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
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