Assignment 10 Flashcards
Employee benefits can be broadly categorized as follows:
1) Legally Required Payments
2) Retirement and Savings Plan Payments
3) Life Insurance and Death Benefits
4) Medical and Medical-Related Benefit Payments
5) Paid Rest Periods, coffee breaks, lunch peiods, washup time, travel time, clothes change time, get-ready time
6) Payments for Time not worked
7) Miscellaneous benefit payments
Legally Required Payments
1) Old-age survivors, disabilty, and health insurance ( employer FICA taxes) and railraod retirement tax
2) Unemployment compensation
3) Workers’ compensation
4) State sickness benefits insurance
Retirement and Savings Plan Payments
1) Defined benefit pension plan contributions
2) Defined contribution plan payments (401K type)
3) Profit sharing
4) Stock bonus and employee stock ownership plans (ESOPS)
5) Pension plan premiums (net) under insurance and annuity contracts (insured and trusteed)
Medical and Medical-Related Benefit Payments
1) Hospital, surgical, medical and major medical insurance premiums
2) Retiree hospital, surgical, medical and major medical insurance premiums
3) Short term disability, sickness or accident insurance
4) Long-term disability or wage continuation
5) Dental insurance premiums
6) Other (vision, physical and mental fitness benefits for former employees)
Payments for Time Not worked
1) Payments for on in lieu of vacations
2) Payments for or in lieu of holidays
3) Sick leave pay
4) Parental leave
5) Other
Miscellaneous benefit payments
1) Discounts on goods and services purchased from company by employees
2) Employee meals furnished by company
3) Employee education expenditures
4) Child care
5) Other
Workers’ Compensation
A form of no-fault insurance. Employees are eligible even if their actions caused the accident. This covers injuries and diseases that arise out of, and while in, the course of employment.
Workers’ compensation benefits are given for:
1) Medical care for work-related injuries, beginning right after the accident
2) Temporary disability benefits after a 3-7 day waiting period
3) Permanent partial and permanent total disability benefits for lasting consequences of disabilties on the job
4) Survivor benefits
5) Rehabilitation and training in most states, for those unable to return to their prior career
Second Injury Funds
Provided by some states. These funds relieve an employer’s liability when a preemployment injury combines with a work-related injury to produce a disability greater than the cause by the latter alone.
How is Social Security Funded?
The money to pay SS benefits comes from the Social Security contributions made by employees, their employers and self-employed people during working years. As contributions are paid in each year, they are immediately used to pay for the benefits to current beneficiaries.
What is the maximum taxable earnings for Social Security tax?
106,800 in 2010. for medicare there is no earning cap.
What benefits does someone receive under Social Security?
1) Old Age or disability benefits
2) Benefits for dependents of retired or disabled worker
3) Benefits for surving family members of a deceased worker
4) Lump-sum death benefits
Unemployment Insurance
Umemployment compensation paid out to eligible workers is financed exclusively by employers who pay federal and state unemployment insurance tax.
Unemployment insurance tax is:
6.2% of the first $7,000 earned by each worker.
To be eligible for unemployment benefits an unemployer worker must:
1) Be able, available, and actively seeking employment
2) Not have refused suitable employment
3) Not be unemployed because of a labor dispute
4) Not have left a job volunatarily
5) Not have been terminated for gross misconduct
6) Have been previsouly employed in a covered industry or occupation, earning a designated mimimum amount for a designated period of time
Maximum number of weeks any claimant could collect unemployment:
was 26 until 1958, now up to 1.5 years of coverage depending on the state
COBRA
Consolidated Omnibus Budget Reconciliation Act. to provide current and former employees and their spouses and dependents with a temporary extension of group health insurance hwne coverage is lost due to qualifying events such as a layoff. Employers with 20 or more employees must comply with this act.
Defined Benefit Plan
In a defined benefit plan an employer agrees to provide a specific level of retirement pension, which is expressed as either a fixed dollar or percentage of earnings amount that may vary or increase with years of seniority in the company.
3 Formulas for Defined Benefit Plans
1) Calculate earnings over the last 3-5 years of service for a prospective retiree and offer a pension of about 1/2 of this amount
2) Use average career earnings rather than earnings from the last few years of employment.
3) An employer committs to a fixed dollar amount that is not dependent on any earnings data and generally rises with seniority level
The larger the role seniority plays in pensions:
the more importnat they become for retaining employees.
Defined Contribution Plan
Require specific contributions by an employer, but the final benefit by employees is unknown, depending on the investment success of those charged with administering the pension fund.
401K Savings plan
Defined Contribution Plan
employees are allowed to deger pretax income and employers typically match savings at a rate of 50 cents on the dollar
ESOP- Employee Stock Ownership Plan
Defined Contribution PLan
company makes a tax-deductible contribution of stock shares or cash to a trust. the trust then allocates company stock or stock bought with cash contributions to participating employee accounts. The amount allocated is based on employee earnings.
When an ESOP is used as a pension vehicle
the employees receive cash at retirement based upon the stock value at that time.
Disadvantage to ESOP
Limits their utility for pension accumulations. if the company’s stock takes a downturn, results can be catestrophic
Profit Sharing
Defined Contribution Plan if the distribution of profits is delayed until retirement
Advantages of a defined benefit plan:
Provides an explicit benefit that is easity communicated to employees. The are more favorable to long-service employees and have the additional advantage to employees of having the employer assuming the risk associated with changes in inflation and interset rates which effect cost. Commit the employer to a specific level of benefit
Advantages of a defined contribution plan:
To Employers: Employee assumes the investment risk and the employer cost is known up front. More favorable to short term employees. Have known costs from year one.
Disadvantage of defined contribution plan:
The plan is more difficult to communicate
Qualifications for deffered compensation to be exempt from current taxation:
1) An employer cannot freely choose who will participate in the plan
Employee Retirement Income Security Act (ERISA)
Does not required that employers offer a pension plan, but rigidly controls it if it does.
Goals of ERISA
1) Protect the interest of 100 million active participants who are covered by private retirement plans
2) Stimulate the growth of such plans
ERISA generally requires the employees be eligible for pension plans beginning at the age of
21
How many years of service requirement as a precondition for participation?
May require one year, but it may be extended to two years if pension plans offers full and immediate vesting
Vesting
refers to the length of time an employee must work for an employer before he or she is entitled to employer payments made into the pension plans.
Vesting Concept has 2 components
Any contributions made by the employee to a penison fund are immediately and irrevovably vested.
What does the Economic Growth and Tax Relief Reconciliation Act of 2001 say about the employer’s contribution
it must vest at least as quickly as one of the following formulas:
1) Full Vesting after 3 years
2) 20% after 2 years and 20% each year thereafter until fully bested in six years.
Portability of pensions
becomes and issue for employees moving to new organizations. The employer may agree to let the employee’s pension benefits transfer to the new employer. The pension rights must be vested.
EGTRRA instituted many changes expanding
portability between various types of retirement plans
Pension Benefit Guaranty Corporation
established by ERISA. Employers are required to pay insurance premiums to it if they sponsor a defined benefit-type of retirement plan. One applies to defined benefit plans.
PBGC guarantees payments of vested benefits to
employees fromerly convered by terminated defined benefit pension plans.
Life insurance
Most common type is group term life insurance with a face value of one to two times the employee’s annual salary. Most plan premiums are paid by the employer. Almost all companies make this benefit forfetable a tthe time of departure from the company.
