Mgmt 383Mgmt 383

Chapter 14Chapter 14

Managing Employee BenefitsManaging Employee Benefits

Spring 2009Spring 2009

Strategic Benefits ConsiderationsStrategic Benefits Considerations

Strategic Strategic Benefits Benefits

ConsiderationsConsiderations

Competitive Advantage

Attract & Retain

Benefits Management

Benefits Communication

Employee BenefitsEmployee Benefits

• Employee BenefitsEmployee Benefits - indirect compensation - indirect compensation given employees as a condition of given employees as a condition of organization membership.organization membership.• Objectives that contribute to a competitive Objectives that contribute to a competitive

advantage:advantage:• Help attract employeesHelp attract employees..

• Help retain employeesHelp retain employees..

• Enhance the organizations image with employees Enhance the organizations image with employees and outside constituencies.and outside constituencies.

• Encourage job satisfaction and organizational Encourage job satisfaction and organizational commitment.commitment.

Employee BenefitsEmployee Benefits

• Unlike many other countries, in the United States Unlike many other countries, in the United States employers have become a major provider of employers have become a major provider of benefits for citizens.benefits for citizens.

• U.S. companies face increasing pressure from U.S. companies face increasing pressure from federal and state governments as they shift many federal and state governments as they shift many of the social costs for health care and other of the social costs for health care and other expenditures to the private sector.expenditures to the private sector.

Measures of Benefits EffectivenessMeasures of Benefits Effectiveness

• Benefits as a percentage of payroll.Benefits as a percentage of payroll.

• Benefit cost by employee groupBenefit cost by employee group• Full-time v. part-time.Full-time v. part-time.• Union v. nonuniion.Union v. nonuniion.• Office, management, professional, etc.Office, management, professional, etc.

• Benefits expenditure per FTE employee.Benefits expenditure per FTE employee.

• Benefits administrative costs.Benefits administrative costs.

• Health-care benefits cost per participating Health-care benefits cost per participating employee.employee.

Employee BenefitsEmployee Benefits

• Two major categories of employee Two major categories of employee benefits:benefits:• Government Mandated BenefitsGovernment Mandated Benefits - -

employee benefits that are required employee benefits that are required (mandated by law).(mandated by law).

• Voluntary Voluntary - those not required by - those not required by law.law.

Voluntary BenefitsVoluntary Benefits

• Voluntary Security BenefitsVoluntary Security Benefits• Severance PaySeverance Pay• Supplemental Unemployment BenefitsSupplemental Unemployment Benefits• Family Security BenefitsFamily Security Benefits

• Health Care BenefitsHealth Care Benefits• Retirement Benefits Retirement Benefits • Time Off BenefitsTime Off Benefits• Financial & Other BenefitsFinancial & Other Benefits• Family-Oriented BenefitsFamily-Oriented Benefits• Social & Recreational BenefitsSocial & Recreational Benefits

Security BenefitsSecurity Benefits

• Can be voluntary or government mandated.Can be voluntary or government mandated.

• Government Mandated:Government Mandated:• Worker’s Compensation.Worker’s Compensation.• Unemployment Compensation Unemployment Compensation

• Voluntary:Voluntary:• Severance PaySeverance Pay• SUBsSUBs

Worker’s CompensationWorker’s Compensation

• Benefits are provided for employees who Benefits are provided for employees who experienced work-related injuries/illness.experienced work-related injuries/illness.• Cash benefitsCash benefits• Medical careMedical care• Rehabilitation servicesRehabilitation services

• Employer’s contribution is experience-Employer’s contribution is experience-rated.rated.

• Too many fraudulent claims.Too many fraudulent claims.

Worker’s CompensationWorker’s Compensation

• AdvantageAdvantage• In exchange for workers' compensation In exchange for workers' compensation

coverage, employees give up the right of coverage, employees give up the right of litigation for injuries and awards.litigation for injuries and awards.

• DisadvantageDisadvantage• Too many fraudulent claims.Too many fraudulent claims.• Number one Worker’s Comp claim: Back Number one Worker’s Comp claim: Back

injuries.injuries.

Unemployment CompensationUnemployment Compensation

• Mandated as part of the Social Security Mandated as part of the Social Security Act of 1935.Act of 1935.

