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Employee Benefit Programs

by: Albertha Ortiz

Employee Benefit Programs RMIN 4400

Albertha Ortiz
GPA 3.84


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This 38 page Class Notes was uploaded by Albertha Ortiz on Sunday October 25, 2015. The Class Notes belongs to RMIN 4400 at University of North Texas taught by Staff in Fall. Since its upload, it has received 35 views. For similar materials see /class/229092/rmin-4400-university-of-north-texas in Risk Management And Insurance at University of North Texas.

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Date Created: 10/25/15
Chapter one o Differentiate O O J A O RMIN 4400 Review I J J I contractor from Employee a person who works in the service of another person the employer under an express or implied contract of hire under which the employer has the right to control the details ofwork performance I Key has quotright to control Independent Contractor IC a party you engage to perform a certain task but whose manner you do not have a right to control I Employers are tempted to classify workforce as ICs to Core C inn COLA Cost of Living Adjustments based upon Consumer Price Index CPI to adjust for in ation theoretically 0 Legally reguired benefits 0 0 SS FMLA o Origins of employee benefits 0 Historically legallyrequired benefits provided a form of social insurance Industrialization during late 19th and early 20th century and Great Depression led to design of initial social insurance welfare programs aimed at I Preventing destitution of unemployed or injured I Stabilizing wellbeing of dependents I Enabling retirees to maintain subsistence income As a result employer sponsored health insurance became common Further quotlegitimizationquot occurred with the National Labor Relations Act of 1935 allowing for employee bargaining for benefits Employees have historically viewed benefits as entitlements however with changing US economic climate and proposed congressional legislation the cost may be shared or shifted to the employee 0 Discretionary benefit choices 0 00000 Eligibility Provisions Kinds of Benefits Levels of Benefits Waiting Periods Financing B en efits Communication effective benefit roll out I Eligibility Provisionsto whom will you limit participation I What kinds ofbenefits will you offer What will the cost be What will you maximum lifetime benefit amounts be Individual cap for that employee for the term of their employment What is the waiting period and how was it derived Performance or time or both How will the benefits be financed Noncontributory contributory or employeefinanced or a hybrid Will the benefits require mandatory participation Flexible benefits or cafeteria plans Strategy VS Tactic 0 Strategic Decisions guide the company s activities in the marketplace 0 Tactical Decisions support the fulfillment of strategic decisions External environment factors 0 1 Industry Prospects economic conditions amp forecasts 1st Factor Industry prospects economic conditions and forecasts Sales forecasts good economy enhance Ebs Poor forecast still want EBs because 0 1 Tax advantages 0 2 Easier to recruit and retain top talent o 2 Employer costs for compensation o 3 Gov U2 l Factor Employer costs for compensation about 30 percent of total compensation costs Almost 16000 on annual discretionary benefits Per US Bureau of Labor Statistics valuable resource ernment regulation of EB 3ml Factor Government regulation of EB Movement away from concept of selfsufficiency found in farming societies EB arose during era ofindustrialization and depressed economies US still has free enterprise system but now tempered Advantages free enterprise system Disadvantages free enterprise system 3ml Factor Government regulation of EB Three advantages government receives from private EB a Fewer people dependent on government for support b Burden on social security system is reduced c Less governmental control of economy Reasons for government regulation of EB o a Industrialization b Government imposition ofwage freezes in WWII c Government requires employers to support legally required benefits 0 Ch agter 2 4 Changing demographics of overall labor force I 4 Factor Changing demographics of overall labor force 0 Labor force diversity will keep increasing based on gender age ethnicity and race 0 Benefits used to be focused on employees who were married men with stayathome wives o Health changes in society fewer smokers but more obesity I Social exchange 0 000000000 00 00 The social exchange in the employeremployee relationship is one where the employer offers inducements wagesbenefits in return for employee contributions performance and commitment A theory grounded in social psychology that explains social change and stability as a process ofnegotiated exchanges between parties All relationships have give and take Perceptions ofrelationships 3 types ofperceptions Comparison levels Honeymoon period Evolvement as social animals Principle of reciprocity Employment situations various exchanges Work settings with employerprovided inducements Expectations tend to evolve over time as the employeremployee relationship changes due to changes in employment status the employee s need for specific benefits and as a result of changing employer benefit practices contracts tvpes u 39 and n Psychological contracts implicitly establish terms of employment Contracts include employer benefits and employee obligations this social exchange evolves over the duration of employment and creates a continuum of expectations over time Psychological contracts imply terms Economic exchange agreement provides explicit terms such as wages Psychological contract example Transactional Psychological Contracts I Employee expectations tend to be more economic and extrinsic in nature Employees expect certain rewards for specific employee behavior eg raises promotions for a job well done Relational Psychological Contracts O O O O I Employees expectations can be economic or noneconomic but are also emotional subjective and intrinsic in nature An employee may develop an expectation for continued employment or a change in job status without employer participation American employees may expect the employer to provide health insurance paid time off reasonable accommodation and enhancement benefits in return for a job well done Retirement plans are both transactional and relational and are based upon mutual expectations developed over time Changes in basic benefit provision needs to be clearly articulated and explained to the employee who may view the benefit as relational rather than transactional in nature Employees form ongoing expectations regarding benefits practices from two sources their interactions with other employees and their perception of the organizational culture Ifthere is incongruity between the information gathered an employee may develop unrealistic expectations The organizational culture needs to identify and promote exibility within the psychological contract Regular renegotiation and evaluation of employer and employee expectations can help make psychological contracts more explicit and changeable without violating the employee s perceptions of fairness and equity I Violation of psychological contract 0 What is a Violation I A violation occurs when the employee perceives a discrepancy between quotthe promises made by the employer and actual fulfillment of those quotpromisesquot I Violations of contract differ from unmet expectations and response is likely to be more intense I WalMart Example employees were clocking out and then still working thru lunch hours I usticeI different types distributiveI informationalI interpersonal O 0 What is justice It is the concept ofmoral rightness based on ethics rationality law natural law religion fairness or equity In employment situations the distribution of rewards information and other resources will all lead to perceptions of fairness Four Types of justice Perceptions I Distributive justice how fair is the outcome they receive what benefits are they eligible for I Procedural justice how fair is the process by which