Employee Benefits (HRMG 3400)

Question 1

Employee Benefits

Answer 1

The part of the total compensation package provided to the employees in whole or in part by employer payments (other than pay for time worked) such as: life insurance, pension plan, workers’ compensation, and vacation.

Question 2

Key Issues in Benefits Planning, Design, and Administration

Answer 2

1. Establish plan objectives
   - what do we want to do: be competitive, cost leader, etc
2. Integrate benefits with other compensation components
3. Ensure external competitiveness
   - attract and retain
   - benefits are a hygiene factor, but not a motivator
4. Ensure adequacy of benefits (minimal threshold, need a value proposition, new norms in industry)
5. Benefits Administration:
   - who should be covered
   - how much choice for employees
   - how should benefits be financed

Question 3

Why the growth in employee benefits?

Answer 3

1. Cost-effectiveness of benefits
   - loss management (i.e., sick days - keeps co-workers from getting sick)
2. Unions
   - when one union negotiates something, other unions want it, too
3. Employer impetus
4. Government impetus

Question 4

Non-contributory

Answer 4

employer pays total costs

Question 5

Contributory

Answer 5

costs shared between employer and employee

Question 6

Employee-financed

Answer 6

employee pays total costs for some benefits (i.e., long-term disability)

Question 7

Employer Factors influencing choice of benefits packages

Answer 7

1. Relationship to total compensation costs
2. Costs relative to benefits
3. Competitor offerings
4. Role of benefits in attraction, retention, and motivation
5. Legal requirements
6. Absolute and relative compensation costs

Question 8

Employee factors influencing choice of benefits packages

Answer 8

1. Fairness in relationship to what others receive - Equity theory
2. Personal needs as linked to demographic characteristics such as age - point in life will change point of view on benefits and which are desired

Question 9

Plan Types

Answer 9

1. One size fits all
   - everyone gets the same options (easy to administer)
2. Modular
   - fixed plans, but employee can choose between A, B, or C
3. Core plus options
   - defined packages plus additional options
4. Cafeteria
   - lots of choice - employee can design own plan
5. HCSA (Health Care Spending Account)
   - not really a plan, but money that the employee can spend as they want

Question 10

Flexible Benefits: Advantages

Answer 10

1. Choose packages that satisfy their needs
2. flexible benefits meet changing needs
3. increased involvement of employees increases understanding of benefits
4. introduction of new benefits is less costly
5. cost containment - company can set a dollar maximum and employee chooses within that constraint

Question 11

Flexible Benefits: Disadvantages

Answer 11

1. Employees make bad choices - don’t get information
2. administrative burdens and expenses increase
3. adverse selection - employees pick only the benefits they use; high utilization increases costs

Question 12

Administration of Benefits Program

Answer 12

1. Communicate the benefits program
   - total compensation statements
2. Process claims
   - can be outsourced and often is
3. Managing costs
   - cost containment
   - costs increasing over last 15 years
   - cost savings from tighter administration controls and from benefit reductions
   - major cost of doing business

Question 13

Cost Containment

Answer 13

1. Probationary periods
   - CPP, WCB, and EI start right away
   - Stat holidays have regulations for payments
2. Benefit maximums
3. Coinsurance
   - ER and EE share costs of benefits
4. Deductibles
   - becoming less favourable
   - can set an amount of a %
5. Coordination of spousal benefits
6. Administrative cost containment

Question 14

Categorization of Employee Benefits

Answer 14

1. Legally required payments
2. Retirement and savings plan
3. Life insurance benefits
4. Medical insurance
5. Income security benefits
   - sick or injured such as short-term and long-term disability
6. Pay for time not worked
7. Miscellaneous benefits
   - perks may keep employees longer (may be good for brand management)

Question 15

Workers’ Compensation

Answer 15

• A mandatory, government-sponsored, employer-paid no-fault insurance plan that provides compensation for injuries or diseases that arise out of, and while in the course of, employment
• Provides benefits for:
  
  • lost earnings due to temporary disability
  • lost earnings due to permanent disability
  • health care expenses
  • survivor benefits after fatalities
• Entirely employer-funded
• Regulated by provinces and territories
• 75% - 90% of net earnings
• Cost control is an ongoing concern

Question 16

Canada Pension Plan (CPP)

Answer 16

• Mandatory, government-sponsored pension plans for all employed Canadians
• Funded equally by employers and employees
• Provides benefits upon
  
  • retirement
  • disability
  • death

Question 17

Employment Insurance

Answer 17

• Mandatory government-sponsored plan for all employed Canadians that provides workers with temporary income replacement
• funded by employer and employee contributions
• basic benefits are 55% of average insurable earnings

Question 18

Employer-Sponsored Pension Plans

Answer 18

• plans that provide income to an employee at retirement as compensation for work performed now
• defined benefit plans: employer agrees to provide a specific level of retirement pension, the exact cost of which is unknown
• defined contribution plans: employer agrees to provide specific contributions but the final benefit is unknown

Question 19

Advantages of Defined Benefit Plan

Answer 19

1. provides an explicit benefit which is easily communicated
2. Company absorbs risk associated with changes in inflation and interest rates which affect cost (benefits the employee)
3. More favourable to long service employees
4. Employer costs unknown (disadvantage to employer)

Question 20

Advantages of Defined Contribution Plan

Answer 20

1. Unknown benefit level is difficult to communicate
2. Employee assumes the risk associated with changes in inflation and interest rates
3. More favourable to short-term employees
4. Employer costs are known up front

Question 21

Life Insurance

Answer 21

1. Group life insurance
   - often bundled with AD&D
2. Accidental death and dismemberment (AD&D)
3. Dependent life insurance
4. Optional: employee-paid insurance
   - core + options = can opt for more insurance
5. Retiree life insurance
   - not very common now
   - longer life spans = higher medical costs

Question 22

Employer-Sponsored Medical Plans

Answer 22

1. cover expenses not payable under provincial/territorial plans
2. prescription drug coverage considered most important benefits by employees
3. medical cost control is biggest issue facing benefits managers today
4. cost control
   - deductibles, coinsurance
   - preventive health care/wellness programs

Question 23

Income Security Benefits

Answer 23

1. Short-term disability plans (AKA Weekly Indemnity)
   - provide continuation of part of all of earnings during absence due to non-work related illness or injury
2. Sick leave plans
   - provide specified number of paid sick days per month or per year
   - not legally required
3. Long-term disability plans
   - provide continuation of part of earnings during long-term absence due to non-work related illness or injury
   - claims and costs rising sharply
   - psychiatric disabilities fastest-growing

Question 24

Pay for Time Not Worked

Answer 24

1. paid rest periods: coffee breaks, travel time
2. vacations
3. holidays
4. leaves
   - bereavement leaves
   - jury duty

Question 25

Employee Assistance Plans (EAP)

Answer 25

• provide confidential counselling and/or treatment programs for personal problems including addiction, stress, and mental health issues