Benefits Key Terms
TCHRA PHR and SPHR Preparation Course
















ADEA- Age Discrimination Employment Act. Cannot discriminate at age 40 and above.
Prohibits terminating benefit coverage for older employees (except top executives) but
can reduce life and disability benefits based on age.
Cliff vesting- vesting schedule requiring participants to work a number of years before
receiving any benefits. Typically 0% vesting until year 3 and then 100% vesting.
COBRA- Consolidated Omnibus Budget Reconciliation Act. Provides for health care
continuation for employees who have coverage and lose it due to a qualifying event
such as termination (voluntary or involuntary), layoff, death, divorce, age attainment of
dependents, or military service. Note time frames for each.
Consumer directed health care- health care options to assist in controlling costs while
allowing employees to make more decisions regarding their health care.
Coordination of benefits- eliminate duplicate payments when the employee has
coverage under multiple plans.
Copayment- Typical percentage of covered medical expenses that employees pays or
fixed dollar amount that covered person pays each time they use medical services or
gets a prescription.
Deductible- initial amount of covered amount of medical expenses person pays before
insurance coverage.
Deferred compensation- plan providing delayed compensation for work performed
Defined benefit plan- plan that promises employee a retirement benefit amount based
on a formula. Employer must maintain funding to insure monies available in the future.
(Traditional pension plan)
Defined contribution plan- Plan in which the employer and often the employee
contributes to retirement making an annual payment into the retirement plan.
Employee is at risk for investment and performance. Employer obligation is fulfilled
after contribution is made (401k, 403b plans)
ERISA- Employee Retirement Income Security Act. Act establishing minimum standards
for employer sponsored benefit plans including retirement, but also covers health care,
dental, disability and life insurance plans
ESOP- Employee stock ownership plan- stock plan structured as a form of ERISA
governed qualified retirement plan.
Excess deferral- nonqualified deferred plan providing benefits to select group of
executives beyond Section 414 limitations
FMLA- Family Medical Leave Act- federal law provides up to 12 weeks of unpaid leave
for employee or IMMEDIATE family member (spouse, child, adopted child, parents)
does not include siblings, grandparents, uncle/aunt, etc except under in loco parentis to
deal with serious health condition. Guarantees treatment as employee and
same/equivalent job back.
FASB Financial Accounting Standards Board- private, not for profit Board that governs
treatment expenses and financial statements used by accountants for publicly traded
organizations.
529 plan- Qualified tuition savings plan for families to save on tax free basis
(contributions are made post tax but earnings are tax free)





















Flexible spending account- type of Section 125 plan that allows employees to contribute
to health care premiums, non reimbursed health care expenses ($2500 annual
maximum and $5000 child care annual maximum)
401(k) plan- Pretax pay deferral allowing employees to contribute to retirement
403(b) plan- same as 401k plan but used for tax-exempt organizations
457 plan- Plans for public sector employees of state, counties and cities to defer receipt
of wages
Full cafeteria plan- falls under Section 125 and allows employees to select among
benefit plans to choose benefits most meaningful
Fully insured health care plan- Employer pays a third party insurance plan to cover
medical claims, administrative costs, commissions and full risk.
GINA- Genetic Information Nondiscrimination Act. Prohibits employment decisions
based on genetic information. Significant issue for employment physical exams, health
history and wellness programs.
Golden handcuffs- retention vehicle using short and long-term incentive payments of
deferred compensation to retain executives.
Golden parachute- clause written into executive contract providing payments to key
executives who lose their jobs due to merger, acquisition, change of control, etc.
Graded vesting- system in a qualified retirement plan in which vesting occurs over a
period of years. (20% after three years of service, 20% each year after and 100% upon
completion of six years of service)
Group term life insurance- life insurance sponsored by employers providing a lump sum
benefit to beneficiaries
HIPAA- Health Insurance Portability and Accountability Act. Act that made changes to
improve health care coverage portable (from one job to the next) and provides medical
record privacy and security
Health insurance purchasing cooperative- group of employers pooling efforts to
purchase health care at discounts
HMO- Health Maintenance Organization- form of health care in which services are
provided for fixed period of time on a prepaid basis
HRA- Health Reimbursement Account- EMPLOYER FUNDED ONLY health plan that
reimburses employees for health care expenses
HSA – Health Savings Account similar to an IRA in which the EMPLOYEE and EMPLOYER
may contribute. HSA plans are portable and may be carried after the employee leaves
the employer
Highly compensated employee- IRS rule regarding amount of contribution that may be
made- varies by plan and officer/owner status
In loco parentis- Latin for “In place of parent”. In some cases, allows expansion of FMLA
coverage to include persons who provide day to day responsibilities to care for and
financially support a child.
Indemnity health care plans-full choice health care in which covered person has
freedom to see any health care provider without prior authorization. Also known as a
fee for service health care plan
Indirect compensation- Non cash compensation such as benefits
IRA- tax deferred accounts in which persons may contribute an amount to a yearly
maximum. Pre tax basis.
2






















