Copyright 2000 - South-Western College Publishing Module 18 - 1 Why Study Employee Benefits?...

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.


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


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%


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


Provisions of ERISA Include:

reporting and disclosure

fiduciary standards

employee eligibility

vesting

plan termination insurance


Examples of Vesting

0

20

40

60

80

100

1 2 3 4 5 6 7

Years

% V

este

d Cliff

Graded

Other


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


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


Other Social Insurance Programs

• Unemployment Insurance

• Workers’ Compensation Insurance

• Temporary Disability Insurance


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


Defined Benefit and Defined Contribution Approaches

DB DC0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DB DC


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


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


Additional Health Benefits

• Dental

• Prescription Drug

• Vision

• Hearing


Other Welfare Benefits

• Group Life Insurance– for employee– for dependents– AD&D component

• Disability Insurance

• Long Term Care Insurance


Work/Life Benefits

• Flexibility

• Child and Elder Care Assistance

• Adoption Benefits

• Employee Assistance Program (EAP) \ Convenience Benefits

• Additional Emerging Benefits


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


Funding

• Insurance Contract vs. Self-funding

• ERISA has funding standards for retirement plans.


Administration

Employee/Participant

Human ResourcesDepartment

Government

Vendors

Copyright 2000 - South-Western College Publishing Module 18 - 1 Why Study Employee Benefits?...

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