CHAPTER 8: CHARACTERISTICS OF EMPLOYEE BENEFITS

Overview: Review of voluntary employer-provided benefits, such as retirement plans, insurance programs and time off.

Corresponding courses:

20 The Basics of Employee Stock Option Plans
30 Employee Health Insurance
50 Employee Life and Disability Insurance
60 Individual Retirement Accounts and 401(k)s 
74 Employee Benefit Programs

Employee benefits consist of a large number of diverse organizational rewards. This diversity makes it difficult to categorize and discuss the characteristics of benefits in general, since each one needs to be dealt with independently. In fact, benefits administration has become a specialized function within organizations that requires specific training and experience.

CONSIDERATIONS IN BENEFIT ANALYSES

Although it is hard to develop commonalities among benefits, there are a number of factors that need to be considered when discussing any benefit. Those to be examined briefly here are purpose, contribution, and cost.

Purpose

The central purpose of benefits in the employment exchange is to foster membership or continuity of employment. Security is a major theme in benefits, as well. Many organizations also talk of social concern, the fact that they would not want to see their employees be without insurance protection or suffer in their retirement. So although the major overall aim of benefits from the employer's standpoint is membership, some other advantages can occur from granting benefits. In order for a person to concentrate on performing well, he or she must be able to concentrate upon the job. Having protection from uncertainty provides this ability to concentrate. Benefits provide security in three areas: age, unemployment, and sickness and accident.

But security is an after-the-fact type of protection. There are also benefits that employers provide with the expectation that their provision will improve or maintain the current level of performance of the employee. These benefits are largely in the form of time off (which is expected to help the employee recuperate or reduce fatigue on the job), programs to improve the health of the employee, and programs to improve the employee's future worth to the organization, such as educational reimbursement.

Contribution and Cost

The costs of providing a benefit are a major consideration. Most benefit administrators can show that the benefits are cost-effective by the savings that they can attain through proper administration of the particular benefits.

A final consideration is who should pay for the benefits, or more likely, how much each partner to the employment exchange should contribute to the cost of the benefit. To the degree that the employee pays for the benefit, the employer cannot claim it as his or her contribution to the employment exchange. But there are good reasons to share the costs of particular benefits. The employee sees the benefit more clearly as a part of the employment exchange when costs are shared, and the employee has a larger and more direct stake in keeping benefit costs down when both parties are contributing to the cost of the benefit.

Some organizations emphasize retirement benefits (which average ~ 4.5% of payroll), but the cost of health care has increased at a double digit rate for many years. For example, health insurance premiums rose 20% in the year 2001 alone.

TYPES OF BENEFITS

Although there is no set way of classifying benefits, ERI has been surveying and reporting on benefits for many years and uses the five categories of benefits shown in Exhibit 8-1.

This breakdown will be used as we discuss the major features of today's benefit packages. Some of the benefits (profit sharing and service awards) are awarded for people's performance and not for their membership. As such we would not consider them benefits.

This chapter examines voluntary employer benefit programs, including retirement plans, insurance and time off. Chapter 9 will look at legally required benefits, including Social Security, Unemployment Insurance and Workers' Compensation.

RETIREMENT PROGRAMS

This category of benefits, and the next (insurance), validates the statement that in the United States, employee protection arrangements have been left to organizations rather than government. The programs covered in this section are controlled by laws when offered, but are not required by law.

Retirement Overview

A major benefit requirement is to provide economic security for employees upon retirement. This can be accomplished in a number of ways.

In essence, all methods of providing economic stability in later life are done by deferring current compensation to some future time, but some programs do this more obviously than others. The least visible form to the employee is the retirement plan program. In a retirement plan program, money is put away in a fund each year for the employee's eventual retirement. At retirement the employee begins to receive the money put away for him or her. Thus a retirement plan program is a tradeoff between current income and future security. It is not strange, then, that desire for and interest in retirement plan programs increases with age. The problem is that in order to have a retirement income that is satisfactory, one must be concerned about it from a young age.

