A10 - EE Benefits: Key Feature of Total Rewards Flashcards
1
Q
EE Benefit Categories
A
- legally required pmts
- old-age, survivors, disability, healthe ins. (ER FICA taxes) and railroad retirement
- UnN comp
- WC
- State sickness benefits ins.
- retirement and savings plans pmts
- DB pension plan contribs.
- DC play pmts (401K)
- profit pmts
- stk bonus and ESOPs
- pension plan premiums (net) under ins. and annuity contracts (insured and trustee)
- life ins. and death benefits
- med. and med-related benefit pmts
- hospital, surgical, med., major med ins. premiums
- retiree hospital, surgical, med., major med ins. premiums
- STD, sickness or accidnet ins.
- LTD, or wage continuation
- dental
- other (vision, physical/mental fitness,)
- paid rest periods, coffee breaks, lunch periods, washup time, travel, clothes-chg, get-ready time, etc…
- pmts for time not worked
- vac, holiday, sick, parental leave, other
- misc. benefit pmts
- disc. on goods and services purchased from company by EEs
- EE meals furnished by company
- EE educ. expenditures
- child care
- other
*
2
Q
WC
A
- form of no-fault ins.
- EEs are eligible even in their actions caused the accident
- covers injuries and diseases that arise out of, and while in, the course of employment
- covered by state laws
- Benefits: (vary from state to state)
- med. care for work-related injuries, beginning right after the accident
- temp. disability benefits after 3-7 day waiting period
- perm. partial and perm. total disability benefits for lasting consequences of diabilities on the job
- survivor benefits
- rehab. and training in most states, for those unable to return to their prior career
3
Q
Social Security Act
changes since 1935 inactment
A
- 1939: survivor’s ins. was aded to provide monthly life ins. pmts to the widow and dep. kids of a deceased worker
- 1950-1954: old-age and survivor’s ins. was broadened
- 1956: disability ins. benef. were provided to workers and deps. of such EEs
- 1965: med. ins. protection (medicare) was provided to the aged and later (1973) the disabled under the age of 65
- 1972: a cost-of-living escalator tied to the CPI guaranteed higher future benefits for all beneficiaries
- 1974: existing state programs of fin. assistance to the aged, blind, and disabled were replaced by supplemental security income (SSI) admin’d by the Social Security Admin.
- 1983: Eff. in 1984, all new civilian fed’l EEs were cov’d. all fed’l EEs are covered by Medicare
- 1985: SSA became an independent agency admin’d by a commissioner and a bipartisan advisory board
- 1994: amendments were enacted imposing severe restrictions on benefits paid to drug abusers and alcoholics (together w/ treatment requirements and a 36-month cap on teh pmt of benefits)
- 1996: the Contract w/ America advancemtne Act (CWAAA) elim’d substance abuse as a disabling impariment, and substance abuse was no longer to be the basis for a finding of disability
- 1996: eligibility for SSI benefits was limited to U.S. citizens or nationals and certain aliens
- 1999: US Supreme Court unanimously ruled that indiv. w/ a disability who apply for SS disablity benefits are not automatically barred from bringing claims against ERs under the ADA.
- 2000: depression-era limits on the amt of money that workers b/w the ages of 65 and 69 may earn w/o having their SS benefits reduced were elim’d retroactive to 1/1/00. the rules governing indivs. who take early retirement at the age of 62 or the status of workers aged 70 and over are not chg’d by the new law
- 2003: the Medicare Prescription Drug Improvement and Modernization Act of 2003 archive. Seniors were given a choice from among a variety of prescription drug plans
- 2000-2007: Full retirement benefits are now available at the age of 65 for indivs. who were born before 1938; reduced benefits are available as early as the age of 62. the full-benefit retirement age for indivs. born in 1962 or later will gradually incr. from age 65 until it reaches age 67 in 2027. reduced benefits will continue to be available at the age of 62.
4
Q
Social Security Act
how it is funded
A
- comes from the Social Security contribs made by EEs, ERs, and self-employed ppl during working years
- as contribs. are paid in each year, they are immediately used to pay for the benefits of current beneficiaries
- Problems with the funding:
- # of retired workers continues to rise b/c of earlier retirement and longer life spans, no corresponding in the # of contributors to SS has offset these costs
- to maintain solvency, there has been a dramatic incr. in both the max earnings base and the rate at which that base is taxed
- current levels: 2010 - for EEs making 70,000 or more - ER contrib. of 6,621.60
- max comp is 106,000
*
- max comp is 106,000
5
Q
Social Security
qualifying for and types of benefits received
A
- qualifications:
- worker must work in a cov’d employment and earn a specified amt of money ($1,120 in 2010) for each qtr-yr of cov’g
- 40 qtrs of cov’g will insure any worker for life
- amt rec’d varies but in general is tied to the amt contrib’d during the eligibility qtrs
- types of benefits:
- old age or disability benefits
- benefits for deps. of retired or disabled workers
- benefits for surviving family members of a deceased worker
- lump-sum death benefits
6
Q
Unemployment Insurance
How is works
A
- paid out to eligible workers
- financed by ERs who pay fed’l/state UnN ins. tax
- fed’l 6.2% of first $7,000 earned by each worker
- states impose a tax above the $7,000
- all states allow for experience rating, charging lower %ages to ERs who have terminated fewer EEs
- % may fall close to 0 in some states for ERs who have had no recent experience w/ downsizing and rise to 10% for orgs. w/ large #s of layoffs
- currently cover all workers except a few ag. and domestic workers
- cov’d EEs must still meet elig. requirements to receive benefits
- be able, available, and actively seeking work
- not have refused suitable employment
- not be UnN b/c of labor dispute
- not have left a job voluntarily
- not have been term’d for gross misconduct
- have been previously employed in cov’d industry or occ., earning a designated min. amt for a designated period of time
- June 2000: states have the option to use state UnN comp. resources to make partial wage replacement available to parents who leave employment after teh birth or adoption of a child
- new exemption to the requirement that UnN fund recipients be available and able to work
- 2002 - max # of weeks that any claimant could collect is 1.5 yrs depending on which state you live in.
