Module 1 - Employee Benefits: The Environment

Question 1

The broad view of employee benefits

Answer 1

Considers employee benefits to be virtually any form of compensation other than direct wages paid to employees.

Question 2

The broad view of employee benefits includes both _____ and_____.

Answer 2

Government-mandated benefits and private plans

Question 3

Examples of benefits that would be included in the broad view

Answer 3

Employer’s shares of social security tax paid on behalf of an employee; paid vacations; pension plans

Question 4

Benefits that would be included in the narrow view of employee benefits

Answer 4

Any type of plan sponsored or initiated unilaterally or jointly by employers and employees and engages in providing benefits that result from the employment relationship and that are not underwritten or paid directly by government.

Question 5

List the categories of benefits that generally are considered to fall under a broad
view of employee benefits.

Answer 5

(a) Legally required benefits—employer’s share of funding for Social Security
benefits for the elderly and disabled and their dependents that includes
retirement income, survivor and disability insurance, and hospital and medical
insurance (Old-Age, Survivors, Disability, and Insurance (OASDI)); workers’
compensation (WC); unemployment insurance (UI); and state temporary
disability income insurance
(b) Payments for time not worked, e.g., rest periods, lunch periods, vacations and holidays
(c) Employer’s share of medical and medically related benefits
(d) Employer’s share of retirement and savings plan payments
(e) Miscellaneous benefits, e.g., employee discounts, severance pay, education expenditures and child care, etc.

Question 6

Legally required benefits included in the broad view of employee benefits

Answer 6

Employer’s share of funding for Social Security benefits for the elderly and disabled and their dependents that includes retirement income, survivor and disability insurance, and hospital and medical insurance (Old-Age, Survivors, Disability, and insurance (OASDI); workers’ compensation (WC); unemployment insurance (UI); and state temporary disability income insurance

Question 7

Examples of payments for time not worked included in the broad view of employee benefits

Answer 7

rest periods, lunch periods, vacations, and holidays

Question 8

3 What benefits are typically excluded when the term “employee benefits” is viewed
and defined in a narrow sense?

Answer 8

Those that are legally mandated, notably the employer

funding for Social Security benefits and workers’ compensation.

Question 9

Explain the types of business- or human resource-related reasons for firms
establishing employee benefit plans.

Answer 9

Attract and retain capable employees.
Employers hope that good benefit plans will foster corporate efficiency, productivity and improved employee morale.
Concerns for employees’ welfare and social objectives.

Question 10

2.2 What impact have labor unions historically had in employee benefits? (Text, p. 4)

Answer 10

They have impacted the growth of employee benefit plans.

Question 11

In what year did the National Labor Relations Board rule that the duty to bargain in good faith over wages also included insurance and fringes such as pension benefits?

Answer 11

1948

Question 12

What case decided that insurance and fringes such as pension benefits would be included in bargaining over wages?

Answer 12

Inland Steel in 1948

Question 13

What case decided that wages also included a health an accident plan when it came to bargaining?

Answer 13

W.W. Cross & Co. soon after the Inland Steel case of 1948.

Question 14

What does NLRB stand for?

Answer 14

National Labor Relations Board

Question 15

How did the case of Inland Steel impact employee benefits programs?

Answer 15

The NLRB ruled in 1948 that insurance and fringe benefits like pensions would be included in wages when it came to bargaining.

Question 16

How did the case of W.W. Cross & Co. impact employee benefits?

Answer 16

NLRB decided soon after the Inland Steel case that health and accident policies would also be considered in wage bargaining.

Question 17

2.3 Explain the significance of the Taft-Hartley Act in employee benefit planning.
(Text, p. 4)

Answer 17

Sets forth the framework for good-faith collective bargaining over wages, hours, conditions and terms of employment and employee benefits.
Established distinction between retirement benefits and welfare benefits.
Provides regulatory framework for administration of these benefits in a collective bargaining agreement.
Is legislative basis on which jointly trusteed benefit plans are founded.