Retirement plan programs have been a part of organization benefit packages for a long time. During the early 1970s there was a great deal of concern about retirement plan programs as it became clear that many employees who thought they were covered by such programs discovered that they were not. This was partially an administrative situation involving very complicated plans and partially an economic problem where organizations had not funded the pension plans and could not meet the demands of retirees.¹ The result of these problems was the Employee Retirement Income Security Act (ERISA), which sets forth the standards that the organization's retirement plan program must meet. The act does not say that the organization must have a retirement plan program but does say that if it does have a retirement plan program the program must meet certain standards.

In addition to ERISA, tax laws affect the development and administration of retirement plan programs. Since there is a deferral of income from today to tomorrow, the IRS is interested in seeing that this deferral is not abused to avoid taxation. In addition, the tax laws are concerned with treating all employees in the organization in a nondiscriminatory manner. What this means is that retirement plans cannot be established that benefit only a portion of the organization's employees, usually executives, if the plan is to qualify for the above-mentioned tax advantages.

The design of a retirement plan program calls for identifying who, when, and how.

Who is in the program?

Our placement of benefits as membership rewards in the employment exchange would suggest that a retirement plan program include all employees. But this may ignore two factors: length of time in the organization and the value of the reward in retaining different groups of employees. If the program is to encourage continued membership, then a waiting period before entrance into the program makes sense. Likewise, certain groups, particularly executives, have needs that are different from those of other employee groups.

ERISA has some rules regarding who shall be in the program. The law requires that any employee who (1) has been employed for one year or (2) is 21 years of age, whichever occurs later, must be included.

Tax considerations have to do with whether the program is qualified. Participation eligibility must be 70 percent and participation at least 80 percent of the eligible population. The importance to the employee of the plan being qualified is that the monies placed in the fund for the employee are not counted as income to the employee in that year. Thus, in order to be qualified, retirement plan programs must benefit only employees and their beneficiaries and not discriminate in favor of particular employee groups, such as executives.

Vesting. A second part of the who question involves the idea of vesting. The term vesting means that the employee has an interest in the accrued benefits of the retirement plan program. These benefits cannot be taken away even if the employee quits or is, fired. This is a requirement of ERISA and was placed in the law because organizations would avoid paying retirement plans by letting people go before their retirement age. Also, having to stay all of one's working life with a particular organization in order to receive a retirement plan reduces labor mobility drastically.

For 2002 and beyond, ERISA requires companies to adopt one of two vesting schedules for 401(k) and 403(b) plans:

1. 3-year cliff vesting: 0% vesting for less than 3 years of service; 100% vesting after 3 years

2. 6-year graded vesting: vesting begins in the employees second year of service; it increases by 20% each year, until the employee is fully vested at the beginning of the sixth year of employment

The easy answer to this is when the employee retires. But this answer hides more than it reveals. When is retirement?

Ordinarily retirement plan programs assume a retirement age of 65. This standard is under pressure from both directions today. On one hand the Age Discrimination Act says that employers cannot force a person to retire before 70, and some states have abolished mandatory retirement entirely. On the other hand, there is a trend toward early retirement of employees before the age of 65. Most organizations stay with the 65 figure as a model and adjust the payments made to people who retire early or late actuarially. An alternative way of dealing with this question is to define a number of years of service in the organization before the person is able to obtain full retirement plan benefits.

There are two circumstances other than retirement, death, and disability in which there is a payout from the retirement plan. Upon the employee's death the usual practice is to provide the deceased's beneficiary with the money that is in trust for the deceased. Most pension programs also have a disability retirement clause that, much like an early-retirement provision, pays the employee a proportion of the amount that the employee would be entitled to had he or she stayed employed until the normal retirement date.

How much?

This is the most complex question to answer and one that is affected by at least two major variables. The first of these is the contributor. In some plans only the employer contributes; in others both employer and employee contribute. Employee contribution plans tend to pay more than noncontributory ones. On top of Social Security, a further deduction from the paycheck may seem like a lot to the employee and certainly reduces his or her options for putting money away in other ways. But it also makes the retirement plan program more visible to the employee and makes it a shared contribution to the employment exchange.

The second variable is the type of program: defined benefit or defined contribution. These are so different that they are discussed separately below.

