Employee Benefits Chapter 13 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Benefit Programs Social Insurance Private Group Family-Friendly Policies Pay For Time Not Worked Retirement 13-2

Social Security Social Security provides old-age insurance, unemployment insurance, survivors' insurance, disability insurance, hospital insurance and supplementary medical insurance. Social Security retirement benefits are free from federal tax and free from state tax in some states. Full benefits begin at age 65 or a reduced benefit at 62. Both employers and employees are assessed payroll tax. Eligibility age for benefits and tax penalty for earnings influence retirement decisions. 13-3

Unemployment Insurance 4 Objectives of Unemployment Insurance: offset lost income during involuntary unemployment help unemployed workers find new jobs provide incentive for employers to stabilize employment preserve investments in skills by providing workers with income during short-term layoffs No state imposes the same tax on every employer. Unemployed workers are eligible for benefits if they have a prior attachment to the workforce are available and actively seeking work were not discharged for cause, did not quit voluntarily and are not out of work because of a labor dispute. 13-4

Private Group Insurance Offered at employer’s discretion; plans not legally required. 2 major types: medical insurance and disability insurance. Medical insurance-most important benefit; most full-time employees get such benefits. Disability insurance includes short-term and long-term plans. Group rates are lower because of economies of scale, ability to pool risks and greater bargaining power of a group. Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to permit employees to extend health insurance coverage at group rates for up to 36 months following a qualifying event, such as termination. 13-5

Family-Friendly Policies Family and Medical Leave Act requires organizations with 50 or more employees within a 75-mile radius to provide as much as 12 weeks of unpaid leave after childbirth or adoption; to care for a seriously ill child, spouse, or parent; or for an employee’s own serious illness. Child Care: employers may provide some type of child care support to employees: supplies and helps employees collect information about child care, vouchers or discounts for existing child care facilities or child care facility at or near worksites. 13-6

Healthcare: Controlling Costs and Improving Quality U.S. spends more on health care than any other country Health-care expenditures have risen from 5.3% of GNP in 1960 to 18% (about $2.7 trillion) today. Percentage of full-time workers receiving job-related health benefits has declined, with more than 53 million Americans currently uninsured Trend is to shift costs to employees through use of deductibles, coinsurance, exclusions and limitations and maximum benefits. 13-7

Flexible Spending Accounts Permit employees to choose types and amount of benefits. Advantages include: employees more aware and appreciative of benefits better match between package and employee's needs, which improves satisfaction and retention cost reductions take-home pay increases. Disadvantages include: administrative cost adverse selection 13-8

Affordable Care Act: Impact on Employers Major impact on employer cost control efforts. Employers with 50 or more workers must offer health care coverage to full-time employees or else pay a penalty. Impacts taxes, coverage of dependents and wellness programs Some employers are looking at ways to avoid being covered by the new law.

Nondiscrimination Rules and Qualified Plans All benefits packages must meet certain rules to be classified as qualified plans which receive more favorable tax treatment than a nonqualified plan. Rules must be satisfied for a plan to obtain qualified status. A benefit cannot discriminate in favor of “highly compensated employees.” It is illegal for companies to require women to contribute more to a pension plan than men. Employers cannot discriminate against employees over age 40 in pay or benefits. Employees with disabilities have equal access to same health insurance coverage as other employees.

Summary Average cost of benefits is about 44.5% for every payroll dollar and about 30.8% of total compensation package and continue to grow rapidly, most notably health care. Employers must offer a benefits package that permits them to compete in the labor market and attract and retain quality employees, helped by better communication of the value of the benefits package and allowing employees to tailor benefits to their own needs through flexible benefits plans. Employees will increasingly become responsible for their own economic security are being asked to increase proportion of costs that they pay and to use data on health care quality to make better health care choices. Workers' compensation laws, based on no-fault liability, cover 90% of U.S. workers for job-related injuries and death for disability income, medical care, death benefits and rehabilitative services. 13-11