NOTE Majority corresponds to CH 12 in text What are employee benefits Employee Benefits A form of compensation other than direct salaries wages that workers may receive from their employers Example Health expense benefits Death benefits Disability benefits Unemployment benefits Total Compensation View Compensation Cash Salary The Value of Employee Benefits On average firms spend about 40 of payroll on benefits 18 low end 40 75 high end COBRA COBRA Only For Health Insurance Consolidated Omnibus Budget Reconciliation Act Provides a safety net for employees their dependents by giving them the right to temporarily continue group health coverage following o Loss of employment o Loss of full time status o Loss of dependent status e g Divorce Death of Employee Age out Continue same group insurance coverage as the individuals covered in the group plan o NO EVIDENCE of insurability is required to do so o The continuation period can range from 18 36 months o Employers can charge UP TO 102 of the cost of coverage Necessity The Use of COBRA is GREATLY REDUCED due to the Affordable Care Act ACA o Eligible for subsidies if purchase through State Health Insurance Exchange ADDRESSING THE ONE SIZE FITS ALL ISSUE Employee situations are different so are their needs for benefits SOLUTION Cafeteria Plans Flexible Benefit Plans Section 125 Plan PLANS THAT INVOLVE Plans That Involve Choice Cafeteria Plan Employee benefit plan that allow employees to choose between Types levels of benefits Possibly cash out CORE PLUS PLAN A major type of Cafeteria Plan Every employee receives a basic core of benefits e g Health Life Disability 1 Upgrade core benefits example purchase dependent health coverage or buy additional life or disability insurance 2 Buy benefits that are not in core plan ex Dental Insurance 3 Buy extra vacation time 4 Turn it into cash If turned into cash it is considered taxable income Every employee also receives Flex or Flex Credits can use them if they want to FLEXIBLE SPENDING ACCOUNTS FSAs AKA Reimbursement Accounts Can either STAND ALONE or be AN OPTION IN A CARE PLUS PLAN Employee agrees to take a pure tax salary reduction o Funds are deposited into FSA o Used to reimburse eligible expenses Two 2 types of FSA 1 Health Medical For medical expenses not fully covered by the health plan example Deductible Copayments Co insurance For types of medical services expenses which are not covered at all by the health plan example Vision Dental Orthodontic 2 Dependent Care For childcare expenses children under the age of 13 Elder care elderly parent or disabled spouse IRS limit for these accounts 5 000 yr CURRENT RULE Main primary advantage to setting up an FSA TAX SAVINGS USE OR LOSE RULE Any unused funds the end of the plan year are forfeited by the employee Employer MAY choose to either 1 Give a grace period of up to 2 5 months after the plan year ends Most popular plan yr calendar yr 2 Allow employee to carry over up to 500 of unused funds into the next year Employer CAN NOT give both a grace period also allow the employee to carry over unused funds Uniform Coverage Rule for Health FSAs Applies to the employer Full amount of benefit elected must be available during entire plan year regardless of how much an employee actually contributes to date Funded uniformly throughout plan year Employer is risk for any short fall Does NOT apply to dependent care FSA Employee may not receive more than the balance of dependent care FSA Main Advantages of Flexible Benefits Tax Advantage Disadvantages of Flexible Benefits Use or Lose Rule for FSA Increased Admin Costs for Employer Adverse Selection Poor Employee Choices in Flex Benefits Cafeteria Plan Note Adverse Selection In general the tendency for people w the greatest probability of a loss to be the ones most likely to purchase insurance
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