decisions are made and is there employee involvement Ch agter 3 Degree to which increase in EB costs are passed on to employees strategies 0 0 Cost 0 O O I Interpersonal justice is the perception of the degree to which the employer demonstrates concern and social sensitivity toward employees I Informational justice deals with the quality and dissemination ofinformation used to explain organizational decisionmaking Employees pay for all benefits in the form of lower cash wages it s not a free quotadd on Increases in the benefit cost are typically passed on to the employee But four factors in uence this I Cash value employee places on EB I Degree employers will increase or decrease EB when market compensation levels change I Whether benefit cost increases for all or just some workers I Whether hiring decision of a particular employer affect market compensation levels for s in providing benefits why Health Insurance Cost Large Employer 350 per month same plan cost individual 550 per month Employee benefits by 200 per month Employer is better off by providing coverage and reducing salary by any amount over 350 Combining these two this means that both employer and employee will be better off if EB has health plan and salaries decreased by between 350 and 550 The employer is essentially acting as a buying agent for the employee and typically applies to health insurance retirement annuities and disability and life insurance I 1As an insured group gets larger the risk becomes less and the total medical expenses become more predictable I 2lligh risk patients are quotbalanced out by healthier ones avoid adverse selection I 3Economies ofScale administrative cost employee drops I 4Fixed costs spread out among more participants I 5May keep employees healthier by offering affordable and accessible medical care I 6The more people in the group the more likely that total medical expenses will be close to that predicted by the characteristics ofpeople in the group Risk is reduced as of people increases Law of Large numbers Medical Underwriting 0 Avoid adverse selection 0 Admin costs go down Tax incentives 0 Employee At 25 Tax Rate 0 1000 Raise 250 to IRS taxable income 0 1000 Health Care Plan is not taxable 0 Employee Receives Total Benefit 0 Employee Would Have To Earn 133333 Pretax to Pay for it Differences in benefit costs increase across groups of workers 0 O 0 Chapter 4 NLRA of 1935 reasons 0 O O O O 00 Employees need to know whether rate increases are market driven or if they only apply to their specific employer It is difficult to pass along the increased benefit cost to employees if they do not value the benefit Employers need to know if their increased benefit cost can be passed along to their workforce without detrimentally effecting retention hiring and productivity Most primeage workers 4054 are insensitive to market wide changes and would not seek to change their employment status if increased benefit cost is passed on to them Those most likely to change their employment status as a result of passedon benefit costs are women with young children the elderly parttime workers and young workers Once an employee has quotshoppedquot their decrease in benefit coverage and find universal market saturation they will typically become desensitized to the increase in benefit cost Organizations develop salary structures and incentive plans to reward and retain human capital To ensure internal equity and compliance w federal lawsmandatesdifferences in benefit costs for worker subsets will be absorbed by the plan However inequities in coverage may lead to greater out ofpocket exp for certain subsets eg young women for maternity more spent on ded and coins Gov Mandates mental health benefits National Labor Relations Act of 193 5 The Great Depression left workers desperate for employment and in need oflaws to equalize the power in the employeremployee contract NLRA applies to private sector companies except passenger freight rail amp airlines Also excludes agricultural workers domestic service workers independentcontractors and fed state local workers Restore the equality of bargaining power between employers and employees Triangle Shirtwaist Factory Fire in 1911 started the dialogue One of the largest industrial accidents in history of NYC O O FDR a champion ofworkers rights National Labor Relations Board NLRB oversees the Act I Collective Bargaining O O 0 Purpose is to protect commerce by encouraging collective bargaining and rights of workers Collective bargaining process between employers and employees to reach an agreement concerning the rights and duties of people at work But a recent court decision allowed the employer to unilaterally change health insurance carriers when the plan was substantially the same Three possible subjects for bargaining I Mandatory subject 0 Supplemental Disability Pay Health Insurance Paid Time Off Pension amp Retirement Plans Limits the ability of employer to make unilateral substantive changes to these benefits I Permissive 0 Administration of the Fund 0 Retiree Health Care Benefits 0 Workers39 Compensation Within State Comp Laws I Illegal 0 Standards for Employee Benefits Plans set forth in ERISA Minimum Participation Standards Minimum Vesting Standards Benefit Accrual Standards Ioint retirement survivor benefits requirements Also WARN Act requires 60 days notice for plant or factory closing Companies w unions try to avoid layoffs because they must rehire laid off employees when business improves I IRC what is it 0 O O O IRC main body of domestic statutory taX law in the US Taxes are the main source of revenue to fund federalstate amp federal programs IRC contains regulations for legally required amp discretionary benefits IRC provides incentives for employers who provide discretionary benefits and employees who receive benefits TaX deductibility require that employers must meet ERISA s nondiscriminatory rules I Fair Labor Standards act of 1938 O Applies to I Minimum Wage 000 O OO O I Overtime Pay for hourly workers I Child Labor Minimum wage applies to nearly all workers Overtime provisions only apply to nonexempt workers Exempt workers include executive administrative managerial learned professional creative professional computer workers and outside sales reps Much litigation on what is an exempt job and nonexempt eg claim representative Any worker with an income under 23660 is nonexempt 1Nonexempt workers required to get 15 times normal wage for hours over 40 per week 2 FLSA determines specific PTO practices that qualify as hours worked per the PortaltoPortal Act of 1947 I ERISA don t need to memorize all the titles and part descriptions O 00 000 0 00000000000 Establishes minimum standards for various plans I Medical Insurance I Life Insurance I Disability Programs I Retirement Plans Generally applies to private sector EB plans But does not cover I Government Plans I Church Plans I Workers39 Compensation Plans I Top Hat Plans unfunded deferred compensation plans I Plans Maintained Outside the USA for Nonresident Aliens Complex broad and farreaching law Preempts any state laws pertaining to EBs Amended several times to properly balance interests of employees and employers Relevant to EB practices I Prior to 1974 pension plans unregulated I Many terminated plans I Hardship for employees Insures Information on Benefits to Employees Sets Standards of Conduct for Plan Managers Determines Adequate Funding Standards Ensures that Workers receive Earned Benefits Safeguards Benefits if Plan is Terminated Safeguards Benefits for Terminated Workers prension plan fails to meet ERISA requirements it is disqualified Title I Protection of Employee Rights Title II Amendments to IRC relating to Retirement Plans Title III Jurisdiction and Enforcement provisions Title IV Plan Termination Insurance COBRA 0 00000000000000 0 Part 6 COBRA of ERISA Consolidated Omnibus Budget Act Reconciliation Act of 1985 Gives workers and their families who lose health benefits the right to choose to continue group health benefits provided by their health plan for limited times under certain situations Covers Private Sector Employees State