• Benefits are provided to individuals Benefits are provided to individuals when jobs are lost due to when jobs are lost due to no fault of their no fault of their ownown (economic reasons). (economic reasons).• Up to 26 weeks (½ year).Up to 26 weeks (½ year).• Can be extended by Congress up to 13 more Can be extended by Congress up to 13 more

weeks.weeks.

Eligibility for Unemployment Eligibility for Unemployment CompensationCompensation

• Able, available, and actively seeking Able, available, and actively seeking work.work.

• Cannot refuse suitable employment.Cannot refuse suitable employment.• Unemployment cannot result from a Unemployment cannot result from a

labor dispute (labor dispute (exceptexcept in MI, RI, and NY). in MI, RI, and NY).• Cannot leave the job voluntarily.Cannot leave the job voluntarily.• Cannot have been terminated for Cannot have been terminated for

misconduct or poor performancemisconduct or poor performance ..

Myths About Mandatory BenefitsMyths About Mandatory Benefits

• Must provide breaks for meals.Must provide breaks for meals.

• Must provide Must provide paid paid sick leave.sick leave.

• Must provide vacations.Must provide vacations.

• Must provide health insurance.Must provide health insurance.

• Must pay overtime for work performed on Must pay overtime for work performed on federal and state holidays.federal and state holidays.

Severance PaySeverance Pay• Severance PaySeverance Pay - payments to employees - payments to employees

who have lost their jobs due to economic who have lost their jobs due to economic reasons.reasons.• Lump sum payment.Lump sum payment.

• Time payments - continued regular pay for “x” months Time payments - continued regular pay for “x” months after termination.after termination.

• Golden ParachutesGolden Parachutes are the ultimate form of severance are the ultimate form of severance pay.pay.

Supplemental Unemployment Supplemental Unemployment Benefits (SUBs)Benefits (SUBs)

• EEmployer supplements state unemployment benefits mployer supplements state unemployment benefits to ensure a guaranteed level of income.to ensure a guaranteed level of income.• Example: An employer guarantees an 80% SUB.Example: An employer guarantees an 80% SUB.

• An employee made weekly salary of $500 (80% = $400)An employee made weekly salary of $500 (80% = $400)

• The maximum Weekly Benefit Amount (WBA) allowed in Mississippi The maximum Weekly Benefit Amount (WBA) allowed in Mississippi in 2008 is $230.00in 2008 is $230.00

State Unemployment $230

SUB $170

$400

Salary $500

Health-Care BenefitsHealth-Care Benefits

• Major current problem is rising costsMajor current problem is rising costs• Uninsured workers account for 18.8% of the Uninsured workers account for 18.8% of the

workforce.workforce.• Many are illegal aliensMany are illegal aliens

• 15% to 20% of the U.S. population lacks health 15% to 20% of the U.S. population lacks health coverage an these expenses are shifted to employers coverage an these expenses are shifted to employers providing insurance for their employees.providing insurance for their employees.

Source: Employee Benefit Research Institute estimates from the March Current Population Survey, 2007 Supplement.

Controlling Health Care CostsControlling Health Care Costs• Co-PaymentsCo-Payments - - the employee pays a portion of the employee pays a portion of

the medical costs (usually 10 - 20% after the medical costs (usually 10 - 20% after deductibles)deductibles)

• Deductibles Deductibles - - employee pays 100% of a fixed employee pays 100% of a fixed amount before co-payments kick inamount before co-payments kick in

• Managed CareManaged Care - - strategies to reduce medical strategies to reduce medical costs.costs.• Preferred Providers Organizations (PPOs)Preferred Providers Organizations (PPOs) - - health care health care

providers contracted to provide services at a fixed rateproviders contracted to provide services at a fixed rate ..• Health Maintenance Organization (HMOs)Health Maintenance Organization (HMOs) - - medical medical

services are provide for a fixed period on a pre-paid basis.services are provide for a fixed period on a pre-paid basis.

Controlling Health Care CostsControlling Health Care Costs• ..Utilization ReviewUtilization Review - - Identifying medical Identifying medical

services that are unnecessary, incorrectly services that are unnecessary, incorrectly billed, or deliberately overchargedbilled, or deliberately overcharged ..

