Non-Mandated Benefits

Transcription

1 Non-Mandated Benefits

2 Example Categories for Non-Mandated Benefits Retirement Plans Income Protection Paid Leave & On- Job Paid Time Off Employee Services & Other (Milkovich & Newman, 2008)

3 Retirement and Savings Plan Payments Employees rank pensions in top three of all benefits in terms of importance. Available systems include: Defined benefit plans Defined contribution plans Individual Retirement Accounts (IRAs) The first two forms of retirement plans are covered by the Employee Retirement Income Security Act (ERISA) (Milkovich, Newman, & Gerhart, 2014)

4 Defined Benefit Plans Employer provides a specific pension level defined in terms of: Fixed dollar amount or Percentage-of-earnings amount that may vary with years of seniority Employer finances this obligation by: Following an actuarially determined benefits formula and Making current payments that will yield the future pension benefit for a retiring employee (Milkovich, Newman, & Gerhart, 2011)

5 Defined Benefit Plans Determination of benefit levels Average earnings at end of tenure (last 3 5 years) or Average career earnings or Fixed dollar amount not dependent on earnings (Milkovich, Newman, & Gerhart, 2011)

6 Defined Contribution Plans Require specific contributions by employer Final benefit received by employees is unknown Dependent on investment success of plan manager Three popular forms of these plans 401 (k) plan Employee Stock Ownership Plan (ESOP) Profit sharing Can be considered a defined contribution plan if distribution of profits is delayed until retirement Cash balance plans are a hybrid of defined benefit and defined contribution plans (Milkovich, Newman, & Gerhart, 2011)

7 Relative Advantages of Pension Alternatives DEFINED BENEFIT PLAN 1. Provides explicit benefit which is easily communicated 2. Company absorbs risk associated with changes in inflation and interest rates which affect cost 3. More favorable to long service employees 4. Employer costs unknown DEFINED CONTRIBUTION PLAN Unknown benefit level is difficult to communicate Employees assume these risks More favorable to short-term employees Employer costs known up front (Milkovich, Newman, & Gerhart, 2011)

8 Individual Retirement Accounts (IRAs) Tax-favored retirement savings plan that individuals can establish themselves IRAs are used mostly to store wealth accumulated in other retirement vehicles, rather than as a way to build new wealth (Milkovich, Newman, & Gerhart, 2014)

9 Employee Retirement Income Security Act (ERISA, 1974) Purpose: Reduce likelihood of persons not getting their benefits from private pension plans (Milkovich, Newman, & Gerhart, 2014)

10 ERISA Eligibility: Employees at least 21 years old Employers may require 6 months of service as a precondition for participation Vesting: Length of time employee must work for employer before entitled to employer payments to plan Any contributions made by an employee to a pension fund are immediately and irrevocably vested Employer s contribution must vest according to two formulas (Milkovich, Newman, & Gerhart, 2014)

11 ERISA Vesting options: Cliff : Full vesting after 3 years (down from 5 years previously) or Graded 20 % after 2 years (down from 3 years) and 20 % each year thereafter, resulting in full vesting after 6 years (down from 7 years) (Milkovich, Newman, & Gerhart, 2014)

12 ERISA Portability: Issue for employees moving to new companies Law does not require mandatory portability of private pensions An employer may voluntarily agree to permit portability (pension rights must be vested) (Milkovich, Newman, & Gerhart, 2014)

13 More on ERISA Funding requirements: Specified in act Plan documentation: Summary plan description distributed to all participants Reporting: Annual Report Form 5500 filed with IRS Pension Benefit Guaranty Corporation (PBGC): Insures payment of certain pension plan benefits Also see the Pension Protection Act of 2006 (PPA) ERISA Help Page (Milkovich, Newman, & Gerhart, 2014)

14 Characteristics of Qualified Plans To qualify under ERISA, a pension plan must: Be in writing and be communicated to employees Be established for the exclusive benefit of employees or their beneficiaries Satisfy certain rules concerning eligibility, vesting, and funding Not discriminate in favor of officers, share-holders, or highly compensated employees. (Milkovich & Newman, 2008)

15 Qualified Plans Tax Benefits: A for-profit employer receives an immediate tax deduction for contributions Employee s earnings accumulate tax deferred; employee pays taxes on the funds only when the benefits are received (Milkovich & Newman, 2008)

16 Income Protection Disability Protection Non-occupationally related Short-term Long-term Other Forms of Income Protection Severance Package Supplemental Unemployment Benefits (Milkovich, Newman, & Gerhart, 2014)

17 Income Protection: Life Insurance One of the most common employee benefits 87% of medium and large companies offer life insurance Most companies offer term policies Value of one to two times an employee s salary Most plan premiums paid completely by employer Varying amounts of additional coverage often an option (Milkovich, Newman, & Gerhart, 2014)

18 Miscellaneous Benefits Paid Time Off During Working Hours Payment for Time Not Worked Child Care Elder Care Domestic Partner Benefits Legal Insurance (Milkovich, Newman, & Gerhart, 2014)

19 Paid Time Off During Working Hours Rest periods Lunch periods Wash-up time Travel Clothes-change time Get-ready time (Milkovich, Newman, & Gerhart, 2014)

20 Pay for Time Not Worked Paid vacations and payments in lieu of vacation Payments for holidays not worked Paid sick leave Other National Guard Army, or other Reserve duty Jury duty (Milkovich & Newman, 2008) Voting pay allowances Personal reasons

21 Employee Services Employee Assistance Programs Counseling Services Educational Assistance Elder Care Child Care (Milkovich & Newman, 2008)

22 And More Miscellaneous Services! Recreational and Social Services Awards Food Services On-Site Health Services Credit Unions Legal Services Purchasing Assistance Financial Planning Transportation Pooling Housing and Moving (Milkovich & Newman, 2008)