Defined-benefit plans. A defined-benefit plan is one in which the employee upon retirement is guaranteed a set income for as long as he or she lives. There is usually also a clause that allows a percentage continuance beyond that for the person's spouse. This is the most common form of retirement plan program. The exact benefit amount is determined by the employee's income and the number of years of service. The current wage rate or an average of the wage rate for a previous time period forms the base for determining the amount to be paid.

The length of service determines the percentage of the base pay that will be paid out each month. This figure is ordinarily some small percentage per year, from 1 to 5 percent. An employee with 30 years of service and a 3 percent accrual per year is entitled to 90 percent of base pay. This percentage need not be the same each year. A front-loaded program gives a person a higher percentage in the early years of coverage and a lower percentage in later years. A back-loaded program does just the opposite. The two have very different consequences for employee retirement decisions. A front-loaded plan makes early retirement attractive, since additional years do not add much to the person's retirement income. A back-loaded program makes staying on the job to the normal retirement time more attractive, since it is the last few years that make a large difference in retirement income.

Under ERISA the employer must contribute to the retirement plan fund enough monies each year to fund the additional interest that the employee has gained in the retirement plan program. In a defined benefit plan there is a problem in determining what this amount should be. It is a complex actuarial decision that must be made by an expert.

Three other considerations with defined benefit plans need to be discussed. The first is the effect of inflation. If the plan provides a certain income at retirement without a way of adjusting to inflation, the value of the retirement plan can decline rapidly in a few years after retirement. This is very difficult if the former employee has planned a reasonable retirement program and finds it is inadequate. On the other hand, automatic adjustments tied to the CPI can break the program, so most retirement plan programs are granting ad hoc increases as deemed necessary.

A second consideration is male-female discrimination. Women live longer, so there have been attempts over the years to either lower the payment amounts to women or to make women contribute more to the program. Both alternatives have been ruled out by the Supreme Court, so retirement plan programs may make no distinction because of sex.

The third consideration is the possibility of integrating the retirement plan program with Social Security. This can be a cost-cutting strategy for the organization since benefit levels can be lowered if Social Security benefits are taken into account in determining the benefit levels that are appropriate for the organization's employees.²

Defined-contribution plans

In a defined-contribution plan, employees do not know what income they will receive upon retirement but do know how much money there is in the retirement plan fund earmarked for them. Upon retirement the person can take that money out and develop a retirement-income program. This is usually done by going to an insurance company and buying an annuity.

The money in the defined-contribution plan comes from employer contributions, the growth and interest earned on those contributions, and employee contributions. The employer contributions can be determined in a number of ways. The easiest is a percentage of the person's pay each year. More complex, but of more interest to many organizations, is the combination of a defined-contribution plan with a profit-sharing program.

Defined-contribution plans are now far more numerous than defined-benefit plans and are growing at a faster rate. Part of the reason is their comparative simplicity. The employer contribution is much easier to calculate and understand under a defined-contribution plan.

401(k) plans. Social Security’s funding problems and the dramatic inflation rates of the late 1970s led to the realization that employees must plan for their own future retirement and not depend upon the government to take care of them. This trend has been encouraged by the government, which has established a number of programs to allow individuals to invest money and defer the taxes on that money until retirement.

401(k) plans are the best example of this trend. They are a defined contribution plan that if properly administered and sold to the employees is a qualified plan under the tax laws. A 401(k) plan allows the employee to put aside up to $11,000 of his or her income per year (Year 2002, changes annually). In addition, the Economic Growth and Tax Relief Reconciliation Act of 2001 offers employees over 50 a "catch-up" provision, which lets them contribute an extra $1,000 in 2002. This will rise to an extra $5,000 in 2006, when those over 50 can contribute up to $20,000 (vs. $15,000 for those under 50).

The organization may provide matching funds if it wishes. This matching can be one for one, some percentage, or tied to profits. The monies collected may go into a single fund or may be allocated among a number of funds by the employee, and if there are multiple funds, the employee can switch funds as needed. These plans may also have a loan program that allows the employee to take money out for emergencies. 401(k) plans require considerable thought and communication by management if they are to be effective, since a major problem can be the discrimination tests that require that the participants be spread out over all employees of the organization and not just the executives.³ Despite these requirements, 401(k) plans are the fastest-growing retirement plan benefit today.