• Mini-Medical PlansMini-Medical Plans –Provides only limited –Provides only limited coverage for employeescoverage for employees• Limits number of doctor visitsLimits number of doctor visits

• Covers on some prescription drugsCovers on some prescription drugs

• Only limited hospital coverageOnly limited hospital coverage

• Total annual health benefits are capped (usually Total annual health benefits are capped (usually <<$10,000.$10,000.

Consumer-Driven Health PlansConsumer-Driven Health Plans

• Consumer-Driven Health (CDH) planConsumer-Driven Health (CDH) plan (a.k.a., defined contribution health plans) – (a.k.a., defined contribution health plans) – employer provides financial contribution to employer provides financial contribution to employee’s health-related expenses.employee’s health-related expenses.

• Health Savings AccountsHealth Savings Accounts (HSAs) – high- (HSAs) – high-deductible health plans providing federal deductible health plans providing federal tax advantages.tax advantages.• The funds contributed to the account are not The funds contributed to the account are not

subject to federal income tax at the time of subject to federal income tax at the time of deposit. deposit.

Consumer-Driven Health PlansConsumer-Driven Health Plans

• Health Reimbursement Arrangements Health Reimbursement Arrangements (HRAs)(HRAs) - IRS-sanctioned arrangements that - IRS-sanctioned arrangements that allow an employer, as agreed to in the HRA allow an employer, as agreed to in the HRA plan document, to reimburse for medical plan document, to reimburse for medical expenses paid by participating employees.expenses paid by participating employees.• HRAs reimburse only those items (copays, HRAs reimburse only those items (copays,

coinsurance, deductibles and services) agreed coinsurance, deductibles and services) agreed to by the employer which are not covered by to by the employer which are not covered by the company's selected standard insurance plan.the company's selected standard insurance plan.

• Non reimbursed medical. Non reimbursed medical.

Health Care LegislationHealth Care Legislation

• COBRACOBRA ( (CConsolidated onsolidated OOmnibus mnibus BBudget udget RReconciliation econciliation AAct) Provides for extended ct) Provides for extended health care coverage for:health care coverage for:• Employees who voluntarily quit (not those Employees who voluntarily quit (not those

terminated for misconduct).terminated for misconduct).• Widowed or divorced spouses.Widowed or divorced spouses.• Retirees & spouses.Retirees & spouses.• May charge up to 102% of premium cost.May charge up to 102% of premium cost.

Duration of Continued Duration of Continued Coverage under COBRACoverage under COBRA

• Duration of continued coverage under COBRA:Duration of continued coverage under COBRA: • 18 months. 18 months. • 29 months if the terminated employee is disabled.29 months if the terminated employee is disabled.• 36 months for the employee’s former spouse and 36 months for the employee’s former spouse and

dependents when the qualifying event is the employee’s dependents when the qualifying event is the employee’s death or divorce (to include legal separation). death or divorce (to include legal separation).

• The maximum age for a dependent child to be eligible is The maximum age for a dependent child to be eligible is 18. Should a child reach that age within the 36-month 18. Should a child reach that age within the 36-month period, he or she is no longer covered.period, he or she is no longer covered.

Source: 29 U.S.C. § 1162(2)(A) et. seq.Source: 29 U.S.C. § 1162(2)(A) et. seq.

Health Care LegislationHealth Care Legislation

• HIPAAHIPAA ((HHealth ealth IInsurance nsurance PPortability and ortability and AAccountability ccountability AAct) Provides for employees ct) Provides for employees switching health coverage from one switching health coverage from one company to another regardless of pre-company to another regardless of pre-existing conditions.existing conditions.

