12 Designing and Administering Benefits 2004 by Prentice

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12 Designing and Administering Benefits © 2004 by Prentice Hall Terrie Nolinske, Ph. D.

12 Designing and Administering Benefits © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 1

Challenges • How are benefit packages designed to support firm’s overall compensation strategy and

Challenges • How are benefit packages designed to support firm’s overall compensation strategy and other HRM policies? • What are the strengths and limitations of traditional benefit packages and new menu plans? • What is the HR role in keeping accurate records of employee benefits and informing employees about their benefits. © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 2

How the Benefit Dollar Is $pent Life Insurance 1% Miscellaneous 4. 8% Paid Rest

How the Benefit Dollar Is $pent Life Insurance 1% Miscellaneous 4. 8% Paid Rest Periods 4. 8% © 2004 by Prentice Hall Terrie Nolinske, Ph. D. Payment for Medical and Related time not worked 24. 8% Benefits 23. 3% Retirement and Savings Plans 12. 8% Legally Required 28. 5% 3

Contributions Payments made for benefits coverage. Contributions for a specific benefit may come from

Contributions Payments made for benefits coverage. Contributions for a specific benefit may come from the employer, employee or both. © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 4

Cost of Employee Benefits in the United States, 1929 -2000 37. 5 1984 33.

Cost of Employee Benefits in the United States, 1929 -2000 37. 5 1984 33. 8 1975 30. 0 1965 21. 5 1955 17. 0 3. 0 1929 0 5 © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 10 15 20 25 30 35 40 45 5

Percentage of Employers Providing Selected Benefit Plans Medium and Large Private Firms 1 1997

Percentage of Employers Providing Selected Benefit Plans Medium and Large Private Firms 1 1997 Health Insurance Retirement Plans Defined Benefit Plans Defined Contribution Plans Insurance Plans Life Insurance Long-term Disability Ins Time-off Plans Paid Vacations Paid Holidays Paid Sick Leave Flexible Benefits Plans © 2004 by Prentice Hall Terrie Nolinske, Ph. D. Small Private Firms 2 1996 State and Local Governments 3 1998 76 64 86 50 57 15 38 90 14 87 43 62 22 89 34 95 89 56 13 86 80 50 4 67 73 96 5 U. S. Sept. of Labor, Bureau of Labor Statistics (2000). Employee Benefits in state and local governments, 1998. 6

Companies with Best Benefits *Company offers a flexible benefits plan. 1. 2. 3. 4.

Companies with Best Benefits *Company offers a flexible benefits plan. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. © 2004 by Prentice Hall Terrie Nolinske, Ph. D. Xerox* Quaker Oats* John Hancock Daimler. Chrysler Merck* Bell Atlantic AT&T* Citibank Johnson & Johnson Hewlett-Packard 7

Legally Required Benefits • Social Security • Retirement Income • Disability Income • Medicare

Legally Required Benefits • Social Security • Retirement Income • Disability Income • Medicare • Survivor Benefits • Unpaid Leave • Workers’ Compensation • Unemployment Insurance © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 8

Social Security Benefits: Retirement Income • Age 65 - 67 (full benefits) • Monthly

Social Security Benefits: Retirement Income • Age 65 - 67 (full benefits) • Monthly payments for life beginning at retirement • About 25% of earnings prior to retirement © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 9

Social Security Benefits: Disability Income • • Totally, continuously disabled for 5 months Disability

Social Security Benefits: Disability Income • • Totally, continuously disabled for 5 months Disability lasts at least 12 months Disability results in death Monthly payments comparable to retirement benefits © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 10

Social Security Benefits: Medicare • Age 65 or receive Social Security disability payments for

Social Security Benefits: Medicare • Age 65 or receive Social Security disability payments for 24 months • Covers hospital, nursing home and home health agency expenses with deductible • Monthly premium © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 11

Social Security: Survivor Benefits • Family members of deceased • Widow[er] 60 and over;

Social Security: Survivor Benefits • Family members of deceased • Widow[er] 60 and over; [grand]child under 18; dependent parent 62 or older • Monthly payment related to deceased worker’s Social Security retirement benefit © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 12

Voluntary Benefits Health Insurance • Traditional Health Insurance • Health Maintenance Organizations (HMOs) •

Voluntary Benefits Health Insurance • Traditional Health Insurance • Health Maintenance Organizations (HMOs) • Preferred Provider Organizations (PPOs) • Health Insurance Coverage of Employees’ Partners © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 13