ESOPs. Employee stock ownership plans (ESOPs) are also a form of defined-contribution program. The idea of these plans is that the employer puts aside for the employee money, which is used to purchase stock in the company. These ESOPs are attractive to organizations because they can borrow money to purchase the stock and pay off the loan and interest with taxable income. Banks are permitted to exclude 50 percent of interest on ESOP loan value from taxable income. If the company does well, these plans are seen positively by employees, but if the company does not do well the employee receives little value. Again, employee stock-ownership plans are also a form of defined-contribution program, one that has been used for non retirement objectives. Common to these plans is the ability to borrow money and have the employees purchase all the stock of the company (United Airlines, Avis are examples).⁴ Often, these plans are used in an attempt to rescue a dying company and individuals' retirement monies are used to support what otherwise no one would buy. (Employees purchase the company or buy a job with their retirement savings.) The track record of ESOPs from a financial perspective is mixed.⁵

SEPS and IRAs. A new form of retirement program allowed by law is the simplified employee retirement plan (SEP). This is a form of individual retirement account (IRA) in which the employer is allowed to contribute a percent of the employee's income into a savings account. This is a popular form of retirement plan program because it requires little administration. It is particularly valuable to small organizations.⁶ Individual Retirement Accounts (IRAs) allow individuals to contribute funds on their own without the assistance of a company sponsored plan. Any U.S. taxpayer who works, whether as an employee or self-employed, can set aside up to $2,000 per year in an IRA ($4,000 for married couples; Year 2002). The earnings on these investments grow, tax-deferred, until the eventual date of distribution. Individuals may also set up Roth IRAs, to which contributions are not deductible, but from which withdrawals at retirement won't be taxed. For more information, see DLC Course 60: Individual Retirement Accounts and 401(k)s.

INSURANCE PROGRAMS

Organizations typically offer insurance benefits for employees in three categories: 1) health and medical, 2) disability and 3) life. There are two major benefits from having the organization provide this insurance, as opposed to having the employees obtain it themselves: taxability and group rates. As a benefit, payments made by the employer for the insurance are not considered to be income to the employee. The employer acting as a representative of the group of employees can obtain a better rate for all employees by putting them into a group program. This is a very real advantage and one that will continue to be effective.

One consideration that runs through all these types of insurance programs is the question of employee contribution. Traditionally, medical programs have been paid for by the employer, life insurance is split between employer and employee, and disability is usually paid for by the employee. When the employee pays for all or some of the cost of the insurance, the value of the benefit in the employment exchange goes down but the attention that the employee gives to the benefit goes up. In today's families where both spouses are employed, there also exists the probability that both have family coverage for the same type of insurances. By asking each to pay a small amount, one encourages these families to drop one of the policies. (Otherwise there is no incentive to couples or families with dual coverage, since it costs them nothing when no employee contribution is required.)

Health/Medical Programs

The purpose of health insurance programs is to provide protection from the costs, sometimes enormous, of sickness and accident to the employee and his or her family. This is done in two ways, an insurance plan or a health maintenance organization (HMO).

Insurance plans

Insurance programs collect money from the employer into a fund and pay it out as employees and their families have health needs. The amount that the employer puts into the fund must, over time, equal the claims against the fund plus the administrative costs of operating the fund. Rates go up when this does not happen. The program must define the health charges that will be accepted for payment and determine what proportion of the costs the insurance program will cover. As an alternative the program determines the amount that will be paid for any particular service.

Some organizations choose to self-insure. This means that the organization provides the agreed-upon coverage to employees out of its own assets instead of turning over a sum of money to the insurance company. This has been a way in which organizations have been able to reduce their health insurance costs. Of course, in doing so they are moving the risk from the insurance company to themselves.

Health Maintenance Organizations (HMOs)

An HMO is an organization that combines being an insurance company and providing health care. It offers comprehensive health care, both inpatient and outpatient. Like an insurance plan, it charges a fixed fee. HMOs are supposed to focus on preventive medicine as well as taking care of current health problems. HMOs have come under attack for their cost savings measures.

