Employee Benefits Why benefits? Types of benefits Legally required benefits Security and retirement benefits Health coverage Time off work Employee services
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