Benefit Review PHR/SPHR Study Group Cindy Thomson, HR Director, Ameritas Fall, 2013

1. Benefit Review PHR/SPHR Study Group Cindy Thomson, HR Director, Ameritas Fall, 2013

2. Benefits and HR Strategy Employer-Provided Benefits Absorb social costs for health care and retirement Influence employee decisions about employers Average over 40% of total payroll costs Are increasingly seen as entitlements • Benefit • An indirect reward/compensation given to an employee or group of employees for organizational membership

3. Employer Compensation & Benefit Costs per Hour

4. How the Typical Benefits Dollar is Spent Source: Based on data summarized from the U.S. Department of Labor, Bureau of Labor statistics, National Compensation Survey: Employee Benefits in Private Industry in the United States, 2006; and Employee Benefits Study, 2006 ed. (Washington, D.C.: U.S. Chamber of Commerce, 2007).

5. Types of Mandated and Voluntary Benefits

6. Security Benefits Types of Security Benefits Unemployment Compensation Workers’ Compensation SeverancePay • Benefits are a form of direct compensation • Severance pay is generally the same amount for every terminated person, regardless of service • Workers’ Comp – provides benefits to persons injured on the job • Benefits are a form of direct compensation • Unemployment Comp – % paid by employer is based on “experience rates”. Unemployed employee receives up to 26 weeks of pay. Only about 40% of eligible people use it. • Severance pay – offered to employees who lose their job. Amount usually correspond to employee’s years of service.

7. Strategic Benefits Considerations

8. Benefits Needs Analysis • Comprehensive look to make sure the mix of benefits is doing what it should. Activities: • Reviewing the organization’s strategy (lead, lag or match market). • Review the organization’s total reward philosophy. • Analyze demographics of employer’s workforce (PT vs FT, active vs. retired, marital/family status, etc.). • Analyzing design and utilization data on all benefit plans (type of benefits vary based on lifestyle & mix). • Gap analysis – compare the organizational needs (including budget), employee needs and existing benefits.

9. Benefits Management Components

10. Benefits Design • Decisions Affecting Benefit Design: • How much total compensation? • What part of total compensation should benefits comprise? • What expense levels are acceptable for each benefit? • Which employees should get which benefits? • What are we getting in return for the benefit? • How will offering benefits affect turnover, recruiting, and retention of employees? • How flexible should the benefits package be?

11. Flexible Benefits • Flexible Benefits Plan: • A program that allows employees to select the benefits they prefer from groups of benefits established by the employer. • The Challenge of Providing Choices • Inappropriate benefits package • - Requiring selection of core benefits • Adverse selection • - Situation in which only higher-risk employees select and use certain benefits. • Administrative time and plan complexity

12. Typical Division of Benefit Responsibilities

13. HR and Benefits Administration Benefits Administration Issues and Trends Internet-Based Administration Systems Outsourcing of Benefits Administration Benefits Measurement (Return vs. Costs)

14. Common Benefits Metrics

15. Benefits Cost Control • Reducing or dropping benefits • Cost sharing with employees • Sponsoring wellness programs • Fostering employee health education • Direct purchase of benefits by employees • Negotiating reduced-rate benefit contracts • Consolidating of benefits packages

16. Benefits Communication • Summary Plan Description: • Details the rights and benefits associated with a particular plan. • Is required by the Employee Retirement Income Security Act (ERISA) • Benefits Statement • A “personal statement of benefits” that translates benefits into dollar amounts that is given to employees as part of a total rewards education and communication effort. • ERISA also requires that employees receive an annual pension-reporting statement and fee disclosure information on 401(k) mutual funds.

17. Private Industry Workers with Health Benefits Source: U.S. Bureau of Labor Statistics, March 2006, www.bls.gov/ncs/home.htm.

18. Types of Benefits • Health Care • Dental • Vision • Life Insurance • Paid Time Off • Long Term Care (usually voluntary and EE pays full rate) • Disability Coverage (short-term and/or long-term) • Transportation Assistance • Tuition Assistance • Adoption Assistance • Fitness Reimbursement/Wellness initiatives • Various leaves (Parental, Adoption, Volunteer, Elder care)

19. Health-Care Benefits Controlling Health-Care Benefits Costs Consumer Driven Health Plans Co-Payments and Employee Contributions Managed Care(PPOs and HMOs,Utilization Reviews)

20. Consumer-Driven Health (CDH) Plans Employee-Focused Health Benefits Plans Health Savings Accounts(HSAs) Defined-Contribution Health Plans Health Reimbursement Arrangement (HRA) • Defined Contribution – employer contributes into employee’s account and employee decides coverage • Health Savings Accounts – tax sheltered savings account similar to IRA, but primarily for purpose of paying medical expenses. Must be in HDHP. • Health Reimbursement Account – employer funded medical plan that reimburses employees for eligible medical expenses.