Other health-related insurance

Most health insurance plans limit the area of health covered. In particular, dental and eye care are usually excluded and covered under separate policies. Sometimes, pharmaceuticals are also covered in separate programs.

Health care coverage

Health care programs usually cover all employees. However, many organizations exclude part-time employees from coverage. In some cases, organizations have different plans for different employee groups; managers and executives often have plans that include wider coverage.

The Consolidated Omnibus Reconciliation Act of 1985 (COBRA) requires that employees, their spouses, and their children must be covered after the employee is no longer with the organization. The coverage is for 18-36 months, depending on the circumstances. The employer is allowed to charge the covered person 103 percent of the premium cost. (COBRA can vary among employee groups as some states have passed their own COBRA supplements.)

Containment of health care costs

Health care is a good example of a fringe benefit that has gotten out of control. When organizations first started offering health insurance it was cheap and health-care costs were relatively low. In addition, organizations began offering the benefit in terms of coverage and not in terms of cost. Then came the dramatic increase in the costs of health care. From 1968 to 2000 the proportion of GNP devoted to health care rose from 6.7 percent ($58 billion) to an estimated 15 percent in 2001. The cost of health-care coverage to the organization has likewise risen as the organization agreed to provide health care coverage regardless of cost. At this point organizations have started looking toward ways of controlling health-care costs. Some of these alternatives have already been mentioned: HMOs and self-insuring were some of the first to appear.⁷

A new cost-control method using the insurance approach is the preferred-provider organization (PPO). This is an organization that contracts with a group of doctors and hospitals to provide services at a discounted price. This is attractive to the providers because it produces a consistent flow of patients. The PPO is halfway between a regular insurance plan and an HMO. The employee is free to go to any doctor or facility on the list.

Probably the most successful technique in cost containment is sharing the cost with the employee. This can be done at two points. The first is to share the premium costs of the insurance. The second is to share the health-care charges. This can be done by having deductibles for overall services or for specific service events. This may take place informally in nonunion organizations or as a part of collective bargaining in unionized organizations.⁸

Close administration of health-care programs is also necessary. Knowing who is being paid and for what can lead to identification of abuses in the system. Claims control is important, allowing administrators to see that the providers are charging correctly and that employees are properly making claims on the program. Communication and education can alert the employee to the costs the employer must put into this area and therefore not into others. Further, educational efforts can be directed to promoting health reduce claims and providing a better-performing employee.⁹

Disability Insurance

Workers' Compensation (discussed in the next Chapter) takes care of disability resulting from injury on the job, and health insurance takes care of the medical costs of non-work-related injuries. But a person who is out of work because of a non-work-related injury faces a loss of income at the very time that it is important to have full income. Disability insurance is designed to fill this need. Several states (and Puerto Rico) have a legal requirement for disability protection for the employee.

The immediate form of disability coverage is sick leave. This is not really insurance but payment for time not worked. But the effect is the same: the employee's salary is continued while he or she is ill. From the organization's standpoint it is like self-insurance.

Long-term disability is taken care of by an insurance program that specifically pays a proportion of the employee's salary for a specified period. This is commonly an option the employee may choose if he or she is willing to pay for it. (If a company pays for this benefit, then any benefits paid are taxable. If the employee pays, then the benefits are non-taxable.)

Life Insurance

Life insurance is one of the most common benefits offered by organizations. The insurance is usually of the group-term type, which provides coverage for a certain period with no cash surrender value or investment value. The amount of coverage is geared to the salary rate of the employee: the higher the salary the more insurance the employee is allowed.

Organizations vary as to whether the premiums for this insurance are paid by the employee or by the organization. When these benefits are paid for by an employer, coverages above certain amounts create imputed income that is shown on an employee's W-2 each year.

DISCRIMINATION TESTS

Ignored by many is the fact that certain benefit coverages are required to pass discrimination tests. Should they not pass these tests, then the benefits are classified as wages/salaries and the employees are taxed. Examples include: self funded medical plans (Tax Code Section 105(h)), life insurance (S79), and cafeteria plans (S125).