amp Local Government Employees with 20 Employees Exempt Federal Government Employees Church Employees Has to meet definition of qualifying event Death of Covered Employee Termination or Reduction in Hours Divorced or Legal Separation Dependent Child Loses Eligibility Employee Eligible for Medicare Qualifying beneficiary spouse and dependent child The American Recovery and Reinvestment Act of 2009 provides a 65 reduction in bene t cost to the eligible individual now expired The period of continuing coverage ranges from 18 to 36 months from the qualifying event Employers can terminate coverage under COBRA under certain circumstances HIPAA O 0 000000 HIPPA amendment to ERISA that protects health ins coverage for workers when they change or lose jobs 4 Provisions I Guarantees Access to Health Insurance Coverage Sets Pre Existing Conditions Limits I Allows ins from Former Plan towards PreExisting cond I 4 Limits Use and disclosure ofHealth Care Information HIPPA applies to all employers offering group health plans Prohibits discrimination due to any of the following ENNEquot Health or medical condition Claims experience Receipt ofhealth care Medical history Genetic info Evidence of insurability Disability PreeXisting conditions are reduced under HIPPA based on credits for prior coverage from a prior employer s health plan Credible coverage includes A group health plan andor health insurance coverage Medicare andor Medicaid Militarysponsored health care Public health plan or plan offered under PeaceCorps Act A medical program sponsored by the BIA or a tribal organization Limits ofpreeXisting conditions rules reduces timeframe via credits for preeXisting conditions Renewability must renew even if employee has poor health 0 Health Care Privacy health providers must receive patient s consent to disclose health records Pension protection act of 2006 0 Designed to protect employees companysponsored retirement plans 0 Strengthens financial condition of PBGC by requiring substantially higher premiums from underfunded companies 0 Law makes employee participation in employersponsored defined contribution plans easier through automatic enrollment with multiple investment options to minimize employee risk EEOC lawsI such as ADAI civil rights act of 1991 pregnancy discrimination act of 1978 0 Laws that prohibit specific types ofjob discrimination including EBs in certain workforces 0 Equal Employment Opportunity Commission EEOC oversees these laws 0 Ifa job applicant or employee suspects he or she has experienced disc can contact EEOC o EEOC s goal is to help employers comply with following laws I EQUAL EMPLOYMENT OPPORTUNITY LAWS 0 Equal Pay Act 1963 o Is an amendment to minimum wage provisions of the FLSA Fair Labor Standards Act Enacted to address discriminatory wage structures in the workplace quotequal work for equal pay Definition ofwages encompasses EBs Benefits must be equal for both genders According to BLS women s wages are still just 80 percent ofmen s Why o Title VII of Civil Rights Act 1964 o Prohibits illegal discrimination against protected class individuals in employment 000000 0 O 0 OOO 0 Civil Rights Act includes all aspects of the employer employee relationship Including benefits Protects employees who work in the private sector government and educational institutions with more than 15 employees 0 Age Discrimination in Employment Act 1967 O O 0 Age Discrimination in Employment Act of 1967 age 40 Applies to private sector employers with 20 employees state and local gov most employment agencies and union shops with over 25 members Specifically addresses benefit administration and early retirement plan offerings must be on a voluntary basis The Older Workers Benefit Protection Act OWBPA places additional restrictions on the employer to prohibit differential treatment based on age I Amends the ADEA I Requires employers to offer older workers age 40 benefits that are equal to or in some cases as much as the EB it offers to younger workers Ifmore employer can charge more but not as a condition of employment I Can reduce coverage as an incentive to employers I Also sets minimum standards for an employee waiver of the right to sue for age discrimination 0 Pregnancy Discrimination Act 1978 O 0 Pregnancy discrimination occurs when expectant women are fired not hired or otherwise discriminated against due to their pregnancy or their intention to become pregnant Pregnancy may not be treated less favorably than other medical conditions Must be treated the same way as disability This Act is an amendment to the Civil Rights Act of 1964 0 Americans with Disabilities Act 1990 O O O O O O O O O O 0 Wide ranging civil rights law that prohibits discrimination based on disability Similar protections to those afforded by Civil Rights Act of 1964 Disability defined as quota physical or mental impairment that substantially limits a major life activity Examples inability to walk read bend communicate EB provided to disabled workers must match those offered to nondisabled workers Employers must provide the same health insurance regardless of disability status Employers may not fire or refuse to hire individuals with documented disabilities where a reasonable accommodation is possible The ADA applies to the same organizations as Title VII EBRelated lawsuits alleging ADA violations are complex Employee could claim under ADA that he is a qualified person with a disability but still apply for disability benefits Case of Giles V GE is instructive I Employee had backinjury I Returned with a lifting restriction 20 lbs I Employer rejected this restriction I Employee received It disability payments I When exhausted again tried to return to work asking for reasonable accommodation under ADA Also applied for disability payments under Social Sec Lawsuit filed alleging ADA violations by GE worker won case Civil Rights Act 1991 O 0000 Passed in response to a series ofUS Supreme Court decisions which limited rights of employees to sue their employers for discrimination Patterson v McLean Credit Union Wards Cove Packing Co v Atonio Martin v Wilks This Act represents the first effort since Civil Rights Act of 1964 to modify some of the basic Chapter 5 O O O O O O O procedural and substantive rights provided by federal law in employment discrimination cases Allows for trial by jury Employers must show that the challenged employment action is a quotbusiness necessity Protects same groups as Title VII Under the business necessity defense an employer must prove that the suspected practice prevented irreparable financial damage to the company Genetic Information NondiscriminationAct 2008 Title I of the Act prohibits discrimination in employersponsored group health premiums based on genetic information or the using the information as a basis for determining eligibility or setting health insurance premiums Title II of GINA prohibits the use of genetic information in employment decisions and also the disclosure of said information Title 11 applies to all threeemployment sectors Arguments for Law necessary to ensure that biomedical research continues to advance Arguments against Law legislation is overly broad and might increase frivolous lawsuits and punitive damages as a result of ambiguous record keeping O O O O O 0 Defined retirement plans and origins Defined plans provide retirement income to employees or they result in a deferral ofincome by employees for periods extending to the termination of covered employment Origins first pension plan established in 175 9 Presbyterian ministers first corporate planAmerican Express TaX incentives apply to employers and employees alike 0 Qualified plans discrimination Participation Requirements one year of service and minimum age of 21 Coverage Requirements cannot favor HCEs tvvo tests Ratio percentage test Average benefit test Vesting Rules right employee has to employer contributions after specified amount of time Accrual Rules rate at which worker earns benefits Nondiscrimination Rules Testing cannot treat HCEs in a better way 0000000 00 OO O O O TopHeavy Provisions these plans are ones where accrued benefits for key