© 2004 by Prentice Hall Terrie Nolinske, Ph. D. Turkey U. K. Spain Denmark

© 2004 by Prentice Hall Terrie Nolinske, Ph. D. Turkey U. K. Spain Denmark N. Z. Finland Belgium Italy Austria Iceland Germany Canada Health Spending in Various Countries, 1990 14

Voluntary Benefits (cont’d) • Insurance Plans • Life Insurance • Long-Term Disability Insurance •

Voluntary Benefits (cont’d) • Insurance Plans • Life Insurance • Long-Term Disability Insurance • Paid Time Off • • Sick Leave Vacations Severance Pay Holidays and Other Paid Time Off • Employee Services © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 15

Voluntary Benefits (cont’d) Retirement Benefits • Defined Benefit Plans • Defined Contribution Plan •

Voluntary Benefits (cont’d) Retirement Benefits • Defined Benefit Plans • Defined Contribution Plan • 401(k) Plan • IRA • SEP • Profit-Sharing Keogh Plan • Hybrid Pension Plans © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 16

Defined Contribution Retirement Plans: 401(k) • For employees of for-profit business • For everyone

Defined Contribution Retirement Plans: 401(k) • For employees of for-profit business • For everyone who qualifies • Up to 15% of salary up to $11, 000 in 2002 • Tax break on contributions / earnings © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 17

Defined Contribution Retirement Plans: IRA • For anyone with earned income • For those

Defined Contribution Retirement Plans: IRA • For anyone with earned income • For those without company pension plans or who have maximum in company plan • Up to 100% of salary up to $6, 000; $3000 if joint with spouse • May get tax break on contributions / get tax break on earnings © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 18

Defined Contribution Retirement Plans: SEP • For self employed and staff of small businesses

Defined Contribution Retirement Plans: SEP • For self employed and staff of small businesses • For sole proprietor • Up to 100% of gross self-employment income or $40, 000, whichever is less • Tax break on contributions / earnings © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 19

Defined Contribution Retirement Plans: Profit Sharing Keogh • For self employed and staff of

Defined Contribution Retirement Plans: Profit Sharing Keogh • For self employed and staff of unincorporated small businesses • For small business owner who is funding a plan for self and staff • Same as SEP • Tax break on contributions / earnings © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 20

Personal Account vs. Deferred Comp $67, 514 1, 200 $57, 266 864 $141, 761

Personal Account vs. Deferred Comp $67, 514 1, 200 $57, 266 864 $141, 761 $11, 609 $1, 251 $891 Net Amount Invested Annually $31, 933 Less Taxes (28%) $18, 128 Salary Set Aside Annually ($100/mo. ) Personal Account $1, 200 336 Deferred Compensation Plan $1, 200 0 Account Value at the end of: © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 21

Annual Number of Vacation Days in Various Countries for Employees of One Year of

Annual Number of Vacation Days in Various Countries for Employees of One Year of Service 20 Australia Austria Belgium Canada Finland France Germany Japan Mexico Netherlands Norway Spain Sweden United Kingdom United States 10 20 25 18 10 6 21 22 24 30 22 10 0 © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 30 20 5 10 15 20 25 30 35 22

Tax-Free or Tax-Preferred Employee Benefits 1. 2. 3. 4. 5. 6. 7. 8. 9.

Tax-Free or Tax-Preferred Employee Benefits 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. © 2004 by Prentice Hall Terrie Nolinske, Ph. D. Charitable contributions Counseling Parking Tax preparation Education subsidies Child care or adoption Elder care Subsidized food service Discounts on merchandise Physical fitness programs 23

Tax-Free or Tax-Preferred Employee Benefits (cont’d) 11. Social, recreational opportunities 12. Travel expenses 13.

Tax-Free or Tax-Preferred Employee Benefits (cont’d) 11. Social, recreational opportunities 12. Travel expenses 13. Clothing allowance 14. Equipment allowance 15. Relocation expenses 16. Emergency loans 17. Credit union 18. Housing 19. Employee assistance programs 20. On-site health services © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 24

Selected Methods of Employee Benefits Communication • Fliers or newsletters mailed to staff homes

Selected Methods of Employee Benefits Communication • Fliers or newsletters mailed to staff homes • Payroll stickers or posters • Wallet cards • Provide toll-free employee assistance program phone • Multi-media present concepts in upbeat way and ensure all employees at different locations get same info © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 25

Case In small groups, discuss how a website could be used to pose information

Case In small groups, discuss how a website could be used to pose information about employee pay and benefits. • What type of pay info would you post? • What type of pay info would you not post? • What info about employee benefits would you post? © 2004 by Prentice Hall Terrie Nolinske, Ph. D. 26