Retirement BenefitsRetirement Benefits

• Social Security Act of 1935Social Security Act of 1935• Objectives:Objectives:

• Old age benefits (Medicare)Old age benefits (Medicare)• Survivors benefitsSurvivors benefits• Disability benefitsDisability benefits• Retirement benefitsRetirement benefits ( (xx = $1049.40/mo. in 2007) = $1049.40/mo. in 2007)

Source: Source: Social Security Administration (2007). Master Beneficiary Social Security Administration (2007). Master Beneficiary Record, 100 percent data. Record, 100 percent data. http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

Social SecuritySocial Security

• Year of BirthYear of Birth 1937 or earlier1937 or earlier1938 1938 1939 1939 1940 1940 1941 1941 194219421943 – 19541943 – 19541955 1955 195619561957 1957 19581958195919591960 or later1960 or later

• Full Retirement AgeFull Retirement Age656565 and 2 months 65 and 2 months 65 and 4 months 65 and 4 months 65 and 6 months 65 and 6 months 65 and 8 months 65 and 8 months 65 and 10 months 65 and 10 months 66 66 66 and 2 months66 and 2 months66 and 4 months66 and 4 months66 and 6 months66 and 6 months66 and 8 months66 and 8 months66 and 10 months66 and 10 months6767

Social SecuritySocial Security

• Social Security Act of 1935Social Security Act of 1935• Cost to employers (10.58%):Cost to employers (10.58%):

• Employer matches employee’s 7.65% Employer matches employee’s 7.65% contribution.contribution.

• FICA-M (Medicare tax) is 2.93%FICA-M (Medicare tax) is 2.93%• Eligibility for benefit:Eligibility for benefit:

• Must contribute a minimum amount (roughly Must contribute a minimum amount (roughly $500),$500),

• Minimum 40 quarters (10 years of work) of Minimum 40 quarters (10 years of work) of contribution.contribution.

Social SecuritySocial Security

• The Solvency of Social SecurityThe Solvency of Social Security• Around the year 2017 the fund actually Around the year 2017 the fund actually willwill begin begin

spending more than it takes in.spending more than it takes in.• During 2004, an estimated 157 million people had During 2004, an estimated 157 million people had

earnings covered by Social Security and paid payroll earnings covered by Social Security and paid payroll taxes. taxes.

• By the year 2041, according to the Congressional By the year 2041, according to the Congressional Budget Office, the trust fund will be depleted. Budget Office, the trust fund will be depleted.

• Source: Source: 2005 Trustees Report.2005 Trustees Report. SSA (March 23, 2004). SSA (March 23, 2004).

• In 1950, 16 workers paid into the system for every In 1950, 16 workers paid into the system for every beneficiary. In 2004, it was 3.3 workers. In 2034, it will beneficiary. In 2004, it was 3.3 workers. In 2034, it will be 2 workers.be 2 workers.

Retirement BenefitsRetirement Benefits

• Contributory arrangementsContributory arrangements• Contributory planContributory plan - - employemployeeee pays all or part of pays all or part of

the pension contribution.the pension contribution.• Noncontributory planNoncontributory plan - - employemployerer pays all of the pays all of the

pension contribution.pension contribution.

• Benefit arrangementsBenefit arrangements• Defined ContributionDefined Contribution - - a specific amount of a specific amount of

money is paid to the employee’s pension account money is paid to the employee’s pension account each pay period.each pay period.

Retirement BenefitsRetirement Benefits

• Benefit arrangementsBenefit arrangements• Defined benefitDefined benefit - - a guaranteed benefit a guaranteed benefit

arrangement is promised the employee based on arrangement is promised the employee based on age and service.age and service.

• Example: 2% for each year of service of the average Example: 2% for each year of service of the average salary of the highest three years of service upon salary of the highest three years of service upon reaching age 60.reaching age 60.

• Assume a 60 year-old employee with 23 years of Assume a 60 year-old employee with 23 years of service.service.

• Best three years: $28,000; 28,500; $28,700.Best three years: $28,000; 28,500; $28,700.

Retirement BenefitsRetirement Benefits

• Retirement BenefitsRetirement Benefits• Defined Benefit Pensions 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 BenefitsRetirement Benefits• PortabilityPortability – the ability to move ones pension – the ability to move ones pension

benefits form one employer to another.benefits form one employer to another.• TIAA/CREFTIAA/CREF

• Individual Retirement Accounts (IRA)Individual Retirement Accounts (IRA) – –tax deferred retirement program (funds are not tax deferred retirement program (funds are not taxed until drawn at retirement).taxed until drawn at retirement).

• 401(k) Plan401(k) Plan – employees may have up to – employees may have up to $12,000 of their salaries withheld in a special tax-$12,000 of their salaries withheld in a special tax-deferred retirement account.deferred retirement account.