DIFFERENCES IN BENEFITS

During the 1990s, various states began to accelerate the adoption of compensation and benefit laws that were more favorable than federal laws. In the wage and salary area, minimum wage laws are an example. Oregon, Washington DC, California and other states have mandated rates higher than the federal minimum wage. However, with retirement benefits, this has not been the case. ERISA has been upheld numerous times in the Courts as superseding state laws.

There is a sound reason for this. If every state had its own laws governing retirement plans, then any organization operating across state boundaries could find itself violating one state's laws by meeting another's. This ability to operate across state boundaries has been critical to the growth of the American economy. (Canada operates under the opposite principal: federal law should not supersede Provincial. This has been detrimental to their businesses.)

However, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) does allow states to pass laws superseding federal regulations. Therefore health insurance administration could become complex for companies operating across U.S. state borders.

PAYMENT FOR TIME NOT WORKED

This category of benefits includes a number of situations in which the employee is paid but is not actually working. It can include both time at the workplace and time away from the workplace.

Time Not Worked on the Job

Included in this category of benefits are arrangements for rest periods, lunch breaks, and various preparatory activities and cleanup activities at the end of the day. Most of these arrangements have come about historically and are informal. In some cases they are predicated on state laws requiring breaks after a certain work time or negotiated as part of a labor contract.

Time Off the Job

This is a category of benefits that many employees look forward to. It includes vacations, holidays, sick leave, maternity leave and personal leave.

Vacation

The purpose of vacation is to give the employee time away from the job for rest and recreation. Over time there has been a trend toward granting more vacation time. This trend, if not being currently reversed, is clearly on hold. The practice seems to be to start with two weeks and work up to four weeks' vacation at around 15 years.¹⁰ The major issues in vacation policy are whether the vacation time can be carried over, if so how much, and whether to pay the employee off if the vacation time is forfeited. Allowing employees to build up a bank of vacation time creates a large potential cost to the organization and destroys the purpose of vacation -- to get away from the job. So most companies have a policy limiting the amount of vacation time that can be stored.

Holidays

The common number of paid holidays per year ranges from 9 to 12. Some of these are legally defined and others are the product of tradition or bargaining. Recent upturns in the economy and concession bargaining have increased the number of holidays in many industries.

Sick leave

The most common amount of sick leave is a day a month, amounting to 12 days a year. There are two opposing concerns with sick leave. The first is the person who abuses sick leave by taking it whether really sick or not. This employee then has no sick leave available when it is needed. The opposite problem is those employees who take no sick leave and thereby build up a large potential cost to the organization. This can be quite costly, since employees could build up their reserve while their salary rate is low and then use it when their salary rate is much higher. Every time the wage structure is adjusted, this affects the total potential cost of sick leave. To get around this problem organizations are limiting the buildup of sick leave just as they are vacations.

Maternity leave

Employer provision of maternity health care benefits plays an important role in a benefit plan, especially as more and more women of childbearing age participate in the workforce. Most company-sponsored health care plans provide for prenatal care, delivery, and postnatal care. Federal law requires that if employer-provided insurance is offered, maternity-related expenses must be paid for on the same basis as other medical conditions. In addition, state laws must be consulted, since many states stipulate coverage of certain maternity care treatments.

Personal leave

This is a grab bag of time off for various reasons, such as death in the family, military leave, and jury duty. Many organizations are setting up a general category of personal leave rather than having a series of special circumstances that lead to different interpretations throughout the organization. In fact, one trend that is starting to take hold is to combine all the time-off categories just discussed and grant a certain number of days off per year for paid time off the job. It is left up to the employee to decide how these days are to be distributed.

FMLA

Personal leave has been bolstered by the Family and Medical Leave Act of 1993, which states that public and private sector employees who have been employed by the employer for one year and work at least 1,250 hours a year (25 hours a week) can take up to 12 weeks of unpaid leave in any 12 month period for: the birth or adoption of a child; acquiring a foster child; the serious illness of a child, spouse, or parent; and, the serious illness of the employee.

REPORTING

Benefits plans are required to be reported to both the government and the plan participants. The Internet is bringing changes to this laborious process, particularly with the acceptance of e-signatures for all benefit plans. See Chapter 24 for further discussion of this issue.

