Mgmt 383

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Mgmt 383

• Chapter 14
• Managing Employee Benefits
• Spring 2009

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Strategic Benefits Considerations
Competitive Advantage
Attract Retain
Strategic Benefits Considerations
Benefits Management
Benefits Communication
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Employee Benefits

• Employee Benefits - indirect compensation given
  employees as a condition of organization
  membership.
• Objectives that contribute to a competitive
  advantage
• Help attract employees.
• Help retain employees.
• Enhance the organizations image with employees
  and outside constituencies.
• Encourage job satisfaction and organizational
  commitment.

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Employee Benefits

• Unlike many other countries, in the United States
  employers have become a major provider of
  benefits for citizens.
• U.S. companies face increasing pressure from
  federal and state governments as they shift many
  of the social costs for health care and other
  expenditures to the private sector.

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Measures of Benefits Effectiveness

• Benefits as a percentage of payroll.
• Benefit cost by employee group
• Full-time v. part-time.
• Union v. nonuniion.
• Office, management, professional, etc.
• Benefits expenditure per FTE employee.
• Benefits administrative costs.
• Health-care benefits cost per participating
  employee.

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Employee Benefits

• Two major categories of employee benefits
• Government Mandated Benefits - employee benefits
  that are required (mandated by law).
• Voluntary - those not required by law.

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Voluntary Benefits

• Voluntary Security Benefits
• Severance Pay
• Supplemental Unemployment Benefits
• Family Security Benefits
• Health Care Benefits
• Retirement Benefits
• Time Off Benefits
• Financial Other Benefits
• Family-Oriented Benefits
• Social Recreational Benefits

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Security Benefits

• Can be voluntary or government mandated.
• Government Mandated
• Workers Compensation.
• Unemployment Compensation
• Voluntary
• Severance Pay
• SUBs

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Workers Compensation

• Benefits are provided for employees who
  experienced work-related injuries/illness.
• Cash benefits
• Medical care
• Rehabilitation services
• Employers contribution is experience-rated.
• Too many fraudulent claims.

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Workers Compensation

• Advantage
• In exchange for workers' compensation coverage,
  employees give up the right of litigation for
  injuries and awards.
• Disadvantage
• Too many fraudulent claims.
• Number one Workers Comp claim Back injuries.

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Unemployment Compensation

• Mandated as part of the Social Security Act of
  1935.
• Benefits are provided to individuals when jobs
  are lost due to no fault of their own (economic
  reasons).
• Up to 26 weeks (½ year).
• Can be extended by Congress up to 13 more weeks.

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Eligibility for Unemployment Compensation

• Able, available, and actively seeking work.
• Cannot refuse suitable employment.
• Unemployment cannot result from a labor dispute
  (except in MI, RI, and NY).
• Cannot leave the job voluntarily.
• Cannot have been terminated for misconduct or
  poor performance.

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Myths About Mandatory Benefits

• Must provide breaks for meals.
• Must provide paid sick leave.
• Must provide vacations.
• Must provide health insurance.
• Must pay overtime for work performed on federal
  and state holidays.

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Severance Pay

• Severance Pay - payments to employees who have
  lost their jobs due to economic reasons.
• Lump sum payment.
• Time payments - continued regular pay for x
  months after termination.
• Golden Parachutes are the ultimate form of
  severance pay.

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Supplemental Unemployment Benefits (SUBs)

• Employer supplements state unemployment benefits
  to ensure a guaranteed level of income.
• Example An employer guarantees an 80 SUB.
• An employee made weekly salary of 500 (80
  400)
• The maximum Weekly Benefit Amount (WBA) allowed
  in Mississippi in 2008 is 230.00

Salary 500
SUB 170
State Unemployment 230
400
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Health-Care Benefits

• Major current problem is rising costs
• Uninsured workers account for 18.8 of the
  workforce.
• Many are illegal aliens
• 15 to 20 of the U.S. population lacks health
  coverage an these expenses are shifted to
  employers providing insurance for their employees.

Source Employee Benefit Research Institute
estimates from the March Current Population
Survey, 2007 Supplement.
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Controlling Health Care Costs

• Co-Payments - the employee pays a portion of the
  medical costs (usually 10 - 20 after
  deductibles)
• Deductibles - employee pays 100 of a fixed
  amount before co-payments kick in
• Managed Care - strategies to reduce medical
  costs.
• Preferred Providers Organizations (PPOs) - health
  care providers contracted to provide services at
  a fixed rate.
• Health Maintenance Organization (HMOs) - medical
  services are provide for a fixed period on a
  pre-paid basis.

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Controlling Health Care Costs

• .Utilization Review - Identifying medical
  services that are unnecessary, incorrectly
  billed, or deliberately overcharged.
• Mini-Medical Plans Provides only limited
  coverage for employees
• Limits number of doctor visits
• Covers on some prescription drugs
• Only limited hospital coverage
• Total annual health benefits are capped (usually
  lt10,000.

