13 Chapter Employee Benefits Objectives Irwin/McGraw-Hill • Discuss the growth in benefits costs and the underlying reasons for that growth • Explain the major provisions of employee benefits programs • Explain how employee benefits in the U.S compare with those in other countries • Explain the importance of effectively communicating the nature and value of benefits to employees • Describe the regulatory constraints that affect the way employee benefits are designed and administered © The McGraw-Hill Companies, Employee Benefits: Unique Aspects 13-2   LegalCompliance Compliance Legal Tendto tobecome becomeinstitutionalized institutionalized Tend   Complexity Complexity   Irwin/McGraw-Hill © The McGraw-Hill Companies, Growth of Employee Benefits: Percentage of Wages and Salaries 13-3 Percentage 41.3 41.3 40% 37.9 35.5 36.7 30.0 30% 21.5 20% 17.0 10% 3.0 1929 Irwin/McGraw-Hill 55 65 75 86 88 90 93 © The McGraw-Hill Companies, Reasons for benefits Growth 13-4      New New Deal Deal legislation legislation Wage Wage and and price price controls controls -WW -WW IIII Favorable Favorable tax tax treatment treatment Cost Cost advantages advantages of of group group purchases purchases Negotiation Negotiation objective objective of of unions unions Irwin/McGraw-Hill © The McGraw-Hill Companies, Benefits Programs 13-5 • Social insurance • Private group insurance • Retirement • Pay for time not worked Irwin/McGraw-Hill © The McGraw-Hill Companies, Social Insurance (legally required) 13-6 SocialSecurity Security Social About8% 8%employer employerand andemployee employeetax taxon onwages wages About AdditionalMedicaid Medicaidtax taxof of1.45% 1.45% Additional Alsoincludes includesdependent dependentcoverage coverageand andLong-term Long-termDisability Disability Also UnemploymentCompensation Compensation Unemployment Taxon onemployers employersbased basedon onuse use Tax Eligibility:work work11year year not noton onstrike, strike,quit quitor orfired firedfor forcause cause Eligibility: WorkersCompensation Compensation Workers Disability,medicalcare, care,death deathbenefit benefit& &rehabilitation rehabilitation Disability,medical 2/3of ofearnings earningsare aretax taxfree free 2/3 Basedon onrisk riskand andexperience experiencerating rating Based Irwin/McGraw-Hill © The McGraw-Hill Companies, Private Group Insurance 13-7    Life Life Health most most offer offer Health COBRA provides provides continuation continuation of of health health  COBRA insurance up up to to 36 36 months months insurance Disability short short and and long long term term Disability Irwin/McGraw-Hill © The McGraw-Hill Companies, Retirement 13-8   Defined Benefit Benefit v v Defined Defined Defined Contribution Contribution ERISA (1974) (1974) ERISA funding  funding vesting  vesting communication  communication portability  portability Irwin/McGraw-Hill © The McGraw-Hill Companies, Value of Savings at Age 65 for Different Portfolios 13-9 Value of Savings at 65 (Millions of Dollars) 1.00 $837,434 0.75 It pays to save early and take some risk Investment portfolio (60% stocks, 30% bonds, 10% cash) 0.50 Investment portfolio of 100% cash(money market ) $357,003 0.25 $214,957 $128,253 21-29 Irwin/McGraw-Hill 31-39 21-29 31-39 © The McGraw-Hill Companies, Payment For Time Not Worked 13-10     Vacations not not mandated mandated Vacations usually 10 10 days days per per year year in in U.S U.S  usually 30 days days mandatory mandatory in in Europe Europe  30 Holidays Holidays Family and and Medical Medical Leave Leave Act Act of of Family 1993 1993 Sick leave leave Sick Irwin/McGraw-Hill © The McGraw-Hill Companies, 13-11 Normal Annual Hours Worked in Manufacturing Relative to the U.S Annual Hours Does this account for competitive differences between Pacific Rim countries and Europe? 168 150 - 150 -141 Japan Irwin/McGraw-Hill U.S Source: World Report 1994 France -245 Germany © The McGraw-Hill Companies, Family-Friendly Policies 13-12  Family and Medical Leave  Pregnancy Discrimination Act of 1978  Child Care Irwin/McGraw-Hill © The McGraw-Hill Companies, Managing Benefits 13-13      Surveys and and Benchmarks Benchmarks Surveys Cost controls controls Cost Managed Care Care Managed Coinsurance Coinsurance Use of of HMOs HMOs and and PPOs PPOs Use Employee wellness wellness programs programs Employee Workforce Demographics Demographics Workforce Communicating with with employees employees Communicating Flexible Benefit Benefit (Cafeteria) (Cafeteria) Plans Plans Flexible Irwin/McGraw-Hill © The McGraw-Hill Companies, 13-14 Employee Wellness Programs Effort to raise overall health levels of all employees Two types of programs: •Passive •emphasis on building awareness •people identify own problems & take action •physical fitness facility program •Active •emphasis on reinforcement & support •example: outreach and follow-up model Irwin/McGraw-Hill © The McGraw-Hill Companies, Flexible Benefits (Cafeteria) Plans 13-15 Advantages Advantages    more appreciation appreciation of of benefits benefits offered offered more better match match between between benefits benefits and and better employee preference preference employee cost reduction reduction to to employee employee cost Disadvantages Disadvantages  increased design design and and start-up start-up costst-up costst-up increased costs costs Irwin/McGraw-Hill © The McGraw-Hill Companies, General Regulatory Issues 13-16 • Nondiscriminatory rules and qualified plans • Sex, age, and disability • Monitoring future benefits obligations Irwin/McGraw-Hill © The McGraw-Hill Companies, [...]... •example: outreach and follow-up model Irwin/McGraw-Hill © The McGraw-Hill Companies, Flexible Benefits (Cafeteria) Plans 13-15 Advantages Advantages    more appreciation appreciation of of benefits benefits offered offered more better match match between between benefits benefits and and better employee preference preference employee cost reduction reduction to to employee employee cost Disadvantages...13-11 Normal Annual Hours Worked in Manufacturing Relative to the U.S Annual Hours Does this account for competitive differences between Pacific Rim countries and Europe? 168 150 - 150 -141 Japan Irwin/McGraw-Hill U.S Source: World Report 1994 France -245 Germany © The McGraw-Hill Companies, Family-Friendly Policies 13-12  Family and Medical Leave  Pregnancy Discrimination Act of 1978  Child Care Irwin/McGraw-Hill... employee employee cost Disadvantages Disadvantages  increased design design and and start-up start-up costst-up costst-up increased costs costs Irwin/McGraw-Hill © The McGraw-Hill Companies, General Regulatory Issues 13-16 • Nondiscriminatory rules and qualified plans • Sex, age, and disability • Monitoring future benefits obligations Irwin/McGraw-Hill © The McGraw-Hill Companies, ... employees Communicating Flexible Benefit Benefit (Cafeteria) (Cafeteria) Plans Plans Flexible Irwin/McGraw-Hill © The McGraw-Hill Companies, 13-14 Employee Wellness Programs Effort to raise overall health levels of all employees Two types of programs: •Passive •emphasis on building awareness •people identify own problems & take action •physical fitness facility program •Active •emphasis on reinforcement... Child Care Irwin/McGraw-Hill © The McGraw-Hill Companies, Managing Benefits 13-13      Surveys and and Benchmarks Benchmarks Surveys Cost controls controls Cost Managed Care Care Managed Coinsurance Coinsurance Use of of HMOs HMOs and and PPOs PPOs Use Employee wellness wellness programs programs Employee Workforce Demographics Demographics Workforce Communicating with with employees