• Keogh PlanKeogh Plan – a tax-deferred retirement program – a tax-deferred retirement program for self-employed individuals. The lesser of for self-employed individuals. The lesser of $40,000 or 100% of compensation. $40,000 or 100% of compensation.

Legal Requirements for Legal Requirements for Retirement BenefitsRetirement Benefits

• Employee Retirement Income Security Employee Retirement Income Security Act (ERISA) of 1974Act (ERISA) of 1974 Regulates defined Regulates defined benefit programs.benefit programs.• Participation requirements (who must be Participation requirements (who must be

covered).covered).• Vesting requirements ( how long the person Vesting requirements ( how long the person

must work to be entitled to the benefits).must work to be entitled to the benefits).• How much money the employer is required to How much money the employer is required to

se aside to fund the plan.se aside to fund the plan.

ERISA ERISA

• Plans must meet minimum funding Plans must meet minimum funding requirements.requirements.

• Employers must pay termination insurance Employers must pay termination insurance to ensure employee pensions will be there to ensure employee pensions will be there even if the company goes out of business.even if the company goes out of business.

• Accrued benefits must be given to Accrued benefits must be given to employees when they retire or leave.employees when they retire or leave.

Pension Protection ActPension Protection Act

• Pension Protection Act of 2006Pension Protection Act of 2006 – requires – requires employers who have underfunded their employers who have underfunded their pension plans to pay higher premiums to the pension plans to pay higher premiums to the Pension Benefit Guaranty Corporation Pension Benefit Guaranty Corporation (PBGC) and extends the requirement of (PBGC) and extends the requirement of providing extra funding to the pension providing extra funding to the pension systems of companies that terminate their systems of companies that terminate their pension plans. pension plans.

Insurance BenefitsInsurance Benefits

• Life insuranceLife insurance – usually pays 150% to 200% – usually pays 150% to 200% of the deceased employee’s annual salaryof the deceased employee’s annual salary

• Disability insuranceDisability insurance – provides income – provides income protection if employee is disabled and unable to protection if employee is disabled and unable to work.work.

• Short-term and long-term variants.Short-term and long-term variants.

• Long-term care insuranceLong-term care insurance - cover the costs of - cover the costs of long-term assisted-living.long-term assisted-living.

• Legal insuranceLegal insurance

Financial Services and Other Financial Services and Other BenefitsBenefits

• Financial BenefitsFinancial Benefits• Credit unionsCredit unions• Purchase discountsPurchase discounts• Stock-investment plansStock-investment plans

• Social & Recreational BenefitsSocial & Recreational Benefits• Sports teamsSports teams• Gymnasiums/weight roomsGymnasiums/weight rooms• Recreation centersRecreation centers

Educational BenefitsEducational Benefits

• Educational BenefitsEducational Benefits• Educational assistance Educational assistance • TuitionTuition• BooksBooks

Family and Medical LeaveFamily and Medical Leave

• Eligibility Requirements for FMLAEligibility Requirements for FMLA• Must work for a covered employer (private with 50+ Must work for a covered employer (private with 50+

employees, state governments and agencies, or the federal employees, state governments and agencies, or the federal government.government.

• Employee must have worked for at least 12 months for a Employee must have worked for at least 12 months for a covered employer.covered employer.

• Employee must have worked in excess of 1,250 hours to Employee must have worked in excess of 1,250 hours to be eligible. [156.25 work days, 31.25 work weeks]be eligible. [156.25 work days, 31.25 work weeks]

• Work at a facility Work at a facility with 50 or more employees who live with 50 or more employees who live within 75 mileswithin 75 miles of the place of employment. of the place of employment.

Benefits under FMLABenefits under FMLA

• 12 weeks 12 weeks unpaidunpaid leave. leave.• Employee must be allowed to return to Employee must be allowed to return to

his/her previous (or equivalent) job.his/her previous (or equivalent) job.• Employee is entitled to health insurance Employee is entitled to health insurance

coverage during the leave period.coverage during the leave period.