21. Components of Consumer-Driven Health Plans

22. Overview of COBRA Consolidated Omnibus Budget Reconciliation Act (COBRA) • COBRA requires that most employers with 20 or more employees offer extended health-care coverage to employees, to widowed or divorced spouses, and dependent children. • Employers must notify eligible participants within 60 days. • Coverage offered for 18 to 36 months and employer must charge no more than 102% of premium costs.

23. Health-Care Legislation • Health Insurance Portability and Accountability Act (HIPAA) of 1996 • Allows employees to switch their health insurance plan from one company to another, regardless of pre-existing health conditions. • Requires employers to provide privacy notices to employees and to not disclose of health information without authorization. • Financial Accounting Standards Board (FASB) Rule 106 • Requires employers to establish accounting reserves for funding retiree health care benefits. Authority from SEC. • Genetic Information Nondiscrimination Act of 2008 • Prohibits discrimination against individuals on the basis of their genetic information used to impact their eligibility, enrolment or premium rates for a group health plan. Disclosure of protected genetic health-care information is governed by HIPAA.

24. Other Health-Care Legislation • Mental Health Parity and Addiction Equity Act - 1996 • Requires employers to provide “equal and fair” health care coverage to those individuals adversely affected by mental disorders and substance abuse problems. • The 2008 Mental Health Parity and Addiction Equity Act added that financial requirements and treatment limitations that apply to mental health benefits must be no more restrictive than requirements applying to all medical/surgical benefits. • Children’s Health Insurance Program Reauthorization Act of 2009 • Gives states the opportunity to provide financial assistance for the defraying of costs associated with employer-based health care programs to (1) children of low-income families or (2) individuals below the age of 19 who are entitled to receive Medicare.

25. Other Benefits Legislation • Uniformed Services Employment and Reemployment Rights Act (USERRA) of 1994 • Requires that employers allow for continuation of certain benefits and continue counting credited service for retirement plan purposes. Doesn’t require continuance of health coverage, but requires COBRA. • Amended in 2004 by Veterans Benefits Improvement Act which provides reemployment protection. • American Recovery and Reinvestment Act (ARRA)-2009 • Created additional notice requirements and made changes to COBRA continuation rules, including 65% subsidy of premiums. • Imposed requirements regarding HIPAA including notification in event of security breach of protected health information, stricter enforcement and funding to improve health-care information technology systems.

26. Other Benefits Legislation • Patient Protection and Affordable Care Act (PPACA)-2010 • Requires coverage for children up to age 26, regardless of whether adult child is a tax dependent, has any financial relationship, resides with, is a student, or is anything other than child of participant. • Starting in 2014, all citizens and legal residents of U.S. are required to have “affordable minimum health coverage” • Eliminates lifetime maximum benefit limits • Eliminates annual limits on essential health coverage • Eliminates preexisting conditions for all participants (Jan 2014) • Provides health-care credit (up to 35%) for small employers • Provides first-dollar coverage for certain preventive services • 4 page or less summary of benefits and coverage required • Creates state-run health-care exchanges • Places excise tax on “high value” health plans (effective 2018)

27. Retirement Benefits • Social Security Act of 1935 • Provides old age, survivor’s disability, and retirement benefits • Federal payroll tax (7.65%) on both the employer and the employee. • Medicare taxes are 2.9% • Benefit payments are based on an employee’s lifetime earnings. • Administered by the Social Security Administration

28. Pension Plans Types of Pension Plans Defined-Contribution Plan Defined-Benefit Plan CashBalance Plan

29. Participation in Pension Plans

30. Pension Plan Concepts ContributoryPlan Non-ContributoryPlan PensionPlan Formats Portability of Pension Benefits Vesting of Pension Rights

31. Nonqualified Deferred Compensation Plans • Advantages • Less expensive to set up than a qualified plan • Not subject to ERISA or maximum dollar amounts • Allow companies to provide additional benefits to execs. • Disadvantages • Cannot be company-wide • Funds not protected from creditors • Tax ramifications for employers not as favorable as qualified • Types • Top hat plan – for select group • Excess deferral plans – additional benefit for those execs reaching plan limits • Rabbi trust – limited protections on promise for future pay.

32. Individual Retirement Options Individual Retirement Account (IRA) 401(k) and Roth IRA Individual Retirement Options 403(b) Keogh

33. Protection of Retirement Benefits Employee Retirement Security Employee Retirement Income Security Act (ERISA) 1974 Retirement Equity Act (amended ERISA in 1984) Qualified Domestic Relations Order (QDRO) • ERISA – Establishes minimum standard to ensure that benefit plans are established and maintained in fair and financially sound manner (prudent person rule). • REA – affects women, guarantees access to benefits, lowered vesting age. • QDRO – creates and recognizes right of alternate payee (divorce).

