Employee Benefits

Why benefits? Types of benefits

Legally required benefitsSecurity and retirement benefitsHealth coverageTime off workEmployee services

Why Benefits?

Legal requirements Employee attraction and retention Non-taxable compensation to employee Employer can often purchase at more

favorable rate Employee morale, well-being

Legally Required Benefits

Workers’ compensation Social security Unemployment compensation Family/medical leave Continuation of health coverage

Workers’ Compensation: Definition and Purpose Covers injury or disease arising from course of employment Employer normally relieved of other liability for injuries /

diseases Goals of workers’ compensation

Prompt and reasonable compensation to victims of work accidents Eliminate delays, costs, and waste in personal injury cases Reduce the number of accident cases Provide prompt and adequate medical treatment Rehabilitate injured workers

Workers’ Compensation: Coverage Paid by employer (insured or self-funded) What is covered:

Total disability, temporary or permanent (up to 400 weeks, or until age 65 for permanent disability)

Partial disability (elaborate schedule of body parts and $) Survivor’s benefits Medical expenses (employer selects; includes psychologists in

Tennessee) Rehabilitation

Payment tied to earnings (to 66 2/3% of pay, up to a cap of $784 (temporary) or $713 (permanent) per week, in Tennessee)

Permanent disability payments integrated with Social Security

Workers’ Compensation: Cost Issues Rising costs

In 2000, 1.03% of payroll (down from 1.68% in 1992 and 1.29% in 1999)

Can run up to 25% in hazardous industries Why?

Rising medical costs Worker abuse Inclusion of stress-related illnesses

What can be done? Medical cost control (managed care, utilization review, bill audit,

fee schedules) Monitor worker status

Social Security: Overview

Benefits for:RetirementDisabilitySurvivors (lump sum and monthly payments)

Based on contributions from employers and employees

Majority of U.S. workers covered

Social Security: Coverage

Payment tied to contributions Amounts (2008):

Old age/survivors’/disability - 6.2%, up to $102,000

Health - 1.45%, no earnings cap Should social security be moved to the

private sector?

Unemployment Compensation

Administered by states (coverage varies by state) Employer contributions, often with experience ratings Who is covered?

People able to work and actively seeking work Cannot have refused employment Not on strike Not voluntarily quit Not terminated for gross misconduct Previously employed in a covered job

Payments for 26 weeks In theory, 50% of wages up to a cap ($275/week)

Family And Medical Leave Act(FMLA) Unpaid leave up to 12 weeks per year

Seriously ill family member Own illness Birth of a child Adoption of a child

Companies with 50 or more employees, after 1 year employment

Return to same or equivalent job Top 10% paid employees not eligible State laws or company policies may be more generous

COBRA

Provides for continuation of health coverage (if offered)

Employee pays 102% of total cost Coverage period:

18 months for terminated employees 36 months for spouse / ineligible dependent

Security and Retirement BenefitsSecurity benefits Social Security Life insurance Long-term disability

coverage Long-term care

benefits

Retirement benefits Social Security Defined benefit plans Defined contribution

plans 401(k) plans ESOPs IRA / SEP / Keogh plans

ERISA Provisions

Passed in 1974 in response to abuses of pension plans Does not require that a plan be offered ERISA covers:

Who is eligible? Vesting (entitlement to employer contributions) Plan funding required

Also established Pension Benefit Guarantee Corporation Employers required to pay premiums to PBGC to cover

company bankruptcies If necessary, PBGC will assume payments

Eligibility and Vesting

EligibilityAge 21One year’s service (1,000 hours)May be eligible even if “contractor” (Microsoft

case) Vesting (right to employer’s contributions)

Can be a 6 year or a 3 year schedule

Security Benefits

Group term policies Offered by 58% of employers Commonly 1x to 2x annual salary Employer paid (94% of employers) Option to purchase additional

coverage (group rates)

AD & D Policies Typically employee paid

Short-Term Disability Short-term disability may covered

through sick leave policies 39% of employers offer other coverage

Long-term disability coverage 31% access LTD normally picks up after 6 months

disability 50% to 67% of previous salary and

integrated with Social Security to provide up to 80% of previous salary

Often employee paid (so benefits are non-taxable)

Long-Term Care Benefits: Why

Becoming more popular as life span and medical costs increase

In 2000….12.4% of population over age 65; 1.5% over age 85

Projected for 2050….20.7%; 5% over age 8 Two-thirds of elderly have assets to pay for one year or

less of nursing home care Estimated 7% to 12% of workforce is providing elder care;

33% of employees have lost work time and 27% of caregivers have left the workforce

Long-Term Care Benefits: Coverage Currently, offered by 12% of firms Employee paid Rates depend on age ($700/year for 40 year old) What is covered?