- those that meet the requirements are entitled to a weekly benefit amt based on a %age of an indiv’s earnings over a recent 52-week period - up to state max
7
Q
FMLA 1993
A
- all ERs having 50 or more EEs
- entitles all eligible EEs to rec. unpaid leave up to 12 weeks per year for specified family or medical reasons
- to be eligible, EE must work at least 1,250 hrs for ER during the previous 12 month period
8
Q
COBRA 1985
A
- provide current and former EEs and their dependents w/ a temp. extension of group health ins. when cov’g is lost due to qualifying events such as layoffs
- all ERs w/ 20 or more EEs must comply w/ this act
9
Q
Defined Benefit Plans
A
- ER agrees to provide a specific level of retirement pension
- expressed as either fixed $ or %age of earnings amt that may vary or incr w/ yrs of seniority in company
- financed by an actuarially determined benefits formula and making current pmts that will yield the future pension benefit for a retiring EE
- (3) types of formulas:
- calc. avg earnings over the last 3-5 YoS and offer a pension of about 1/2 of this amt adj’d for YoS
- calc. avg. career earnings and offer a pension of about 1/2 of this amt adj’d for YoS
- fixed $ amt that is not dependent on any earnings data
- generally rises with seniority
- level of pension a company chooses depends on answers to several Q’s:
- what level of retirement comp would a company like to set as a target, expressed in relation to preretirement earnings?
- should SS pmts be factored in when considering the elvel of income an EE should have during retirement
- should other postretirement income sources be considered w/ the pension pmt
- how should company factor seniority into the payout formula
- larger the role seniority plays, the more important penisons will be in retaining EEs
- most companies believe that the max pension payout for a particular level of earnings s/b achieved only by EEs who ahve spent an entire career w/ the company
*
10
Q
Defined Contribution Plans
A
- require specific contribs. by an ER, but the final benefit received by EEs is unknown, depending on the inv. success of those charged w/ admin’g the pension fund
- (3) main types:
- 401K - savings plan in which EEs are allowed to defer pretax income
- ERs typically match
- dollar limits are set and are move with CPI
- ESOPs - makes tax-ded. contib. of stk shares or cash to a trust
- trust then allocates company stk or stk bought w/ cash contribs. to participating EE accts
- amt allocated is based on EE earnings
- as a pension - EEs receive cash at retirement based upon the skt value at that time
- profit sharing
- 401K - savings plan in which EEs are allowed to defer pretax income
11
Q
Adv/Disadv’s of DC and DB Plans
A
- adv. of DB:
- provides an explicit benefit that is easily comm’d to EEs
- more favorable to long-service EEs
- have additional adv. to EEs of having hte ER assuming the risk associated w/ chgs in inflation and i/r’s which affects costs
- adv to EE, but disadv to ER - ultimate cost to ER is unknown
- Adv of DC:
- for ER, EE assumes the inv. risk
- ER cost is known up front
- more favorable for short-term EEs
- Disadv of DC:
- hard for ER’s to communicate the plan
- most important factor for both: differential risk borne by ERs on the cost dimension
- DC - have known costs from the beginning
- DB - commit ER to a specific level of benefits
- both are subj. to stringent tax laws
- to be exempt from current taxation, specific requirements must be met
- ER cannot discrim. against any employee-base
- if qualified, ER receives income tax ded. for contribs. made to the plan even though the EEs may not rec’d any benefits yet.
- to be exempt from current taxation, specific requirements must be met
12
Q
ERISA
A
- if a company decides to have a pension plan, ERISA provisions rigidly control it
- (2) goals:
- to protect the interest of active participants who are cov’d today by private retirement plans
- to stimulate the growth of such plans
13
Q
ERISA
vesting
A
- the length of time an EE must work for an ER before he/she is entitled to ER pmts made into the pension plan
- any contribs. made by the EE are immediately and irrevocably vested
- EGTRRA - ER’s contribs. must vest at least as quickly as either:
- full vesting after 3 yrs
- 20% after 2 yrs and 20% each yr thereafter until fully vested in 6 yrs.
- vesting schedule used usually depends on the demographics of the workforce
- high turnover - probably do 3 yr vesting
14
Q
ERISA
portability
A
- issues for EEs moving to new org.
- ERISA doesn’t require mandatory portability of priviate pensions
- ER may agree to let the pension fund transfer to new ER
- for an ER to permit portibility, the pension rights must be vested
15
Q
group life insurance
A
- most common benefit provided by ERs
- face value of 1 to 2X the EE’s annual slry
- most plan premiums are paid compleley by the ER
- over 30% include retiree cov’g
- to discourage turnover, companies make this benefit forfeitable at the time of departure from company
