

Payment for Time Not Worked

Vacations with pay
Paid holidays
Sick leave
Sabbaticals
Paid (or unpaid) time away from a job for four or more weeks employees take off to renew themselves before returning to work

Payment for Time Not Worked

Severance pay
One-time payment sometimes given to an employee who is being involuntarily terminated
Supplemental unemployment benefits (SUBs)
Plan that enables an employee who is laid off to draw, in addition to state unemployment compensation, weekly benefits from the employer that are paid from a fund created for this purpose

Life Insurance

Provides:
Death benefits to beneficiaries
Accidental death and dismemberment benefits
Premium costs are paid by employer
Face value of the life insurance is equal to two times yearly wages of the employee

Long-Term Care Insurance

Designed to pay for nursing home and other medical-related costs during old age
Strategic benefit to attract and retain employees
Workers caring for older parents and relatives
Advantage
Enrolled employees receive coverage automatically and need not pass physical examination

Other Benefits and Services

Credit unions
Serve financial needs of employees and attract potential employees
Educational assistance
Proactive employers view educational assistance programs
Also called tuition aid
Business tool that supports talent management as critical human capital investment

Retirement Programs

No law mandating retirement age in United States
Factors that influences an employee to retire
Personal/financial condition
Health
Family obligations
Satisfaction from work
Ability to meet changing job demands

Preretirement and Phased Retirement Programs

Requires major financial lifestyle adjustment
Seminars are conducted to create awareness of kinds of adjustments required when employees retire
Phased retirement: Program that allows its employees to gradually cut their hours before retiring

Pension Plans

Reward employees for their years of service by providing them with income when they retire
Categorized based on
Contributions made by employer
Amount of pension benefits to be paid

Types of Pension Plans

Contributions are made jointly by employees and employers

Contributory plan

Contributions are made solely by the employer

Noncontributory plan

Amount an employee is to receive on retirement is specifically set forth

Defined benefit plan

Establishes basis on which an employer will contribute to the pension fund

Defined contribution plan

401(k) Savings Plans

Allows employees to save through payroll deductions
Reduces taxable income and have their contributions matched by the employer
Depends on:
Money that goes into the plan
Rate of return on investments purchased
Stock-funded plans
Price of the company’s stock

401(k) Savings Plans

Shortcomings
Employees need not participate in the plans
Leaves them short on retirement income aside from social security after they retire
Employees lack investing experience and do not know the best way to invest the money in their 401(k)s
Congress passed the Pension Protection Act in 2006

Pension Protection Act

Allows employers to automatically enroll employees in defined contribution plans
Permits higher contribution limits for 401(k) plans
Enables workers to build larger retirement holdings
Gives workers greater control over how their accounts are invested

Cash Balance Pension Plans

Allows employer to make yearly contribution into employee’s retirement savings account
Based on percentage of employee’s pay, typically four percent
Benefits depend on employee’s age and years of service with the company

Federal Regulation of Pension Plans

Private pension plans are subject to federal regulation under Employee Retirement Income Security Act (ERISA)
Vesting: Guarantee of accrued pension benefits to participants at retirement age, regardless of their employment status at that time
Prevents companies from laying off employees before they retire, so they are unable to collect their pensions

Federal Regulation of Pension Plans

According to ERISA
Pension plans must provide employees with vested rights to their accrued benefits after they meet a certain minimum years of service
Minimum funding standards should be followed to ensure availability of pension benefits to employees upon retiring
Pension Benefit Guaranty Corporation (PBGC) was created
Ensures that if a plan is terminated, guaranteed minimum benefits are paid to participants

Domestic Partner Benefits

Employers are granting benefits to employees who establish domestic partnerships
Can consist of both same-sex and unmarried opposite-sex couples
Require employees to sign an Affidavit of Domestic Partnership