11
© 2010 South-Western, a part of Cengage Learning
All rights reserved.
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Chapter Objectives
After studying this chapter, you should be able to
Describe the characteristics of a sound benefits
program.
Indicate management concerns about the costs
of employee benefits and discuss ways to control
those costs.
Identify and explain the employee benefits
required by law.
Discuss suggested ways to control the costs of
health care programs.
Describe benefits that involve payment for time
not worked.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–2
Chapter Objectives (cont’d)
After studying this chapter, you should be able to
Discuss the recent trends in retirement policies
and programs.
Indicate the major factors involved in the
management of pension plans.
Describe the types of work/life benefits that
employers may provide.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–3
Requirements for a Sound Benefits Program
Strategic
Benefits
Planning
Communicating
Employee Benefits
Information
Providing
for
Flexibility
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Allowing for
Employee
Involvement
Benefits for a
Diverse
Workforce
11–4
The Chief Objectives of Benefits Programs
• Improve employee work satisfaction
• Meet employee health and security
requirements
• Attract and motivate employees
• Reduce turnover
• Maintain a favorable competitive position
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11–5
Providing for Flexibility
• Flexible Benefits Plans (Cafeteria Plans)
 Benefit plans that enable individual employees to
choose the benefits that are best suited to their
particular needs.

A basic or core benefits package of life and health insurance,
sick leave, and vacation ensures that employees have a
minimum level of coverage.

Employees use “credits” to “buy” whatever other benefits
they need.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–6
FIGURE
11.1
Flexible Benefits Plans: Advantages and Disadvantages
ADVANTAGES
• Employees select benefits to match their individual needs.
• Benefit selections adapt to a constantly changing (diversified) workforce.
• Employees gain greater understanding of the benefits offered to them and the costs
incurred.
• Employers maximize the psychological value of their benefits program by paying only
for highly desired benefits.
• Employers limit benefit costs by allowing employees to “buy” benefits only up to a
maximum (defined) amount.
• Employers gain a competitive advantage in the recruiting and retention of employees.
DISADVANTAGES
• Poor employee benefits selection results in unwanted financial costs.
• There are certain added costs to establishing and maintaining the flexible plan.
• Employees may choose benefits of high use to them that increase employer
premium costs.
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11–7
Communicating Benefits Information
• In-house publications (employee handbooks and
organizational newsletters)
• Group meeting and training classes
• Audiocassettes/videotapes
• Bulletin boards
• Payroll inserts/pay stub messages
• Specialty brochures
• Employee self-service systems (ESS)
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11–8
1
Crafting an Effective Benefits Communication Program
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11–9
2
A Personalized Statement of Benefits Costs
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11–10
Benefits Issues
Concerns of Management
Union demands for additional benefits
Benefits offered by other employees
Tax consequences of benefits
Rising costs of providing benefits
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11–11
Concerns of Management
• The High Cost of Providing Benefits
 According to a 2007 U.S. Chamber of Commerce study, the cost
of employee benefits averaged 42.7 percent of payroll.
 The average distribution of these benefits was $21,527 per
employee per year.
• Shifting Benefit Costs to Employees
 Shared Responsibility

Employers to require employees to pay part of the costs of certain
benefits (e.g., copayments or higher deductibles), especially
medical coverage.

Employees are paying a larger part of their retirement programs
through contributory pension plans or 401(k) saving plans.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–12
Types of Employee Benefits
Required By Law
Discretionary
Social Security
Health care
Unemployment Insurance
Payment for time not worked
Workers’ Compensation
Supplemental
Unemployment Benefits
Unpaid leave (FMLA)
Life and LT care insurance
Retirements and pensions
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–13
Social Security Insurance
Social Security Act (1935)
A payroll tax on both employees and employers
Old Age and Survivors Insurance (OASI)
Provides long-term disability benefits
Must work 40 quarters in an occupation
covered by Act to qualify for benefits
Benefits paid are determined by an
individual’s life-time earnings
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–14
Unemployment Insurance
• Federal payroll tax on employer and employee
 Tax is refunded to states which individually
administer unemployment compensation programs.
 Benefit weekly amounts vary from state to state.
 Involuntarily unemployed workers are eligible for
up to 26 weeks of unemployment benefits.
 Benefit is based on an employee’s recent earnings.
 Unemployed workers are required to seek “suitable
employment.”
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–15
Workers’ Compensation Insurance
• Federal- or state-mandated insurance
 Funded by an employer payroll tax
 Provided to workers to defray the loss of income
and cost of treatment due to work-related injuries
or illness.
 Factors influencing the employer’s insurance rate:

The risk of injury or illness for an occupation

Each state’s level of benefits for injuries sustained by
employees varies.

