Assignment 1 Flashcards
three major federal tax advantages associated with employee benefit plans
(1) Most contributions to employee benefit plans by employers are deductible as long as they are reasonable business expenses. (2) Within certain limits these employer contributions are generally not considered income to employees. (3) In certain types of retirement and capital accumulation plans, benefits accumulate tax-free to the employee until distributed.
tends to focus on the needs of employees and their dependents, and employers with this philosophy typically would design benefit plans primarily on this basis.
benefit- or needs-oriented philosophy
The categories of persons that a firm may want to include in its employee benefit coverages are:
(a) Active full-time employees (b) Dependents of active full-time employees (c) Retired former employees (d) Dependents of retired former employees (e) Disabled employees and their dependents (f) Surviving dependents of deceased employees (g) Terminated employees and their dependents (h) Employees (and their dependents) who are temporarily separated from the employer’s service, such as during layoffs, leaves of absence, military duty, strikes and so forth (i) Individuals other than full-time active employees (for example, part-time employees, directors and so forth).
List the types of overall questions that should be addressed in setting benefit objectives
(a) WHAT benefits should be provided? (b) WHO should be covered by the benefit plan? (c) Should employees have benefit OPTIONS? (d) How should the benefit plan be FINANCED? (e) How should the benefit plan be ADMINISTERED? (f) How should the benefit plan be COMMUNICATED?
summarized as any type of plan sponsored or initiated unilaterally or jointly by employers and employees engaged in providing benefits that result from the employment relationship that are not underwritten or paid directly by government.
The Narrow View of benefits planning
Three types of total compensation/benefits policies that employers may adopt.
(1) Average compensation/benefits policies follow the generally prevailing compensation/ benefits level in their firm’s industry or community or both. (2) High-compensation/benefits policies attempt to attract higher levels of management, technical and general employee talent. (3) Low-compensation/benefits policies are lower than average and more modest in scale.
types of business- or human resource-related reasons why firms have established employee benefit plans
-Employers want to attract and retain capable employees. -fosters this objective. -plans are necessary to retain current employees. -employers hope that good benefit plans will foster corporate efficiency, productivity and improved employee morale. -Concerns for employees’ welfare and social objectives are also reasons for providing benefits.
The retirement income objective might be expressed in terms of some percentage of the estimated final pay of an employee,
Replacement Ratio
Describe the reasons why the functional approach is considered to be an appropriate approach for the effective planning, designing and administration of employee benefits.
First, because employee benefits are a very significant element of total employee compensation, and generally are a very tax-effective way of compensating employees, they should be planned and organized to be effective in meeting employee needs. Second, employee benefits generally represent a large item of labor cost for employers. Therefore, effective planning and avoidance of waste can be an important employer cost-control measure. Third, employee benefits in the past often were adopted by employers on a piecemeal basis, without being coordinated with existing employee benefit programs. Consequently, reviewing these plans, or proposed changes to them using the functional approach can eliminate overlap and fill gaps. Fourth, a systematic approach to planning benefits helps keep an employee benefit plan current, competitive and in compliance with regulatory requirements. The last point can be illustrated by the enactment of the Patient Protection and Affordable Care Act (PPACA) as amended by the Health Care and Reconciliation Act. This extensive law shows the demands that may be placed on the benefit plans of private employers to help solve perceived social problems. Finally, the functional approach allows benefits to be integrated properly with each other.
Explain the arguments related to flexibility in the design of an employee benefit plan as related to the functional approach to benefit planning
One argument is that the more flexibility an employee has, the more likely he or she will select a benefit program that best meets his or her individual needs and goals. Thus, flexibility in plan design such as optional participation, coverage amount and coverage options facilitates the functional approach. The opposing argument states that allowing flexibility in types and amounts of benefits works against the functional approach, because employees might not recognize all their or their families’ needs and leave some important needs uncovered.
What is the starting point in the design of any employee benefit plan?
The design of any employee benefit plan should start with setting overall objectives from the standpoints of both the employer and the employees.
Relate employee benefits primarily to compensation or service, or both, in designing benefit plans within the constraints of any nondiscrimination rules. Thus, the level of benefits would tend to be tied to the salary or pay levels of employees and their years of service
compensation/service-oriented benefit philosophy
Pension plans, profit-sharing plans, savings or thrift plans, and so forth, reward an employee for relatively long service with an employer. These types of benefits usually involve a longer probationary period than protection oriented benefits because they are viewed as a reward for long service and the longer probationary period is not a disadvantage for long-term employees
Accumulation-oriented benefits
The application of a systematic method of analysis to an employer’s total employee benefits program. It analyzes the organization’s employee benefit program as a coordinated whole in terms of its ability to meet various employees’ (and others’) needs and to manage loss exposures within the employer’s overall compensation goals and cost parameters.
The Functional Approach to benefit planning
considers employee benefits to be virtually any form of compensation other than direct wages paid to employees. It includes both government-mandated benefits and private plans.
The Broad View of benefits planning