Question 18

Labor-Management Relations Act is also known as

Answer 18

Taft-Hartley Act

Question 19

2. 4. Summarize three major federal tax advantages associated with employee benefit
      plans. (Text, p. 5)

Answer 19

1. Most contributions to ee benefit plans by employers are deductible as long as they are reasonable business expenses.
2. 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.

Question 20

2.5. Why is the employee benefit mechanism an effective and efficient way of providing
insurance coverage? (Text, p. 5)

Answer 20

Employment-based insurance is convenient for employees.
EEs don’t need to search for individual coverage.
Often less expensive for EEs.
Providers and suppliers find it more convenient and simpler to communicate and market EE benefits through an employer.

Question 21

Overall questions that are generally necessary to evaluate either an existing or a newly created EE benefit plan.

Answer 21

What benefits should be provided?
Who should be covered by the benefit plan?
Should employees have benefit options?
How should the benefit plan be financed?
How should the benefit plan be administered?
How should the benefit plan be communicated?

Question 22

3.1 What is the starting point in the design of any employee benefit plan? (Text, p. 8)

Answer 22

Setting overall objectives from the standpoints of both the employer and the EEs.

Question 23

What groups or categories of individuals should be considered?

Answer 23

Full-time EEs, part-time, retirees, dependents of EEs, survivors of deceased EEs,

Question 24

What are the possibilities for plan financing?

Answer 24

Financed entirely by the employer (noncontributory), on some shared basis between EE and employer (contributory).

Question 25

What are the options for plan administration?

Answer 25

The company can administer the plan itself.
An insurance carrier or other benefit plan provider can do it.
An outside organization (third-party administrator).

Question 26

4.1 What is the functional approach to employee benefit planning? (Text, p. 12)

Answer 26

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.

Question 27

4.2 Describe the reasons that the functional approach is considered to be an
appropriate approach for the effective planning, designing and administration
of employee benefits. (Text, pp. 13-14)

Answer 27

First, because employee benefits are a very significant element of total employee
compensation and generally are a very tax-effective way of compensating employees.
Second, employee benefits generally represent a large item of labor cost for
employers.
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.
Finally, the functional approach allows benefits to be integrated properly with each
other.

Question 28

4.3 What elements of its compensation system should an employer seek to balance in
designing a total compensation package? (Text, p. 14)

Answer 28

Basic cash wages and salary.
Current incentive compensation (cash bonuses and stock bonuses).
Longer-term incentive plans.

Question 29

4.4. Identify and describe three types of total compensation/benefits policies that
employers may adopt. (Text, pp. 15-16)

Answer 29

1. Average compensation/benefits policies follow the generally prevailing compensation/benefits level in a 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.

Question 30

How many different types of total compensation policies are there?

Answer 30

There are many different types of total compensation policies that firms may adopt; however, there are three basic broad or general types of total compensation approaches.

Question 31

4.5 Explain how the type of industry in which a firm is operating affects its total
compensation philosophy and employee benefits approach. (Text, p. 16)

Answer 31

A larger, well-established employer in a mature industry, a financial institution or a
nonprofit organization may take a relatively liberal approach toward meeting the
benefits needs and desires of its employees. Developing firms, or growth industries
with considerable current needs for capital, may seek to rely more heavily on shortterm-oriented
incentive types of compensation. Further, firms in industries that are
highly competitive, subject to cyclical fluctuations or perhaps in a currently
depressed state may not be willing to add to their relatively fixed labor costs by
adopting or liberalizing employee benefits, even if there may be a functional need for
doing so. In fact, such firms may seek to cut back on their employee benefit
commitments when possible.

Question 32

What types of firms may seek to cut back on their employee benefit commitments when possible?

Answer 32

Firms that are highly competitive, subject to cyclical fluctuations or firms in a currently depressed state

Question 33

What types of firms may take a relatively liberal approach toward meeting benefits needs and desires of its employees?

Answer 33

Larger, well-established employers in mature industries; financial institutions; nonprofit organizations