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Consumer-Driven Health Plans

• Consumer-Driven Health (CDH) plan (a.k.a.,
  defined contribution health plans) employer
  provides financial contribution to employees
  health-related expenses.
• Health Savings Accounts (HSAs) high-deductible
  health plans providing federal tax advantages.
• The funds contributed to the account are not
  subject to federal income tax at the time of
  deposit.

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Consumer-Driven Health Plans

• Health Reimbursement Arrangements (HRAs) -
  IRS-sanctioned arrangements that allow an
  employer, as agreed to in the HRA plan document,
  to reimburse for medical expenses paid by
  participating employees.
• HRAs reimburse only those items (copays,
  coinsurance, deductibles and services) agreed to
  by the employer which are not covered by the
  company's selected standard insurance plan.
• Non reimbursed medical.

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Health Care Legislation

• COBRA (Consolidated Omnibus Budget Reconciliation
  Act) Provides for extended health care coverage
  for
• Employees who voluntarily quit (not those
  terminated for misconduct).
• Widowed or divorced spouses.
• Retirees spouses.
• May charge up to 102 of premium cost.

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Duration of Continued Coverage under COBRA

• Duration of continued coverage under COBRA
• 18 months.
• 29 months if the terminated employee is disabled.
• 36 months for the employees former spouse and
  dependents when the qualifying event is the
  employees death or divorce (to include legal
  separation).
• The maximum age for a dependent child to be
  eligible is 18. Should a child reach that age
  within the 36-month period, he or she is no
  longer covered.
• Source 29 U.S.C. 1162(2)(A) et.
  seq.

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Health Care Legislation

• HIPAA (Health Insurance Portability and
  Accountability Act) Provides for employees
  switching health coverage from one company to
  another regardless of pre-existing conditions.

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Retirement Benefits

• Social Security Act of 1935
• Objectives
• Old age benefits (Medicare)
• Survivors benefits
• Disability benefits
• Retirement benefits (x 1049.40/mo. in 2007)
• Source Social Security Administration (2007).
  Master Beneficiary Record, 100 percent data.
  http//www.ssa.gov/policy/docs/quickfacts/stat_sna
  pshot/

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Social Security

• Year of Birth
• 1937 or earlier
• 1938
• 1939
• 1940
• 1941
• 1942
• 1943 1954
• 1955
• 1956
• 1957
• 1958
• 1959
• 1960 or later

• Full Retirement Age
• 65
• 65 and 2 months
• 65 and 4 months
• 65 and 6 months
• 65 and 8 months
• 65 and 10 months
• 66
• 66 and 2 months
• 66 and 4 months
• 66 and 6 months
• 66 and 8 months
• 66 and 10 months
• 67

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Social Security

• Social Security Act of 1935
• Cost to employers (10.58)
• Employer matches employees 7.65 contribution.
• FICA-M (Medicare tax) is 2.93
• Eligibility for benefit
• Must contribute a minimum amount (roughly 500),
• Minimum 40 quarters (10 years of work) of
  contribution.

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Social Security

• The Solvency of Social Security
• Around the year 2017 the fund actually will begin
  spending more than it takes in.
• During 2004, an estimated 157 million people had
  earnings covered by Social Security and paid
  payroll taxes.
• By the year 2041, according to the Congressional
  Budget Office, the trust fund will be depleted.
• Source 2005 Trustees Report. SSA (March 23,
  2004).
• In 1950, 16 workers paid into the system for
  every beneficiary. In 2004, it was 3.3 workers.
  In 2034, it will be 2 workers.

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Retirement Benefits

• Contributory arrangements
• Contributory plan - employee pays all or part of
  the pension contribution.
• Noncontributory plan - employer pays all of the
  pension contribution.
• Benefit arrangements
• Defined Contribution - a specific amount of money
  is paid to the employees pension account each
  pay period.

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Retirement Benefits

• Benefit arrangements
• Defined benefit - a guaranteed benefit
  arrangement is promised the employee based on age
  and service.
• Example 2 for each year of service of the
  average salary of the highest three years of
  service upon reaching age 60.
• Assume a 60 year-old employee with 23 years of
  service.
• Best three years 28,000 28,500 28,700.

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Retirement Benefits

• Retirement Benefits
• Defined Benefit Pensions

28,000 x 28,400 28,500 28,
700 85,200
Years of Service 23 x .02 .46 entitlement
threshold 28,400 x .46 13,064 defined
benefit or 1,088.67 per mo.
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Retirement Benefits

• Portability the ability to move ones pension
  benefits form one employer to another.
• TIAA/CREF
• Individual Retirement Accounts (IRA) tax
  deferred retirement program (funds are not taxed
  until drawn at retirement).
• 401(k) Plan employees may have up to 12,000 of
  their salaries withheld in a special tax-deferred
  retirement account.
• Keogh Plan a tax-deferred retirement program
  for self-employed individuals. The lesser of
  40,000 or 100 of compensation.