International social security agreements (aka Totalization agreements) Social security
agreements with foreign government to avoid double payment of social security. Used
with expats
Involuntary deductions- payroll deductions such as wage garnishments, child support
and tax levies that employees must pay
Lifetime maximum benefit- Maximum out of pocket dollar amounts during persons
lifetime. Under Health Care Reform Act, this is currently not allowed.
Long term care insurance- insurance to provide coverage for persons requiring assisted
living, nursing homes, in home nursing, etc.
Long term disability- Replaces lost income due to injury or illness. Work related injuries
and illness are covered under workers compensation but could be also covered under
long term disability insurance.
Managed care- medical treatment plans coordinated by a provider to insure proper care
and cost effective treatment
Medicare- federal government program under Social Security Administration to address
medical care after age 65
Medicare carve out- type of plan in which benefits are reduced for employee who are
eligible for Medicare. Medicare is primary payer and then claim is reprocessed
Mental Health Parity Act- requires employer plans that cover mental health or chemical
dependency coverage to treat claims the same as other medical and surgical plans
(same copayments, deductible and other limits)
Modified duty program- also known as light duty- allows employee to return to work as
quickly as possible. Job tasks are reduced to accommodate restrictions.
Money purchase plan- Plans in which employers make payments based on a fixed
percentage of eligible employees compensation to a retirement plan
Non-duplication of benefits- health care plan in which a secondary carrier (see
coordination of benefits) to reimburse only up to the level of reimbursement the
primary carrier would have paid
Non-qualified deferred compensation- Income deferral benefit offered to select group
of executives or highly compensated managers
Older Worker Benefit Protection Act- Act that amended ADEA to include all employee
benefits, requires employers who terminate employees at age 40 and above with time
to consider severance documents and consult with an attorney
Out of pocket maximum- Amount the insured employee can pay for medical costs in a
12 month period before copayments end
Paid time off bank- bank of time combining vacation and sick leave that the employee
can use for personal time off.
Parachutes- see golden parachutes
PBGC- Pension Benefit Guaranty Corporation- mandated insurance for DEFINED BENEFIT
pension plans sponsored by the federal government
Pension Protection Act- 2005 law that accelerated retirement vesting for defined
contributions and allowed employers to automatically enroll employees into DC plans.
Perquisites- additional programs or benefits provided to executives or key employees,
generally provided in noncash
Point of service organization- Combination of PPO and HMO- direct access to specialists
Preexisting condition- Medical conditions that existed before a health care policy is
obtained
3






















PPO- preferred Provider Organization- negotiated rates with a group of providers to
offer services at a reduced rate
POP- Premium only Plan- a type of Section 125 plan that allows employees to pay for
health care expenses with pre-tax dollars.
Profit sharing plan- plans that distribute a portion of organizations profits to employees
(Note- technically the organization does not need a profit to make a distribution)
Qualified plan- meets ERISA and IRS standards to allow employer to make an immediate
tax deduction for payment or plan offering
Qualified domestic relations orders- court order to allow an alternate payee (former
spouse) to receive some or all of retirement benefits
Qualifying event- under COBRA, an event such as termination, layoff, marriage, divorce,
loss of coverage, etc. allows employee to continue coverage. Also, a qualifying event
may allow an employee to add coverage such as birth, spouse loss of job, spouse loss of
health care, retirement, etc.
Rabbi trust- private letter ruling allowing employer to segregate nonqualified deferred
compensation from employer’s general assets.
Reasonable and customary- reimbursement standard used by insurance companies to
determine how much providers should be paid for services. Based on procedure and
geographic area
Roth 401(k)/403(b) plans- plans allowing after tax contributions to existing 401k and
403b plans
Roth IRA- contributions made with after tax dollars, investment earnings are tax free
Serious Health Condition- requires employee incapacity for more than three calendar
days plus two visits to a health care provider
SOX- Sarbanes Oxley Act. Requires administrators of defined contribution plans to
establish financial controls, blackout periods to avoid trading of stock during certain
periods and whistleblower protection for employees
SIMPLE Plan- a form of employer sponsored IRA in which all employees are treated the
same and matching is automatic. No discrimination testing is needed.
Section 125 plans- Tax free contribution toward certain medical and dependent care
expenses with qualified plans.
SEC- Securities and Exchange Commission. Regulates stock grants such as stock options,
restricted stock, blackout periods for executive trading of stock, company disclosure of
key events or executive compensation programs in publicly traded organizations.
SEP Simplified Employee Pension- tax deferred account in which self employed
individuals or employees of very small companies can contribute to retirement
Severance- supplement compensation or benefits provided to a laid off or terminated
employee. May include cash, benefits, outplacement services
Short term disability- replaces all or some of employees income when unable to work
due to illness or injury
Social Security- Federal program providing retirement, disability, death and survivor
benefits
Stop loss coverage- insurance policy for employers using self insured funding. Caps
liability on individual and total group claims
Supplemental unemployment benefits- federal government program that provides
states with additional funding during periods of high unemployment
Top hat plan- nonqualified deferred compensation program providing retirement
benefits to executives
4










Total rewards- combined compensation of direct and indirect compensation
Totalization agreements- security agreements with foreign government to avoid double
payment of social security. Used with expats
Unemployment compensation- state program providing income to persons who have
lost their jobs through no fault of their own
USERRA- Uniformed Services Employment and Reemployment Rights Act- Act that
protects employment, reemployment and retention rights for persons who voluntarily
or involuntarily serve in the armed forces. Provides for additional pension and paid time
off vesting which serving in the military.
Utilization review- audit of health care use and changes to insure costs are in line and
services are necessary.
Vesting- process by which a retirement plan in non-forfeitable. May also apply to paid
time off benefits
Voluntary deductions- payroll deductions selected by employees for health care,
charitable contributions, supplemental benefits etc.
Work opportunity tax credit- tax credit provided to employers for hiring difficult to place
individuals. Examples may include physically and mentally challenged individuals.
Work related disability- physical condition that is caused, aggravated, precipitated or
accelerated by work activity or the work environment.
Workers compensation- state insurance program designed to protect employees from
work related injury or illness. Covers lost income and medical expenses.
5