Transcript Mgmt 383 - University of Mississippi

Mgmt 383
Chapter 14
Managing Employee Benefits
Spring 2009
Strategic Benefits Considerations
Competitive Advantage
Strategic
Benefits
Considerations
Attract & Retain
Benefits Management
Benefits Communication
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.
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.
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.
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.
Voluntary Benefits
• Voluntary Security Benefits
• Severance Pay
• Supplemental Unemployment Benefits
• Family Security Benefits
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Health Care Benefits
Retirement Benefits
Time Off Benefits
Financial & Other Benefits
Family-Oriented Benefits
Social & Recreational Benefits
Security Benefits
• Can be voluntary or government mandated.
• Government Mandated:
• Worker’s Compensation.
• Unemployment Compensation
• Voluntary:
• Severance Pay
• SUBs
Worker’s Compensation
• Benefits are provided for employees who
experienced work-related injuries/illness.
• Cash benefits
• Medical care
• Rehabilitation services
• Employer’s contribution is experiencerated.
• Too many fraudulent claims.
Worker’s 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 Worker’s Comp claim: Back
injuries.
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.
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.
Myths About Mandatory Benefits
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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.
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.
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
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.
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.
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
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Limits number of doctor visits
Covers on some prescription drugs
Only limited hospital coverage
Total annual health benefits are capped (usually <$10,000.
Consumer-Driven Health Plans
• Consumer-Driven Health (CDH) plan
(a.k.a., defined contribution health plans) –
employer provides financial contribution to
employee’s health-related expenses.
• Health Savings Accounts (HSAs) – highdeductible health plans providing federal
tax advantages.
• The funds contributed to the account are not
subject to federal income tax at the time of
deposit.
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.
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.
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 employee’s former spouse and
dependents when the qualifying event is the
employee’s 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 36month period, he or she is no longer covered.
Source: 29 U.S.C. § 1162(2)(A) et. seq.
Health Care Legislation
• HIPAA (Health Insurance Portability and
Accountability Act) Provides for employees
switching health coverage from one
company to another regardless of preexisting conditions.
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_snapshot/
Social Security
• Year of Birth
• Full Retirement Age
1937 or earlier
1938
1939
1940
1941
1942
1943 – 1954
1955
1956
1957
1958
1959
1960 or later
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
Social Security
• Social Security Act of 1935
• Cost to employers (10.58%):
• Employer matches employee’s 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.
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.
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 employee’s pension account
each pay period.
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.
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.
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 taxdeferred retirement account.
• Keogh Plan – a tax-deferred retirement program
for self-employed individuals. The lesser of
$40,000 or 100% of compensation.
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.
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.
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.
Insurance Benefits
• Life insurance – usually pays 150% to 200%
of the deceased employee’s 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
Financial Services and Other
Benefits
• Financial Benefits
• Credit unions
• Purchase discounts
• Stock-investment plans
• Social & Recreational Benefits
• Sports teams
• Gymnasiums/weight rooms
• Recreation centers
Educational Benefits
• Educational Benefits
• Educational assistance
• Tuition
• Books
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.
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.
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.
Serious Health Condition
under FMLA
• Serious Health Condition:
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In-patient care.
Hospital care.
Hospice care.
Residential medical care
Continuing physician care.
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.
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
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).
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
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
Proposed GovernmentMandated 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.