Qualifying Events for Qualifying Events for Family Medical LeaveFamily Medical Leave

• Qualifying events for FMLA benefits:Qualifying events for FMLA benefits:• ChildbirthChildbirth• AdoptionAdoption• FamilyFamily Serious Health Condition Serious Health Condition

• SpouseSpouse• ChildChild• ParentParent

• Personal Serious Health ConditionPersonal Serious Health Condition

• A 30-day advanced notice is required for A 30-day advanced notice is required for foreseeableforeseeable situations. situations.

Serious Health ConditionSerious Health Condition under FMLAunder FMLA

• Serious Health Condition:Serious Health Condition:• In-patient care.In-patient care.• Hospital care.Hospital care.• Hospice care.Hospice care.• Residential medical careResidential medical care• Continuing physician care.Continuing physician care.

Options under FMLAOptions under FMLA

• Employer Options:Employer Options:• Employer can require employees to use up Employer can require employees to use up all all

paid vacationpaid vacation, , personal leavepersonal leave, and , and paid sick paid sick leaveleave before taking the unpaid leave under the before taking the unpaid leave under the FMLA.FMLA.

Family-Oriented BenefitsFamily-Oriented Benefits

• Child careChild care• Referral services - assistance in locating day Referral services - assistance in locating day

care facilities.care facilities.• Subsidies - vouchers or discounts.Subsidies - vouchers or discounts.• Sick-child programs in hospitals.Sick-child programs in hospitals.• In-site child care.In-site child care.

• Elder careElder care

Family-Oriented BenefitsFamily-Oriented Benefits

• Domestic PartnersDomestic Partners• Domestic Partnership. Domestic Partners are two adults who Domestic Partnership. Domestic Partners are two adults who

have chosen to share one another's lives in an intimate and have chosen to share one another's lives in an intimate and committed relationship of mutual caring, who live together, committed relationship of mutual caring, who live together, and who have agreed to be jointly responsible for basic living and who have agreed to be jointly responsible for basic living expenses incurred during the Domestic Partnership. They expenses incurred during the Domestic Partnership. They must sign a Declaration of Domestic Partnership, and must sign a Declaration of Domestic Partnership, and establish the partnership under Section 62.3 of this chapter.establish the partnership under Section 62.3 of this chapter.

San Francisco Administrative Code § 62.2. San Francisco Administrative Code § 62.2.

• Benefits for Benefits for domestic partnersdomestic partners or or spousal equivalentsspousal equivalents (unmarried partners).(unmarried partners).

Domestic PartnersDomestic Partners

• Effective June 1, 1997, Chapter 12B of the San Francisco Effective June 1, 1997, Chapter 12B of the San Francisco Administrative Code was amended to prohibit the City and Administrative Code was amended to prohibit the City and County of San Francisco from entering into contracts or County of San Francisco from entering into contracts or leases with any entity that discriminates in the provision of leases with any entity that discriminates in the provision of benefits between employees with domestic partners and benefits between employees with domestic partners and employees with spouses, and/or between the domestic employees with spouses, and/or between the domestic partners and spouses of employees.partners and spouses of employees.

• Entities recognizing homosexual domestic partners:Entities recognizing homosexual domestic partners:• San Francisco - mandatorySan Francisco - mandatory• States of HI, VT, MA – mandatoryStates of HI, VT, MA – mandatory• Disney – voluntaryDisney – voluntary

Time-Off BenefitsTime-Off Benefits

• Holiday payHoliday pay• Vacation PayVacation Pay• Paid Leaves of AbsencePaid Leaves of Absence

• Paternity/maternity leavePaternity/maternity leave

• Paid and Unpaid Medical & Sick LeavePaid and Unpaid Medical & Sick Leave• Well-payWell-pay (extra pay for not using sick pay)(extra pay for not using sick pay)• Other LeaveOther Leave

• MilitaryMilitary• ElectionElection• Jury dutyJury duty

ProposedProposed Government- Government-Mandated BenefitsMandated Benefits

• Universal health-care benefits for all workers.Universal health-care benefits for all workers.

• Child-care assistance.Child-care assistance.

• Pension coverage that can be transferred by Pension coverage that can be transferred by workers who change jobs.workers who change jobs.

• Core benefits for part-time workers working at Core benefits for part-time workers working at least 500 hours (12.5 weeks) per year.least 500 hours (12.5 weeks) per year.

• Paid time off for family leave.Paid time off for family leave.