In-home assistance Supervised living Skilled care

May cover elderly dependents Lots of doubt, though, about quality of plans

(http://www.consumerreports.org/cro/money/insurance/longterm-care-insurance-1103/overview/)

Retirement Benefits: The Pension Coverage

Overall, 55% of employees are covered under one or more employer-sponsored plans

Full-time = 64%, part-time= 27% Average cost to employers

$1.07 per hour worked Types of plans

Defined benefit Defined contribution 401(k) plans ESOPs IRA / SEP / Keogh plans

Retirement Benefits: Defined Benefit Plans Once popular, now offered by fewer employers (currently only

22% of plans) Typically entirely funded by employer Social Security is a defined benefit plan Employer guarantees to:

“Provide a specific level of retirement pension that is expressed as either a fixed dollar or percentage-of-earnings amount that may vary (increase) with years of seniority”

Pro and con Employer must fund future obligations (ERISA) Employer is assuming all risk Less attractive to employees, who no longer stay with one employer for

entire career

Retirement Benefits: Defined Contribution Plans More popular now (close to 80% of plans) Employer makes specific contributions; employee

contributions may or may not be required or allowed About 65% of plans do require employee contribution

Pro and con More portable for mobile employees Employee assumes some risk; if employee contributions

required, lower-paid employees may not participate Employees will need assistance counseling about investment

options at retirement (although employer can’t actually give advice without incurring legal liability)

Retirement Benefits: Other Plans 401(k) plans

Employee contributions required to participate May be matched or partially matched by employer Contributions and earnings not taxed until withdrawal May or may not have investment choices

ESOP (Employee Stock Ownership Plan) Employer gains tax advantage from contributing stock to a trust

for employees Employees may be reluctant to have retirement depend on

employer’s stock Best results if combined with meaningful participation programs

Health Coverage

Overview only….what we learn today won’t apply tomorrow

The basic issue: cost containment Basic medical coverage Other coverage

Mental health Vision Dental

Wellness programs

Who Has It?

According to BLS: 85% of full-time employees (64% participate) 24% of part-time employees (12% participate)

But….. Mini-meds ($2,000 or less annual caps) High deductible plans (looking at $10,000 annual cost)

According to a Harvard Medical School study, health care costs contribute to about half of bankruptcy findings – even though the majority of the individuals had insurance at some point.

Trends in Insurance Coverage

0%

20%

40%

60%

80%

100%

1997 1999 2001 2003

Employer Other Private Public Insurance

Other Coverage Uninsured

Source:Center for Studying Health System Change (http://ctsonline.s-3.com/hhsurvey.asp)

Who Doesn’t Have Health Coverage

Source: http://www.kff.org/uninsured/upload/1420_09.pdf

Cost Containment Issues

Estimated 6% to 7% annual increase in costs This, even with managed care, so....

Increased employee cost sharing (higher premiums, deductibles, copays)

Employee wellness (keep them healthy) Other ideas

Self-insurance Flexible spending accounts Bargaining with providers Mail-order prescriptions (for maintenance drugs)

Other Coverage

Mental health Can be very costly, but, must be covered as other conditions

Vision One big issue: laser surgery (an estimated 1 to 1½ million done per

year) Can employers cover? Not in standard plans, but can add to high-end

plans, set up flexible spending accounts, negotiate provider discounts Dental Contraceptives

December 2000 EEOC decision held that under Pregnancy Discrimination Act, health plans must cover prescribed contraceptives as other prescription drugs

Employee Wellness Programs

Idea is to reduce health care costs....for the most part, successful over the long-term

What’s included Health screenings (blood pressure, cholesterol, mammograms) Education and advice (exercise, nutrition, etc.) Exercise facilities Healthy cafeteria food Smoking cessation, weight loss Pre-natal education

More and more popular; some form of program offered by 93% of U.S. employers (Hewitt Associates survey, 2002)

Time Off Work

Vacations Holidays PTO plans Other time off

Vacations

0

5

10

15

20

25

1 3 5 10 15 20 25

Years' Employment

Day

s P

aid

Vac

atio

n

Source: Bureau of Labor Statistics 1997 survey

Vacations available to 77% of employees

Holiday Policies

77% of employees receive paid holidays;

Average of 8 paid holidays per year Exact holidays vary by industry, part

of country Financial / government The case of Mardi Gras

PTO Plans

PTO Paid Time Off A bank of days, accrued during the year, than can be

used as the employee wishes Replaces vacation, holidays, short-term illness

Most often found in health care, but used by 18% of U.S. employers in 2000 (Hewitt Associates survey)

Other Time Off

Jury dutyMust legally give time offSome employers make this paid time

Military Voting Funeral / bereavement

Employee Services

Traditionally, includedDiscounts on products or services

Today, anything goesChild care (on-site, assistance)Other employee services