Chapter Ten

1. Chapter Ten Legally Required Benefits

2. Utility of Employee Benefits • Promote social stability & welfare. • Allow retirees, disabled, & others to participate in the economy as consumer of products and services. • Provide a cushion in times of economic hardship, thereby providing social stability. • Social security and other benefits can be traced to the Great Depression & the traumatic experience of dealing with large masses of displaced workers. • Foster employee loyalty and well-being, thereby facilitating a stable workforce.

3. The “Pyramid” Underlying Social Security Benefits • Assumption: the number of retirees will always be smaller than the number of active workers, and therefore withdrawing a bit of money from each active worker will be sufficient to support retirees. • Problem: This assumes steady population growth: retirees active workers

4. Workers per retiree projections 3.3 workers per retiree 3 2 Workers per retiree 1.7 workers per retiree 1 2003 2052 Year Source: Fortune Magazine, November 2003 issue

5. Example of Annual Benefits Cost Distribution (Employer costs = salary + 29.28% of employee’s salary) 1-4

6. Reporting Benefits Cost-Sharing Rates -Benefit Costs- 1-4

7. Reporting Benefits Cost-Sharing Rates -Salary & Benefit Costs- 1-4

8. De-statization of employee benefits • Foster individual retirement plans (401k, etc.) that can supplement social security payments (which are unlikely to keep up with the cost of living). • Government role: no longer to provide benefits but to promote individual savings: Economic Growth & Tax Relief Reconciliatory Act (EGTRRA) (signed by President Bush in June 2001) : • Increased employee contribution limits • Catch-up contributions for workers 50 and older ($1,000 a year until reaching $5,000 in 2006) • Tax credit on contributions up to $2,000 to retirement plans and IRAs • Speeded-up vesting. • New contributions can be rolled over to ANY plan type, not just a same-type plan or IRA.

9. Legally Required Benefits Social Security Act of 1935: Great Depression Unemployment insurance (State administered) Federal Unemployment Tax Act (6.2% of the first $7,000 earned by each employee, but rate depends on the company’s prior experience with unemployment). Eligibility criteria: • 1. Not have left a job voluntarily • 2. Be able and available to work • 3. Be actively seeking work • 4. Not have refused an offer of suitable employment • 5. Not be unemployed because of a labor dispute (exception in a few states) • 6. Not have had employment terminated because of gross violations of conduct within the workplace

10. Table 10-2Unemployment Benefit Amounts for Selected States WEEKLY BEN. AMOUNT (WBA) MAXIMUM TOTAL BENEFIT INCLUDING EXTENDED BENEFITS MINIMUM BASE PERIOD ANDQUALIFYING WAGES WAITING PERIOD STATE Alabama California Florida $22 min., $180 max. eff. 7/3/94 $40 min., $230 max. $10 min., $250 max. Lesser of 26 times WBA or 1/3 base period wages 26 times WBA, up to 1/2 base period wages 1/2 of weeks worked in base period 1 1/2 items high quarter wages; at least $774.02 $1,300 in high quarter, or $900 in high quarter and total base period wages of 1 1/4 times high quarter wages 20 times claimant’s average weekly wages (at least $20) None One week One week

11. Legally Required Benefits Social Security Act of 1935: OASDI (Federally administered) Old Age: based on quarters of coverage; fully insured when they earn credit for 40 quarters (10 years); benefits will be permanently reduced if elected prior to age 65 (a sliding scale in the future; e.g., 67 in you were born in 1960, older if you were born later), eligible for partial benefits at age 62. Survivor: Dependent becomes eligible if deceased was fully insured. Disability Benefits: fully insured; disability must endure for at least 1 year or expected to result in death.

12. Health Insurance (Medicare) Serves nearly all US citizens aged 65 or older • Compulsory hospitalization insurance (Part A) Covers both inpatient and outpatient hospital services, but no physician’s fees, custodial care, routine examinations, cosmetic surgery. • Voluntary supplementary medical insurance coverage (Part B) Covers physician services and some others not covered by Part A (e.g., outpatient hospital services). • Prescription Drug Coverage (Part D). Effective January 1st, 2006. Beneficiaries choose among three options: • Remain under the traditional fee-for-service Medicare program w/o drug coverage • Purchase additional coverage via a private prescription plan. • Switch to private health care plan offering health services and prescription coverage (Medicare advantage). • Part D will require Medicare to compete against private plans starting in 2010.

13. Workers’Compensation • State-regulated. • Protects employers, who accept accepting liability without fault. • Provide reasonable income and medical benefits in case of injury, occupational disease, death claims • Importance of educational and preventive programs (safety training, audits, inspections).