employees exceed 60 ofbenefits for all employees Key employee definition Minimum Funding Standards Social Security Integration Benefit amp Contribution Limits Allowable Tax Deductions Retirement plans must be qualified Employer must make contributions before certain dates for tax purposes Deductible contributions established by IRC Plan Distribution Rules Distribution is payment ofvested benefits to plan participants Three events may commence a mandatory distribution of benefits Distributions are payable in one ofthree forms Qualified Survivor Annuities often a joint and several liability annuity Qualified Domestic Relations Orders alternate payee often arising from a divorce Termination Rules amp Procedures apply only to defined benefit plans See Exhibit 51 for the full list of the 13 fundamental characteristics 0 Defined benefit plans and benefit formulas O O 0 Defined benefit plans are one in which an employer promises a specified monthly benefit on retirement that is predetermined by a formal based on earnings age and tenure Benefit formulas Flat Benefit formulas at dollar amount per employee or a dollar amount based on employee s compensation at percentage Unit benefit formulas take into account length of service 0 Benefit formulas 0 Flat Benefit formulas at dollar amount per employee or a dollar amount based on employee s compensation at percentage I Plan to retire final salary will average in the 3 year period prior to retirement 39 100000based on 99000 in 2008 100000 in 2009 and 101000 in 2010 I Plan s designated percentage is 60 I His annual retirement income equals 60000 100000 average annual income 60 Unit benefit formulas take into account length of service I Mary retires at age 59 with 25 years ofservice I Her final average salary is 5 2500 I Mary multiples 5 2500 by the annual percentage of 4343 percent I Her annual benefit is 2280075 5 25 004343 0 Testing of nondiscrimination rules 0 000000 Nondiscrimination Rules Testing Plan must meet several uniformity criteria and add l safe harbor criterion Defined benefit plan must be uniform to meet safe harbor requirements Uniform normal retirement benefits Formula must be uniform Subsidized optional forms must be available to all workers Uniform vesting Safe harbor plan Period ofaccrual same for all employees I Accrualthe adding together of interest or different investments over a period of time I Accrual rules accumulated benefit obligations refers to the present value ofbenefits based on a designated date I Present value value on a given date of a future payment or series of future payments discounted to re ect time value of money I Time value of moneyvalue of money figuring in a given amount ofinterest earned over a given amount of time I Accrual benefit formula normal retirement benefit X accrual rate normally of years employed 0 Accrual rules 3 ruleI 133 1 3 A ruleI fractional rule 0 O 3 rule I Benefits cannot be less than 3 ofnormal retirement benefit I Margaret retired at age 62 from Company A I She joined the company 41 years earlier at age 21 and immediately began participating in defined benefit plan I Company A awards an annual benefit equal to 70 of the four year average highest salary I Her four year average salary was 50000 upon retirement I Yielding an annual retirement benefit of 350005000070 I Under the 3 rule Margaret saccrued benefit must be no less than 1050350003 133 1 3 rule I The accrued rate cannot exceed 133 13 of the rate of accrual for any prior year I Company has annual accrual rates of 115 for 1St 10 years I 14 for neXt 10 years I 188 years after O O I Plan violates the rule because 188 exceeds the rate of the lowest former rate I 153that is 115 of compensation 133 13 Fractional rule I Applies to participants who terminate their employment prior to reaching retirement age I Benefit accrual upon termination must be proportional to the normal retirement benefits I Annual annuity a person would have earned at retirement age 20000 I Her years of service at full retirement age would have been 30 years I But she terminated her employment at 20 years of service I Annual annuity is 13333 2000020 years30 years I Paying an annual retirement benefit less than 13333 would be a violation of the fractional rule Minimum funding standards employers must make an adequate annual contribution large enough to ensure the promised benefits to retirees Benefits Limits and Tax Deductions IRS sets a maximum annual benefit for these plans equal to the lesser of a 195000 in 2009 or b 100 of highest averages compensation for 3 straight years 0 Defined contribution plans features such as individual accounts investment of contribution 0 0000000000 0 000 0 Retirement plan in which the amount of the employer s annual contribution is specified Employees amp Employers Contribute Employers Invest Contributions in Stocks and Bonds No Guarantee of Future Benefits Amounts Individual accounts four sources of contributions Employer contribution Employee contribution Forfeitures Return on investment Investment of contributions need a fiduciary Fiduciary holds assets for another with certain legal authority and duties Employment participation in investments Nondiscrimination rules Testing must meet one of two safe harbor conditions Uniform allocation formula Uniform Points allocation formula Accrual Rules accrued benefit is the balance in the employee s account Minimum Funding Standards std met when contributions to individual accounts match the minimum amounts specified in the plan 0 Contribution limits and tax deductions maximum allowable is a 49000 or b 100 of participant s contribution 0 When is a pay out required I 110th Anniversary of plan enrollment participation or I 2 Participant reaches 65th birthday or dob defined by the plan or I 3 Termination of service from the employer Lump Sum Distribution single payment Annuities Periodic Payments money put in trust fund Payouts are made to qualified joint survivors Andor to domestic partners per the plan 0 Types of defined contribution plansI such as 401K profit sharing stock bonus planI ESOPI 403b 0 Section 401 k I Allows a worker to save for retirement and have savings invested while deferring current Y taxes I Also Cash or Deferred Arrangements CODAS I Defer Income to Defined Contribution Plan I For Employees of Private Sector or TaxExempt Companies I Three important tax benefits 0 Employees don t pay income tax on contributions until withdrawn pretax benefits 0 Employer deduct cont from taxable income 0 Investment gains not taxed until participant gets OOOOO payment I Permits eligible employees to choose to defer part of compensation I Limits the amount of annual elective deferrals exception 50 I Restricts distribution before age 595 I Complies with nondiscriminatory rules 0 Profit Sharing I Company profits are distributed to employees from the profit sharing pool I Three common formulas I Fixed firstdollarofprofits formula uses a specific percentage of either pretax and after tax annual profits contingent upon company reaching its financial goals 0 Company might establish that the profit sharing fund will equal 1 of corporate profits I Graduated first dollar of profits formula x of first X amount of sales and then X of the subsequent profits O O 0 Company will choose to share 2 of the first 10 million ofprofits and 3 of the profits in excess of that level I Profitability threshold formulas only if the profits exceed a predetermined minimum level but fall below some established maximum level 0 Company establishes a minimum to guarantee a return to shareholders before they distribute profits to employees 0 Establish maximums to attribute any profits beyond this level to factors other than employee productivity or creativity such as technological innovation Stock Bonus I May be Basis for 401k plan I Invest in Company Securities I Must Meet Nondiscrimination Test I Employees Vote May Like Shareholders I Key is that employees are reinvesting in their own company ESOPs I Also may be basis of company s 401k plan I Align incentives between sh and employee I Similar to Stock Bonus Plans Except o Borrowed Money to Purchase Stock 0 