34. ERISA Legislation • Employee Retirement Income Security Act (ERISA): • Establishes uniform minimum standards to ensure benefit plans are established and maintained in a fair & financially sound manner. Protects interests of participants. • Employer must follow prudent person rule in handling, investment, and management of plan’s assets. • Also regulates private pension plans in order to assure that employees who put money into them or depend on a pension for retirement funds actually receive the money when they retire. Enforced by DOL for reporting and IRS for tax-related. • Retirement Equity Act (1984) was amendment to ERISA and liberalized regulations affecting women, guaranteed access to benefits, prohibited pension penalties for absences and lowered the vesting age.

35. Retirement Benefits and Legal Requirements Older Worker Security Age Discrimination in Employment Act (ADEA) Pension Protection Act of 2006 Older Workers Benefit Protection Act (OWBPA) • Pension Protection Act - companies who have underfunded pension plans must pay higher premiums to Pension Benefit Guaranty Corp. • ADEA - companies can only force high execs to retire at 65. • OWBA – prohibits age discrimination and requires companies to give 45 days for someone to consider voluntary early retirement agreement.

36. Other Legislation Affecting Retirement Savings • 1992 Unemployment Compensation Amendments • Imposed a mandatory 20% federal income tax withholding on qualified retirement plan proceeds that a recipient takes as cash if distribution is eligible for rollover. • Arizona Governing Committee vs. Norris • Ruling forcing pension plan administrators to use unisex mortality tables that don’t reflect gender differences. • Revenue Act of 1978 • Added Section 125 and 401(k) to tax code. Section 125 allows employers to offer pre-tax for benefits. Section 401(k) allows pre-tax deferrals.

37. Other Legislation Affecting Retirement Savings • Tax Reform Act, 1986 • Made significant changes in benefit programs and set new limits on salary deferral contributions and compensation. • Omnibus Budget Reconciliation Act (OBRA), 1993 • Significantly reduced the compensation limits in qualified retirement programs, triggering increased activity in nonqualified retirement programs and plan terminations. • Small Business Job Protection Act of 1996 • Allows some tax-exempt organizations to have 401(k) plans.

38. Other Legislation Affecting Retirement Savings • 1997 Taxpayer Relief Act • Adjusts minimum vesting schedules (3 yr cliff or 6 yr graded), increases compensation limits, allows for higher limits on annual pensions, permits catch-up contributions, and modifies distribution and rollover rules • Sarbanes-Oxley Act (SOX) of 2002 • In response to Enron. Requires 30 days written notice of blackout periods. Protects whistle blowers. • Economic Growth and Tax Relief Reconciliation Act (EGTRRA) - 2001 • Modified the minimum vesting schedule requiring that matching contributions become 100% vesting (3 yr cliff or 6 yr graded starting at 2 years service). • Permits Roth 401(k) and 401(k) catch-up contributions (now $5,500)

39. Common Types of Financial Benefits

40. Family Medical Leave Act (FMLA) • Coverage • Employers with 50 or more employees • Employees who have worked at least 12 months and 1,250 hours in the previous year. • Requirements • Eligible employees can take up to a total of 12 weeks of unpaid leave in a 12-month period to attend to a family or serious medical condition. • Employees must exhaust all other forms of leave. • Employees have right to continued health benefits and to return to their job. • In 2009, DOL issued new set of regulations clarifying serious health condition which involves employee incapacity for more than 3 consecutive calendar days plus 2 visits to health care provider.

41. Family-Care Benefits Family-Based Benefits Child-Care Assistance Adoption Benefits Elder-Care Benefits

42. Benefits for Domestic Partners • Each is the other’s only spousal equivalent. • They are not blood relatives. • They are living together and jointly share responsibility for their common welfare and financial obligations. • Domestic Partners or Spousal Equivalents • Unmarried employees who are living with individuals of the opposite sex • Gay and lesbian employees who have partners • Affidavit of Spousal Equivalence

43. Life Insurance Benefits • Employers provide death benefits as salary continuation, group term life, or excess group term life. • With excess group term life, any amount over $50,000 is taxed as imputed income. • Imputed income is premium amount that a company pays on behalf of an employee. Employee does not receive benefit in real dollars but pays taxes on it. • Split-dollar plans allow an employer and an employee to share premium payments toward the purchase of insurance on the employee’s life.

44. Time-Off and Other Benefits Holiday Pay Vacation Pay Time-Off and Other Benefits Miscellaneous Benefits Leaves of Absence Paid-Time-Off (PTO) Plans

45. Percentage of Companies with Various Paid-Time-Off Plans

46. Summary Executive and International Benefits are only on the SPHR test. After our sessions, the LHRMA website will have a study guide you can get to, which includes these and all benefit topics. Best wishes for a successful test. Don’t underestimate how difficult the test is, but it is certainly very possible to pass it. Feel free to contact me with any questions you have. cthomson@ameritas.com