14. Table 10-4Primary Obligations of State Workers’ Compensation Programs • 1. Take initiative in administering the law. • 2. Continually review performance of the program and be willing to change procedures and to request the state legislature to make needed amendments. • 3. Advise workers of their rights and obligations and assure that they receive the benefits to which they are entitled. • 4. Apprise employers and insurance carriers of their rights and obligations; inform other parties in the delivery system such as health care providers of their obligations and privileges. • 5. Assist in voluntary and informal resolution of disputes that are consistent with law. • 6. Adjudicate claims that cannot be resolved voluntarily. Source: J.V. Nackley, Primer on workers’ compensation (Washington, DC: The Bureau of National Affairs, 1989).

15. Discussion Question 10-1 According to a Florida Workers’Comp Judge, almost half of the workers’ comp claims are due to insurance adjusters’ errors. These are often caused by insufficient communication between adjuster and injured employee, which increases litigation. Employers have also difficulty finding good doctors who would accept workers comp patients (hospitals have ended up taking the larger share of medical expenses) –A new fee schedule that follows Medicare’s should fix this. Please research potential solutions to these issues on the internet.

16. Family & Medical Leave Act of 1993 Due to: • Growth in elderly population needing care. • Prevalence of two-income families. • Changing role of men regarding child care. 12 UNPAID work weeks of leave during any 12-month period because of: • Birth or adoption • Serious health condition of spouse, child, parent, or self.

17. FMLA (Family and Medical Leave Act) Scenario: ABC Corporation Inc. is a company that has a labor force of 55 employees and is managed by Chris. Maria has been employed at ABC for about two years now. She is pregnant and is expecting to give birth within the next month. Questions: Which of the following are true? Maria is entitled to 12 weeks of unpaid leave. Because she is pregnant and therefore is entitled to leave because the FMLA provides leave for the birth and care of a newborn child. She has been working at ABC for more than a year which is a requirement of the FMLA. All of the above are true. See next slide for answer

18. FMLA (Family and Medical Leave Act) Correct Answer: d. All of the above all true. Explanation: Maria is entitled to leave because she has been working at ABC for more than a year. An employer must grant an eligible employee up to a total of 12 workweeks of unpaid leave in a 12-month period for any of the possible reasons 1) the birth and care of a newborn child 2) care for an adopted child 3) care for an immediate family member with a serious health condition and 4) when the employee is unable to work because of a serious health condition.

19. FMLA (Family and Medical Leave Act) Scenario: Janet works at XYZ corporation Inc., which employs 20 people. She only started there six months ago. His brother-in-law has been diagnosed with a serious illness and needs caretaking. Why is Janet not entitled to leave under the FMLA? Janet has only been working at XYZ for 6 months, which is less than the one year requirement. XYZ corporation only employs 20 people. Her brother-in-law does not qualify as an immediate family member. All of the above all valid reasons. See next slide for answer

20. FMLA (Family and Medical Leave Act) Correct Answer: • All of the above all valid reasons. Explanation: Janet has to be employed for more than a year to be entitled to family and medical leave. Only a covered employer can grant leave to an eligible employee. The company must have 50 or more employees who work within a 75-mile radius (smaller companies are exempt because the leave is thought to impose a heavy burden on small businesses). An employee may request leave to care for an immediate family member such as a spouse, child or parent with a serious health condition. A brother-in-law (or even a brother or a sister if they are not the employee’s dependents) does not qualify as an immediate family member.

21. FMLA (Family and Medical Leave Act) Scenario: John has been working at the ABC corporation for about three years. His spouse has a chronic, serious health condition and he spends a lot of time taking care of her during the year. This year he has already taken more than 12 weeks for sick, personal and vacation leave. He is requesting an additional 12 weeks family and medical leave. Question: Is John entitled to leave under the FMLA? Yes. No. See next slide for answer

22. FMLA (Family and Medical Leave Act) Correct Answer: • No. Explanation: Some employers require employees to first use their paid leave for family and medical leave. In addition, employers may require the employee to substitute accrued paid leave for FMLA leave and therefore count that paid leave as part of their 12 weeks of family leave.

23. FMLA (Family and Medical Leave Act) • Summary of FMLA: • It provides certain employees with up to 12 workweeks of unpaid, job-protected leave a year • All public and private employers who have 50 or more employees who work at a location within a 75-mile radius are required to provide FMLA leave • Eligible employees are those who have worked for the employer a minimum of one year • Eligible employee are entitled to Family and Medical leave for one of following reasons a) the birth and care of a newborn child b) care of an newly adopted child c) care for an immediate family member (spouse, child or parent — but not a parent "in-law") with a serious health condition and d) when the employee is unable to work because of a serious health condition. • Employers may require employees to first use their paid leave for family and medical leave

24. Discussion Question 10-2 Do some on-line or library research on the kinds of programs that employers use to control workers’ comp costs. Identify activities involved, their intended outcomes, and their potential pitfalls.