May be Leveraged or Nonleveraged 0 Company Repays ESOP to Repay Loan SIMPLE I For Companies with up to 100 Employees amp 5000 in Compensation I Must be Only Retirement Plan I Can be IRAs or 401 k s I Meet Nondiscrimination amp Vesting Requirements I Employees may contribute up to 11500 annually Section 403 b Tax Deferred Annuities I Section 403 b of the IRC established taxdeferred annuity TDA programs It is a type of retirement program for employees of public educational institutions or private tax exempt organizations I Similar to 401k in features and characteristics Section 457 I Another type ofnonqualified tax advantaged deferred compensation retirement plan available for gov and certain nongov employers in US I Very similar to 401k or 403b plans I One difference no penalty for early withdrawal prior to age 59 12 0 Defined plans guarantee retirement benefits as specified in the plan document The plan contains individual accounts managed by fiduciary Some plans allow employees to choose the investments made in their individual portfolios 0 Hybrid plans cash balanceI pension eguig 0 000 0 More mobile workforce requires need for combinations of Defined Benefit amp Defined Contribution Plans Traditional defined benefit plan called quotgolden handcuffs Example will illustrate Combines elements of defined benefit plan and defined contribution plan Types Cash Balance amp Pension Equity I Hybrid plan with features of both defined benefit plan and defined contribution plan It defines benefits for each employee by reference to the amount of the employee s hypothetical account balance IRS I Employer pays a specific amount such as 5 ofworkers pay into the employee s defined account each year Accounts earns a specified amount of interest I Pension equity are similar to cash balance plans except the particular way the benefits are calculated 0 Many companies have chosen to convert their defined benefit plans to cash balance plans for three reasons 0 1Cash balance plans are less costly to employers than defined benefit plans 0 2They pay out benefits in a lump sum instead of a series ofpayments this increases the portability ofbenefit o 3They are more attractive to the younger more mobile more ambitious and potentially more valuable employee 0 Target Benefit I Individual Accounts I Total Benefits NOT Guaranteed I Employers Use Actuarial Calculations I Benefits Invested by Trustee I Less Expensive for Employers no guarantee that goals will be met 0 Money Purchase I Benefit Based on Account Balance at Retirement I Contributions Based on Formula I Contributions NOT Tied to Company s Performance I Excise Tax Penalties for Failure to Make Contributions 0 AgeWeighted Profit Sharing I Attractive to older workers I Provides employers an alternative mechanism for allocating contributions I Allocations are computed on basis of an employee s age weighted compensation I Contribute more to older employee accounts I Still have to be aware of nondiscrimination tests 0 Controversy of cash balance plans discriminate against older workers 0 000 Chapter 6 Agerelated treatment Converting defined benefit plan to cash balance Discrimination concerns Wearaway issue 0 Origins of health insurance 0 0 0000000 0 First proposed in 1694 by Hugh the Elder Accident insurance in the US began in late 19th Century Franklin Health Assurance Covered injuries arising in the mining railroad and steamboat accidents Great depression in 1930s prompted employersponsored health insurance programs Social Security Act of 1935 1940s Blue Shield Plans Freeze on wages in 1940s Hence employersponsored health insurance started during WWII After war plans were often eliminated Resulting great discontent Employees saw health care as an entitlement HMO Act of1973 0 Health insurance coverage and costs 0 O O 0 Three broad classes I FeeforService plans I Managed care plans I Pointof Service plans Payment System Multipayer system US Single payer systemEngland 0 Individual vs group coverage 0 Group I Employers benefit in two ways 0 A healthier workforce will experience a lower incidence of sickness and absenteeism 0 Health insurance will help attract and retain excellent workers 0 EXp ensive and getting more expensive I Single Master policy I Pooled Coverage I Based on experience of group thus holds employer accountable for past claims I Collective Bargaining Agreements 0 Individual I Protection for insured individual policy I Sometimes covers dependents I Plan is based upon the experience of the group ofindividual policy holders I Administrative costs are higher I Based on Underwriting Process cost of plan based upon experience ratings I Evidence of Health Status I Mortality Tables death I Morbidity Tables health problems Regulation of health insurance programs HMO act of 1973m ERISAI ADA 0 Federal Regulation I Health Maintenance Organization Act of1973 HMO to encourage inclusion of HMO s as employee option and to promote competition in the industry I Employee Retirement Income Security Act of1974 ERISA governs retirement health benefits I Americans with Disabilities Act of 1990 ADA requires employer to provide same health insurance coverage to the disabled however coverage distinctions can be made between mental and physical conditions I IRS Tax Regulations allows companies to take tax deductions for health benefit 0 State Regulation I A variety of state laws regulate health insurance company practices State laws typically address four areas of responsibility 0 Extending services to particular services treatments or health conditions ie substance abuse treatment 0 Reimbursing recognized health care providers for services rendered 0 Identifying who must be covered under a plan ie adopted children 0 Length of time coverage is available to a terminated employee Fee for service plans calculate what insurer pays and what insured paysded coinsurance 0 Payment to health care provider is made at time of service Paid on a reimbursement basis 0 Two types of feeforservice plans 0 Indemnity plan based on contract between employer and health insurer It indicates covered expenses and the rate 0 Selffunded plan similar but financing is different Employer pays benefits directly out ofits own reserves llospitalization Inpatient roomboard and other benefits drugs lab fees Outpatient Surgical Usual Customary Reasonable Charges Not for Elective Surgeries Physician Charges Hospital Office and Home Visits 1 Deductibles calendar year 0 ranges from 100 to 500 0 pay yearly deductible o Capped deductible 2 Coinsurance after ded met 0 Most indemnity plans stipulate 20 coinsurance 0 Plan will pay for 80 of covered expenses while policy owner pays other 20 0 Out of Pocket Maximums costs can be above means of many insureds Stated as a amount and apply to expenses beyond the deductible amount 200 deductible 1000 max out ofpocket Responsible for up to 800 in addition to 200 deductible 1000 0 Preexisting condition clause now restricted by HIPAA Conditions had before coverage in a designated period are not covered 0 Preadmission Certification may need approval of health insurer s doctor 0 Second Surgical Opinions goal is to reduce unnecessary surgeries 0 Maximum Benefit Limits eg 1M or 2M being eliminated with PPACA 0 Major Medical Insurance Plans or Comprehensive Plans may be used to supplement feeforservice plan 0 Managed care and reasons for it o Managed care describes various techniques to reduce the cost of providing health care benefits and improve quality of care OOOOO Examples include economic incentives for physicians to selectless costly forms of care review medical necessity of certain services increased patient cost sharing selective contracting with health care providers Provided in a number of settings Health Maintenance Organizations HMOs Preferred Provider Organizations PPOs Point of Service Plans POSs Managed care plans emphasize cost control by limiting employees Choice of doctors and hospitals 0 Reasons for the rapid risk in medical costs 0 000000 0 Technological improvements and advances Defensive medicine Hospital labor costs and energy are up Catastrophic cases Economics ofhealth care Cost shifting