The company’s frequency and severity of employee injuries
(the company’s experience rating).
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–16
Workers’ Compensation Insurance
Injury is a cost of doing business
Covers Employers
Covers Employees
Assumed employment risk
Cost of injury
Negligent co-workers
Temporary, Permanent,
Partial or Total Disability
Contributory negligence
Survivor’s Insurance
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–17
Extension and Portability of Health Coverage
• The Consolidated Omnibus Budget Reconciliation Act of
1986 (COBRA)
 Mandates that employers make health coverage—at the same
rate the employer would pay—available to employees, their
spouses, and their dependents on termination of employment,
death, or divorce.
 The coverage must be offered for between 18 and 36 months
depending on qualifying guidelines.
• Health Insurance Portability and Accountability Act
(HIPAA) of 1996
 Grants employees the right to switch medical insurance
between former and present employers with no gap in
coverage regardless of preexisting health condition once the
employees have earned twelve service credits at the former
employee
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–18
The Family and Medical Leave Act (FMLA)
• Provisions:
 An employer must grant an eligible employee up to
12 workweeks of unpaid leave in a 12-month period
for the following reasons:




Birth of and care for a newborn child.
Adoption or foster care placement of a child.
Care for an immediate family member
Serious health condition of the employee.
 Employees retain their health benefits and have the
right to return to their job or an “equivalent job.”
 Those caring for service members are entitled to up
to 26 weeks of leave,
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–19
4
“Your Rights”:
Another
Federally
Required
Poster
Note: Other federally required
posters are reproduced in
Chapters 3, 9, and 12.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–20
The Older Workers Benefit Protection Act
• Older Workers Benefit Protection Act (OWBPA)
 Prohibits age-based discrimination in early
retirement and other benefit plans by imposing
strict guidelines on employers who seek to have
employees sign release forms waiving their right to
pursue age discrimination claims under the ADEA.

The waiver must be voluntary and written in a manner that is
understandable to the parties involved.

Employees have the right to consult with an attorney before
signing the waiver.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–21
Healthcare Cost Containment
• Health Maintenance Organizations (HMOs)
 Organizations of physicians and health-care
professionals that provide a wide range of services
to subscribers and dependents on a prepaid basis.
• Preferred Provider Organization (PPO)
 Is a group of physicians establish an organization
that guarantees lower healthcare costs to the
employer.
 Allows employees to select their doctor of choice
from a list of participating physicians.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–22
Cost Containment (cont’d)
• Consumer-Driven Health Plan (CDHP)
 Is a high-deductible medical insurance plan
financed by employer contributions to an
employee’s limited individual healthcare spending
account
 Also known as:





Defined-contribution health plans
Medical savings accounts (MSAs)
Health savings accounts (HSAs)
Flexible spending accounts (FSAs)
Health reimbursement accounts (HRAs).
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–23
5
Employer Methods for Containing Health Care Costs
• Preadmission certification for surgical procedures
• Financial incentives for outpatient surgery and testing
• Mail-order prescription drug program and medical drug discount cards
• Mandatory second opinions for surgical procedures
• Alternative approaches to health care treatment such as herbal therapy or homeopathy
• Educational programs encouraging health care consumers to assume more responsibility and
accountability for the cost and quality of their health care
• Promoting Web sites or printed materials that list common conditions, treatment, drug prices, and
effectiveness
• Implementation of step therapy programs
• Multitier hospital coverage networks that allow employees to choose from a variety of hospitals with
small, moderate, and steep copayments at the point of service
• Use of variable copayments (for example, $10 for physician and $25 for specialists)
• Consolidation of health care plans offered by employers
• Requiring employees to pay an additional cost if a working spouse refuses coverage from his or her
employer
• Customized health care benefits design allowing employees to purchase riders to increase the level of
benefits provided
• Promotion of wellness and employee assistance programs
• Automated benefits functions
• Dependent audits to rid benefit rolls of ineligibles
• Implementation of a disease management program
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–24
Domestic Partner Benefits
• Domestic Partner (Apple Computer)
 A person over age 18 who shares living quarters with
another adult in an exclusive, committed
relationship in which the partners are responsible
for each other’s common welfare.
• A standard definition of domestic partnership
contains the following:
 A minimum age requirement
 A requirement that the couple live together
 A specification of financial interdependence
 A requirement that relationship be a permanent one
 A requirement that each not be a blood relative
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–25
Payment for Time Not Worked
Vacations with pay
Severance pay
Time Not
Worked
Paid holidays
Sick leave
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11–26
Other Discretionary Benefits
• Supplemental Unemployment Benefits (SUBs)
 A plan that enables an employee who is laid off to
draw, in addition to unemployment compensation,
weekly benefits from the employer that are paid
from a fund created for this purpose.
 SUB benefits are considered deferred compensation
and not current earnings.
 The fund is derived from employer contributions
based on the total hours of work performed by
employees.
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11–27
Retirement Programs
• Silver Handshake
 An early-retirement incentive in the form of
increased pension benefits for several years or a
cash bonus.
• Preretirement Programs
 Counseling
 Seminars
 Workshops
 Retirement tryouts
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11–28
FIGURE
11.2
Trends Affecting Retirement
• The number of people age 65 and older tripled to about 34 million between 1940 and
1995.
• According to U.S. census projections, people age 65 and older are expected to number
86 million by 2050, an increase of 51 million since 2000.
• In 1960, 45.4 percent of male workers over age 65 were still in the labor force; in 1990,
only 27.4 percent were still working. While the labor force participation rates of women
between ages 55 and 64 have been rising, further increases are not expected.
• Eight baby boomers turn 50 every ten minutes.
• The U.S. net national savings rate was relatively stable at about 7 percent of GDP from
1951 to 1980. It has collapsed since 1980, most recently dropping to less than 1 percent
of GDP.
• In 1900, the average life expectancy in the U.S. was 48; today, it is 80 for women and 75
for men. Virtually all of these gains can be attributed to improvements in public health and
safety, such as clean water, refrigeration, seat belts, and routine vaccinations.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–29
Types of Pension Plans
• Contributory plan
 Contributions to a
plan are made jointly
by employees and
employers.
• Noncontributory plan
 Contributions to a
plan are made solely
by the employer.
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• Defined-benefit plan
 The amount an
employee is to receive
upon retirement is
specifically set forth.
• Defined-contribution
plan
 The basis (amount) an
employer contributes
to the pension fund is
specified.
11–30
Contemporary Pension Plan Options
• 401(k) Savings Plans • Cash-Balance Pension
Plans
 A tax-deferred
savings plan.
 Employees save
through payroll
deductions.
 Employers may
match a portion of
employee savings.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
 Employer contributes a
percentage of employee’s
pay each year.
 Account balance earns
interest each year.
 Experts predict it will
replace traditional
pension plans.
11–31
Federal Regulation of Pension Plans
• Employee Retirement Income Security Act (ERISA)
 Private pension plans are subject to ERISA
regulations that provides standards and
controls for pension plans:

Plans must comply IRS tax standards to qualify.

Plans must meet actuarial standards to qualify for
Pension Benefit Guarantee (PBGC) insurance.

Plans must meet Department of Labor standards
for treatment of plan participants.
© 2010 South-Western, a part of Cengage Learning. All rights reserved.
11–32
Federal Regulation of Pension Plans
• Vesting
 A guarantee of accrued benefits to participants at
retirement age, regardless of their employment
status at that time.
 ERISA requires that plans must provide that
employees will have vested rights in their accrued
benefits after certain minimum-years-of-service
requirements have been met.
• Pension Plans and Underfunding
 Inadequate funds to cover retirement obligations
along with pension plan failures could overwhelm
the PBGC.
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11–33
Employee Services
• Employee Assistance Programs (EAPs)
 Services provided by employers to help workers
cope with a wide variety of problems that interfere
with the way they perform their jobs.

Typically provide diagnosis, counseling, and referral for
advice or treatment for problems related to alcohol or drug
abuse, emotional difficulties, and financial or family
difficulties.
• Child and Elder Care
 Care provided to a child or an elderly relative by an
employee who remains actively at work.
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11–34
FIGURE
11.3
Work/Life Benefits: Balancing Work and Home Needs
• Child care/elder care referral services
• Time off for children’s school activities
• Employer-paid on-site or near-site child care facilities
• Flexible work hours scheduling
• Health club and wellness programs
• Employer-accumulated leave days for dependent care
• Customized training programs
• Subsidized temporary or emergency dependent care costs
• Extended leave policies for child/elder care
• Educational reimbursement
• Sick-child programs (caregiver on call)
• Work-at-home arrangements/telecommuting
• Partial funding of child care costs
• Customized career paths
• Part-time work schedules
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11–35
Other Benefits and Services
Awards
Recreational and
Social
Food Services
On-Site Health
Services
Credit Unions
Legal Services
Purchasing
Assistance
Transportation
Pooling
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Financial
Planning
Housing and
Moving
11–36
consumer-driven health plan
contributory plan
defined benefit plan
defined contribution plan
elder care
employee assistance programs
(EAPs)
flexible benefits plans
(cafeteria plans)
health maintenance organizations
(HMOs)
noncontributory plan
preferred provider organizations
(PPOs)
silver handshake
supplemental unemployment
benefits (SUBs)
vesting
workers’ compensation insurance
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11–37