A Human Resource Management Approach

STRATEGIC COMPENSATION

Prepared by David OakesChapter 11 Discretionary Benefits

Discretionary Costs In 2004 $11,107 per employee

40% of total payroll costs

$15,000 total with legally-required benefits

Benefit Types Protection programs

Pay for time-not-worked

Services

Income Protection Disability insurance

Life insurance

Pension programs

Health Protection Self - funded plans Health maintenance organizations (HMOs) Preferred provider organizations (PPOs) Dental insurance Vision insurance Prescription drug plan

Short-Term Disability Less than 6 months duration

Unable to perform job

Benefit: 50% - 100% of pre-tax income

Long-Term Disability 6 months to life Unable to perform any job qualified for Benefit 50% - 70% of pre-tax pay 6 - 12 month waiting period Other benefits used first

Pension Plan Financing Options Noncontributory

Contributory

Employee-financed programs

A combination of the three

Pension Plan Tax Treatment Options Qualified Employers get tax deductions for contributions Employees taxed less at retirement Nonqualified Employers & employees receive few tax break

Qualified Plans Eligibility Minimum age 21, & 1 year of service Nondiscrimination Limited preferential treatment Vesting Usually 3 - 6 years Payout restrictions Tax penalty if taken before age 59.5

Defined Contribution Plans Profit sharing plans Employee stock ownership (ESOPs) 401(k)s Savings & thrift plans

401(k)s Named after IRS code section Employees invest pre-tax income Plan limits 2006 - $15,000 2007 - $15,500 2008 - $16,000 $500 yearly increases

ESOPs The basis for 401 (k) plans Contributions invested in company securities Distributions made in company stock Like stock bonus plans, except stock is purchased with borrowed funds

Saving & Thrift Plans Employers match employees contributions Usually up to 50% of employees Tax penalties for early withdrawals Employees can select investment vehicle Stocks Bonds Money market funds

Defined Benefit Plans Guarantees benefits amount Amount expressed as a monthly sum % of pre-retirement pay X years of service Employers contributions can vary, but benefit at retirement cannot Not widely used

Health Care Programs Fee-for-service Managed care Point of service Consumer-driven health care

Fee-For-Service Plans Indemnity plans Cover usual, customary, reasonable charges Hospital expenses Surgical expenses Physicians fees Deductibles & coinsurance Out-of-pocket maximums Individual or group coverage

HMOs Organize, deliver, & finance care Provides prepaid medical services May include co-payments Regulated by Health Maintenance Organization Act of 1973 Prepaid group practices Individual practice associations

PPOs Select group of health care providers Employees choose from a list Financial incentives to use list Physicians must Meet quality standards Abides by PPO cost-containment Accepts PPO fee structure Does not provide prepaid benefits

Consumer-Driven Care Flexible-spending accounts

Health reimbursement arrangements

Health savings accounts

Flexible-Spending Accounts Supplemental health coverage Employee funds account with pre-tax income Pays for qualified expenses Unused funds forfeited

Health Reimbursement Arrangements Supplemental health coverage

Employees funded

Unused funds carried over

Prescription Drug Plans Medical reimbursement plans

Prescription card programs

Mail order prescription drug program

RELEVANT LEGISLATION ERISA

COBRA

FLSA

HIPPA

ERISA Regulates fringe compensation Medical Disability Life insurance Pension Monitors Reporting Disclosure Funding Fiduciary & vesting responsibilities

COBRA Continues health care coverage to 36 months Can cost up to 102% of premium Employers penalized for noncompliance Exempt employers Those with less than 20 employees Churches Federal government

HIPPA Guarantees health coverage Addresses preexisting conditions Concerns access to health information Transfer Disclosure Use