Increased life expectancies Aging baby boomers demographics o HMOs typesprepaid group model 0 O O O O HMO type of managed care organization that provides a form of health care coverage that is fulfilled through hospitals doctors and other providers with which the HMO has a contract Nominal copayment such as 10 or 25 Two types Prepaid group practice model Individual Practice association 0 Features of HMOPCPI co pays 0 0000000 HMOs differ from feeforservice plans in 3 ways I 1HMO s offer prepaid services while feeforservice plans operate on a reimbursement basis I 2HMOs include the use of primary care physicians as a cost control measure I 3Coinsurance rates are generally lower in HMO plans than in feeforservice plans Primary Care Physicians roles Make initial diagnosis evaluate patient s condition Identify appropriate treatment protocols and practice guidelines Decide what treatment is warranted and specify the same Approve referrals to specialists Evaluate patient s health following treatment Copaymen ts apply to doctor visits hospital admissions drugs range from 10 to 15for office visit hospital50 to 150 0 PPO features OO 0 Select group of health care providers get a higher reimbursement rate than fixed fee plans Subscriptionbased medical care arrangement Exclusive provider organization EPO variation of PPO more restrictive no coverage outside established network except emergencies and certain medical specialist Many features are the same as those in feeforservice plans out of pocket maximums Deductibles are distinguished by whether they are in or out of network with higher deductibles for out of network services PPOs calculate coinsurance as a percentage of fees for covered services two sets first set applies to service within network 10 to 20 percent second set outside network 60 to 80 percent 0 o Specialized insurance Dental insuranceI visionI prescription drugsl mental health and substance abuseI maternity care 0 OOO Separate insurance plans to provide unique benefits Also Called Carve Out Plans Part of Specialty HMOs amp PPOs Includes I Dental Coverage Exhibit 610 0 Dental insurance often covers routine maintenance at 100 no coverage for cosmetic coverage may only pay for other services at 50 or 80 o 3 types ofDental plans 0 Feeforservice plans pays usual and customary with deductibles coins maximum benefits 0 Dental service corp nonprofit organization owned by dental association 0 Dental maintenance organ DMO similar to HMO I Vision Coverage 0 Vision Ins covers eye exams lenses similar to dental insurance sometimes just a discount plan I Prescription Drug Coverage 0 Applies to drugs requiring pharmacy dispensation o Formularies 0 Lists cost effective lower cost drugs that are covered under the plan 0 May require use of mailorder prescription drug program 0 MultipleTiers Steps 0 Generic 10 20 per prescription 0 Formulary Brand Name 25 40 o Nonformulary Brand Name 40 to full price of the prescription I Mental health and substance abuse care About 25 ofAmericans experience some form in lifetime Definition ofmental disorder 0 A behavioral or psychological syndrome or pattern Nearly 20 ofpatients above develop a substance abuse problem Typically referrals come from EAPs Employee Assistance Programs which help employees cope with mental healthsubstance abuse issues Coverage is often less extensive as other health insurance coverage coins and maximum benefits are two examples The Mental Health Parity Act prohibits setting lower annual or lifetime maximums for mental health and substance abuse claims I Maternity Care The Family and Medical Leave Act of 1993 entitles most male and female employees to 12 unpaid work weeks of leave during any 12 month period because of the birth of a child The Newborns and Mothers Health Protection Act of 1996 sets minimum standards for the length of hospital stays and prohibits insurers from using financial incentives to shorten hospital stays The Pregnancy Discrimination Act of 1978 prohibits employers from treating pregnancy less favorably than other medical conditions in addition employers must treat pregnancy and childbirth the same way they treat other causes of disability 0 Consumer Driven health care options and details Very high health care costs for employers is one of their biggest O O O 0 problems CDHC helping companies maintain control over costs while also allowing employees to make greater choices about health care Enables employers to lower costs ofpremiums by selecting plans with higher employee ded Popular choices exible spending accounts and health reimbursement accounts I Flexible spending accounts FSAs permit employees to pay for specified health care costs not covered under employee s health insurance plan PPA CA I Prior to each plan year employees elects the amount to pay they wish to allocate for plan up to a maximum eg 3600 I FSA balances cannot be carried over to the neXt fiscal year 0 Alternatively employer may select the health reimbursement account HRA Purpose ofHRAs and FSAs are similar with two key differences 0 1 Only employer makes contributions to each employee s HRA whereas employees fund FSAs with pretaX contributions 0 2 Balances may be carried over from year to year with HRAs have portability feature I Since the 1980 s companies have encountered a strong financial disincentive to provide health insurance benefits to retired employees for three reasons I Substantial increases in health care costs coupled with a global economy that required employers to reduce benefit offerings I FASB Financial Accounting Standards Board implemented changes to the method for how companies recognize costs of nonpension retirement benefits I In 2003 FASB instituted rule that requires companies to disclose substantial information about the economic value and costs of retiree health care programs 0 Reasons why health care is a fundamental right 0 00000000000 0 Declaration of Independence Preamble of the US Constitution UN Healthcare is a human right Most other developed nations provide right Promote regular and preventive care Good for economic activity Without it depression and sickness increase Health care costsunaffordable amp causing bankruptcies Will encourage entrepreneurship Promote equal opportunity Crucial to functioning of community Health care is a civil right Coverage will best counter epidemics 0 Reasons why health care is NOT a fundamental right 0 00000 Inconsistent with Decl of Independence Inconsistent with Constitution Not listed in Bill of Rights Individual responsibility not gov It is a service that a person must pay for Making this guarantee rationing and longer wait times O O O O O O O O Socialistic Impossible to administer Will lead to huge increase of use decrease quality Greater governmental deficits Government bureaucracy will go up Free market approach better Big taX increases hurt economy Moral hazard up 0 Reasons for universal care 0 O O O O O Steady increase in uninsured residents Inefficiencies in current system Centralized database Doctors can concentrate on healing Get care while treatment is light avoid ER Patients with preeXisting conditions get care 0 Reasons against universal care 0 000 O O 0 Government too inefficient Profit motives amp competition better approach Corruption and special interest will grow Nonprofits and government hospitals still provide care and ERs have to accept people Bigger burden on people who take care of themselves Loss ofprivate practice options Right once granted impossible to remove 0 Key provisions of PPACA dates to be implemented not as important 0 0000000 0 Prior to legislation employers generally chose whether to offer healthcare insurance to employees Now required to provide this or face penalties Health care reform will mainly in uence employer health plans created after Sept 2010 Grandfathered plans some of health care reform plans may not apply to these plans Penalties for employers not offering coverage2000 per employee Healthcare more expensive to employers Elimination of lifetime benefits cap Eliminate preeXisting conditions clauses Eliminate lengthy waiting periods Effective at enactment FDA now