EMPLOYEES SERVICES

A number of other benefits are often granted to employees because they are of value to the employee. While not of great value to the employer, it is the employer who can arrange for the service, grouping employees to provide an economic advantage in dealing with the suppliers of the service, much as is done in insurance. Examples of this are credit unions, food services, recreational facilities, and discount tickets to entertainment events.

These services are needed by the employee but also enhance the value of the employee to the organization at the same time. The three best examples of this are reimbursement for educational expenses, health-club or recreational-club memberships, and day care for children. In each of these cases, the employer is spending money to provide the employee with a service that will improve the ability of that person to accomplish his or her job.

Educational Expense Reimbursement

This has been popular for a long time, particularly among professional and managerial employees who are seeking advanced degrees. The organization ordinarily pays the tuition of the employee, provided the educational experience relates to the job. In addition, adjustment of the working day is often required to allow part-time students to attend classes.

Health-Club Memberships

The development of a health facility on plant premises is increasing with the knowledge that a healthy person is a more productive employee. The movement toward concern with health in the United States has spurred this trend. Many organizations claim that this, plus a campaign to promote wellness among employees, reduces absenteeism, increases productivity, and lowers medical-insurance costs.

Day Care

Child care is one of the hardest-to-solve problems of the work force today. The problem is a result of the twin work-force trends of two-paycheck families and single-parent families. Both of these trends call for adequate child care to be available to parents.

Organizational contentions that this is the employee's problem or society's problem disregards much of the rationale for the benefits. It is in fact when employees need something and society is not in a position to provide it that organizations have been called upon to provide the service, either voluntarily or under the law.¹¹

The problem actually concerns two groups of children. The first are preschool children who require all-day care. The second are school-age children who need care after school -- the latch key children. This group is being dealt with by government and private organizations to a greater degree than is the preschooler group.¹²

SUMMARY

Benefits represent a wide variety of rewards granted to employees for a number of reasons. Each benefit requires discussion, since the administration of each is different. Typically, one groups benefits by categories and examines their characteristics.

The passage of ERISA has made an enormous impact on the design and administration of retirement programs through the requirements for funding, vesting, and reporting. (See: www.aicpa.org/pubs/jofa/may2000/thompson.htm.) Retirement programs are either defined benefit or defined contribution plans. The latter is becoming more popular because of the funding requirements of ERISA. Tax laws have encouraged a number of new types of plans in recent years including 401(k)s and ESOPs.

Another category of benefits is insurance programs. These include health/medical plans, disability, and life insurance. Medical plans have been the most troublesome in recent years as costs have risen significantly. A major concern in organizations today is reducing these costs. Some ways of doing this have been the use of HMOs and PPOs, self-insuring, close administration, and cost sharing with the employee. From a cost perspective, health/medical plans are the most expensive. In the future, ERI believes that rising costs will necessitate a federal health plan, which will be imposed through incremental legislation.

Time off work (both paid and unpaid) is an important benefit for maintaining employees’ health and well being. These can include vacations, holidays, sick leave, maternity leave and personal leave. The passage of the Family and Medical Leave Act of 1993 granted qualifying employees 12 weeks of unpaid leave per year for special circumstances.

A final category of benefits is employee services, which can include an unbelievable variety of services depending on the organizational circumstance. The current concern in this category is the provision of day care for children of employees.  

Internet Based Benefits & Compensation Administration

Thomas J. Atchison
David W. Belcher
David J. Thomsen

ERI Economic Research Institute
Copyright © 2000 - 2009

Library of Congress Cataloging-in-Publication Data

HF5549.5.C67B45 1987 658.3'2 86-25494 ISBN 0-13-154790-9

Previously published under the title of Wage and Salary Administration.

The framework for this text was originally copyrighted in 1987, 1974, 1962, and 1955 by Prentice-Hall, Inc. All rights were acquired by ERI in 2000 via reverted rights from the Belcher Scholarship Foundation and Thomas Atchison.

All rights reserved. No part of this text may be reproduced for sale, in any form or by any means, without permission in writing from ERI Economic Research Institute. Students may download and print chapters, graphs, and case studies from this text via an Internet browser for their personal use.

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