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Legal Requirements for Retirement Benefits

• Employee Retirement Income Security Act (ERISA)
  of 1974 Regulates defined benefit programs.
• Participation requirements (who must be covered).
• Vesting requirements ( how long the person must
  work to be entitled to the benefits).
• How much money the employer is required to se
  aside to fund the plan.

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ERISA

• Plans must meet minimum funding requirements.
• Employers must pay termination insurance to
  ensure employee pensions will be there even if
  the company goes out of business.
• Accrued benefits must be given to employees when
  they retire or leave.

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Pension Protection Act

• Pension Protection Act of 2006 requires
  employers who have underfunded their pension
  plans to pay higher premiums to the Pension
  Benefit Guaranty Corporation (PBGC) and extends
  the requirement of providing extra funding to the
  pension systems of companies that terminate their
  pension plans.

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Insurance Benefits

• Life insurance usually pays 150 to 200 of the
  deceased employees annual salary
• Disability insurance provides income protection
  if employee is disabled and unable to work.
• Short-term and long-term variants.
• Long-term care insurance - cover the costs of
  long-term assisted-living.
• Legal insurance

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Financial Services and Other Benefits

• Financial Benefits
• Credit unions
• Purchase discounts
• Stock-investment plans
• Social Recreational Benefits
• Sports teams
• Gymnasiums/weight rooms
• Recreation centers

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Educational Benefits

• Educational Benefits
• Educational assistance
• Tuition
• Books

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Family and Medical Leave

• Eligibility Requirements for FMLA
• Must work for a covered employer (private with
  50 employees, state governments and agencies, or
  the federal government.
• Employee must have worked for at least 12 months
  for a covered employer.
• Employee must have worked in excess of 1,250
  hours to be eligible. 156.25 work days, 31.25
  work weeks
• Work at a facility with 50 or more employees who
  live within 75 miles of the place of employment.

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Benefits under FMLA

• 12 weeks unpaid leave.
• Employee must be allowed to return to his/her
  previous (or equivalent) job.
• Employee is entitled to health insurance coverage
  during the leave period.

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Qualifying Events for Family Medical Leave

• Qualifying events for FMLA benefits
• Childbirth
• Adoption
• Family Serious Health Condition
• Spouse
• Child
• Parent
• Personal Serious Health Condition
• A 30-day advanced notice is required for
  foreseeable situations.

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Serious Health Condition under FMLA

• Serious Health Condition
• In-patient care.
• Hospital care.
• Hospice care.
• Residential medical care
• Continuing physician care.

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Options under FMLA

• Employer Options
• Employer can require employees to use up all
  paid vacation, personal leave, and paid sick
  leave before taking the unpaid leave under the
  FMLA.

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Family-Oriented Benefits

• Child care
• Referral services - assistance in locating day
  care facilities.
• Subsidies - vouchers or discounts.
• Sick-child programs in hospitals.
• In-site child care.
• Elder care

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Family-Oriented Benefits

• Domestic Partners
• Domestic Partnership. Domestic Partners are two
  adults who have chosen to share one another's
  lives in an intimate and committed relationship
  of mutual caring, who live together, and who have
  agreed to be jointly responsible for basic living
  expenses incurred during the Domestic
  Partnership. They must sign a Declaration of
  Domestic Partnership, and establish the
  partnership under Section 62.3 of this chapter.
• San Francisco Administrative Code 62.2.
  
• Benefits for domestic partners or spousal
  equivalents (unmarried partners).

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Domestic Partners

• Effective June 1, 1997, Chapter 12B of the San
  Francisco Administrative Code was amended to
  prohibit the City and County of San Francisco
  from entering into contracts or leases with any
  entity that discriminates in the provision of
  benefits between employees with domestic partners
  and employees with spouses, and/or between the
  domestic partners and spouses of employees.
• Entities recognizing homosexual domestic
  partners
• San Francisco - mandatory
• States of HI, VT, MA mandatory
• Disney voluntary

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Time-Off Benefits

• Holiday pay
• Vacation Pay
• Paid Leaves of Absence
• Paternity/maternity leave
• Paid and Unpaid Medical Sick Leave
• Well-pay (extra pay for not using sick pay)
• Other Leave
• Military
• Election
• Jury duty

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Proposed Government-Mandated Benefits

• Universal health-care benefits for all workers.
• Child-care assistance.
• Pension coverage that can be transferred by
  workers who change jobs.
• Core benefits for part-time workers working at
  least 500 hours (12.5 weeks) per year.
• Paid time off for family leave.