authorized 12 years of exclusivity for new drugs before generics allowed Medicaid drug rebate for brand name drugs is increased Establishes a nonprofit PatientCentered Outcomes Research Institute O O o Criticisms of plan 0 00000 Chapter 7 Creation of task force on Preventive Services to develop and disseminate evidencebased recommendations for clinical prevention services Nursing mother s provision Not one Republican voted for the plan Big government is getting too intrusive Requires people to purchase health insurance Individual states are challenging this bill for this reason PPACA impinges on people s freedom Not enough laws in bill to reduce medical malpractice suits 0 Disability loss exposure and basics of disability insurance 0 O 0000 O 0000 Insures the beneficiary s earned income against the risk that disability will make working impossible One out of three employees will experience a disability that lasts over 90 days over the course of their working lives Employersponsored disability insurance is typically provided through a third party insurer who provides a policy for a set premium paid by the employer The policy stipulates the terms and conditions for disability eligibility and compensation Broader than WC Benefits apply to work and nonwork related injuries May selfinsure or purchase from insurer Two forms of disability I Short term less than 6 months I Longterm 6 months to life Plans may overlap Soc Sec disability Sick leave separate from disability policies Employers may overestimate help from public disability programs 0 Long term disability vs short term disability 0 0 Long Term I Two Stage definition 0 A Long term disability 0 B Partial disability I Characteristics 0 Benefits usually 5070 ofmonthly pretax salary o Elimination period 0 Active after st disability exhausted 0 Continue til retirement 0 Main causes Short Term I Definition an inability to perform the duties of one s regular job including such short term conditions as recovery from injuries or surgery treatment for an illness that requires hospitalization and pregnancy Usually pay employee 5067 of pretax salary Benefits paid up to 6 months Monthly maximum benefit amount Example Preexisting condition clause Waiting periods a generally two b Preeligibility period 0 Date of hire to time of eligability c Elimination period 0 Date ofinjury to time compensated for it 8Exclusion Provisions intentional selfin icted injuries mental illnesses related to a crime war 9Causes of disability pregnancy accident muscularskeletalconnective tissue 091493 l 0 Funding DI programs 0 Applies to both LT and ST disability 0 Three options for funding 0 Independent insurance company Partial selffunding Full selffunding 2 Considerations Partial v Total SelfFunding ASize of the employee group Larger groups help predict probabilities of disability occurrences law of large numbers B Estimating exposure or liability for disability claims claims Exposure refers to anticipated amount of annual disability Risk tolerance of employer 0 Relationship of D1 to various benefit laws such as Age Discrimination in Employment Act of 1967 and ADA Age Discrimination in Employment Act of 1967 O 0 Older Workers Benefit Protection Act 1990 amendment to the ADEA Applies equal benefits or equal cost principle Provisions exist to provide a quotsafe harbor for employers who may reduce the duration ofa long term disability benefit as long as benefit level is consistent No discrimination for particular disabilities anyone with specific disability has to be treated in the same manner Americans with Disabilities Act of 1990 Prohibits discriminatory employment practices against qualified persons with disabilities I Under the Act a qualified individual with a disability is a person who possesses the necessary skills experience education et al to perform the job with a reasonable accommodation I EEOC oversees administration and enforcement ofADA I Employer Violations ofADA 0 Employee Retirement Income Security Act of 1974 O Regulates the establishment and implementation of company sponsored benefits I Areas covered by the act I Disability Insurance I Health Insurance I Life Insurance I Pensions I Most Titles of ERISA apply to pension and health insurance plans Workers Compensation and Social Security Regulations I Employees may receive longterm disability benefits from public as well as company sponsored disability programs I Companies and insurance companies may include an offset provision 0 Life insurance gages and features group term lifeI don t worry about exhibit 73 Universal life ADampD whole life O 00 00000 Protects family members by paying a specific amount to employee beneficiaries upon the death of the employee Also may include accidental death and dismemberment Purchase options Group plans allow all employees to be covered while employer assumes the burden of financing plan only one master policy Origins of Life insurance I of Employee Coverage 2008 75 of Full Time Employees 17 of Part Time Employees Types of Life Insurance I 1Term life insurance Most common type offered by employees Temporary protection No benefits after policy expires No savings component Conversion feature I 2Whole life insurance 0 Pays beneficiary a specified face amount upon employee s death Policies don t expire until payment to beneficiaries More expensive than term Chapter 8 o Combines insurance with savings I 3Universal life insurance 0 Provides protection to employee s beneficiaries based on the insurance feature of term life insurance A more exible saving or cash accumulation plan Combines features of term life and whole life insurance Created to provide more exibility Breaks down premium into insurance and savings Policy owner makes adjustments to the amounts directed Cash value variable rate tied to market Leads to changes in premium benefits amp payment schedules I Group term life insurance 0 Generally must have at least 10 ft employees 0 Two plans 0 Contributory employees pay entire premium or share cost with employer 0 Non contributory employer pays all 0 Within designated limits like 3X salary 0 Most common since employer reaps many taX benefits I Accidental Death and Dismemberment Insurance 0 Covers death or dismemberment as a result of an accident 0 The use of this benefit has diminished due to prohibited costs 0 Companies are more inclined to spend these benefit dollars on health insurance and retirement plans 0 Origins of SS and WC OOOOOO Government s Role to promote social good Social problems during Great Depression Lack of money to pay for medical services amp afford retirement Gov programs to promote social good What is Social Good Social good in employment settings I 1Protect families during unemployment hit 25 I 2Stimulate economy I 3Retirement income I 4Protect health and welfare of employees amp families I 5Income needed to participate in economy I 6Workrelated injuries very common and many severe I 7Few laws to protect workers rights I 8WC laws created by state governments in early 20th century rather than federal gov I 9First WC laws passed in 1911 I 10By 1920s all but 6 states had WC I 11Two assumptions behind WC 0 aEmployer absolutely liable no fault o bEmployers assumes all costs ofinjuries amp accidents 0 Understand four public social programs OASDII Medicarel insurance securitv income benefits 0 01d Age Survivor and Disability Insurance0ASDI O O O O I Virtually all workers are eligible for protections I Exempt classes I In 2008 more than 50 M Americans received benefits I Prevalence of Social Security benefits I Demographics don t look good Medicare Unemployment Insurance I Generally given only to those registered as unemployed I Key Facts I Worker files an initial claim at beginning of unemployment I Wide variation in number of monthly claims I Benefits usually collected for several weeks I Extended several times due to economic recession I Congress passed the Unemployment Compensation Act of 2008 I 2009 American Recovery and Reinvestment Act Supplemental Security Income Benefits Passage set up two programs I AFederal system ofincome benefits for retired workers I B System of unemployment insurance administered by federal and state gov o Administering the program 0 000 0 Social Security Administration administers Federal retirement survivors and disability insurance SSA also handles supplemental security income SSI for the aged blind and disabled SSA authorizes federal government to grant money to states to administer unemployment comp Federal Unemployment Tax Act FUTA Each state own rules and oversee program admin DOL oversees overall program Each state maintains records collect taxes etc 0 Medicare different coverage partswhat do they cover 0 Part A Hospitalization Insurance I Compulsory hospitalization coverage I Inpatient hospital care in a semiprivate room meals general nursing and other hospital supplies and services I Home health services O O O O I Hospice care I Skilled nursing facility care I Blood Part B Supplemental Health Insurance I Voluntary I 80 of Services amp Supplies 100 Deductible I Diagnosis Therapy amp Surgery Medical Services amp Supplies Administered Medication Outpatient Hospital Services Structured Voluntary supplemental insurance is structured similarly to indemnity medical insurance After the deductible is met expenses are paid at 80 Medigap Supplements Parts A amp B I Supplements Parts A amp B I Offered by Private Insurers I Up to 12 Choices in Level of Protection I Some policies cover costs not covered in original Medicare plan Medicare Advantage Part C I Combines Parts A and B must cover all medically necessary services I Balanced Budget Act of 1997 I Variety of Options via private insurers I Fee for service plans I Managed care plans I Medical savings accounts Medicare Prescription Drug Benefit Part D I Part D is standalone prescription drug coverage insurance Most people do have to pay a premium for this coverage Plans vary and cover different drugs but all medically necessary drugs are covered I Covers 75 of prescription drug costs after a calendar year deductible of 295 up to 2700 I After that expenditures up to 4350 are not covered by Medicare This is called the quotdonut hole I Medicare covers 95 ofprescriptions for each dollar spent in excess of 4350 spent during the calendar year 0 How are these programs financed 0 000000 Overview FICA Requires Equal Employer amp Employee Contributions At 765 for both parties beginning in 1990 153 for selfemployed OASDI Programs SECA Requires Self Employed to Pay 153 in 2007 153 for OASDI O O 290 for Medicare The Medicare tax supports Medicare Part A Employers and employee contribute 145 while the selfemployed contribute 29 Social Security benefits are adequately funded through 2019 without changes in the tax structure the fund would be depleted in 2040 0 Unemployment insurance 0 000 O 0000 0 Provides weekly income for unemployed workers States role Federal government role Eligibility Criteria I Must be involuntary separation I Minimum wage earnings met A waiting period in most states A capacity to work Worker is actively seeking work Unemployment Insurance provides a weekly bene t to those who are unemployed through nofault ofthel39r own Limited voluntary employment and involuntary unemployment Minimum earnings Waiting p eriod Capacity to work and availability for work Actively seeking suitable work Financed by Federal government Varies by State No Federal Rules Maximum of 26 Weeks 13 week extension may be granted Due to recent economic recession additional weeks may be added to the permanent program Funded by FUTA tax currently employers pay 62 of first 7000 earned by each employee However states have established their own taxable wage base An employer s actual tax burden varies according to their experience rating 0 WC laws and coverage and benefits employer rights 0 0 Definition ofWC Six Objectives I Income and medical benefits payments to workaccident victims or income benefits to their dependents regardless of fault Single remedy To relieve public and private charities of financial drains To eliminate payment of fees to lawyers 000000000 0 O O O O O I To encourage maximum employer interest in safety and rehabilitation I To reduce preventable accidents and human suffering Common Law I Three common defenses o Contributory negligence o Fellow servant rule 0 Assumption of risk doctrine WC Laws around turn of 20th century Employer funding Compulsory participation in nearly all states Maritime workers Federal civilian workers WC lawswho do they cover Four legal tests for employees Telecommuting issues Workers compensation differs from Social Security disability insurance and Medicare It pays for medical care for workrelated injuries beginning the datetime ofincident It pays temporary disability benefits and may pay permanent partial or permanent total disability payments It may pay for rehabilitation and training Social Security pays disability benefits but only when the disability precludes work It may also pay for rehabilitation Employers generally pay 046 per civilian employee for each hour worked to provide workers compensation protection The hourly amount was substantially higher for workers in goods producing industries Although these amounts represent no more than 3 percent of the total compensation cost the annual costs for employees in goods producing industries is quite high There is wide variation in the cost ofworkers compensation from state to state 0 WC claims injury occupational diseaseI death claim 0 O 0 Three types of claims I Injury Claim I Occupational Disease Claim I Death Claim Unlimited Medical Care Disability Income Four types I Temporary total I Permanent total I Temporary partial I Permanent partial Death Benefits 000 0000 0 Rehabilitation Employer s compliance protects it from torts Four possible exceptions I Employer s intentional acts I Lawsuits alleging employer retaliation for filing WC claim I Lawsuits against noncomplying employers I Lawsuits related to quotdual capacity relationships Cause ofinjury or illness unrelated to work activities Preexisting condition Employee negligence Employee misconduct Safety violations Financing WC programs 0 00000 Chapter 9 Defining and exploring PTO programs 0 000000 Private insurance Selfinsurance Rates are based on each 100 of payroll Ratemaking service organizations collect data on workplace accidents Rating manuals Second injury funds Apply when employee not performing primary work duties List of discretionary programs Federal or state laws regulations FMLA Union settings are expanded Paid holidays Vacation leave PTO practicesI such as holidaysI vacationI sick leaveI personal leavel integrated PTOI bereavement or funeral leave 0 Practices I Holidays 0 Most common occasions 0 Examples 0 Holidays private employers typically follow federal government practices Twelve public holidays Company specific practices Religious holidays Holidays during vacation or sickleave I Vacation 0 Discretionary o Europe more liberal on this benefit 0 Five Key considerations 0 Minimum seniority requirement Parttimers may be excluded Separate policies for different classes ofworkers Allotment Nonexempt V exempt Employee places request for vacation Carryover provisions quotUse it or lose it provision Taxation Not subject to reporting requirements of ERISA Tough economic times temporary shutdowns I Sick leave Purpose Separate from disability Flexibility Certification ofillness Illness Unscheduled absences I Personal days Almost any reasons Occasionally restrictions Mental health days Can Extend Vacations Sick Leave Usually 1 10 days May be Subject to Carryover Cash out Benefits Taxed as Income Employers Pay FICA and FUTA I Integrated paid timeoff policies Combine time offbenefits into one policy Give individuals more PTO freedom Increasingly popular Less administrative work Bereavement time still standalone Iury duty military leave Sabbatical leave Carryover 2530 days often depends on length of employment I Bereavement or funeral leave Specifies Whose Death Qualifies Generally for Immediate Family Employers Set Number of Days IRS Treats Benefits as Income Employers Pay FICA and FUTA Can be Deducted as Business Expense I Sabbatical leave


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