IX. Legally Required Benefits
The earliest benefits law was the Social Security Act passed at the end of the Great Depression.
Little was done on the federal level after that until the 1970s and later. Federal statutes have been
A. Social Security and Medicare
The Social Security Act of 1935 and its later amendments established a system to provide old-
age, survivor’s, disability, and retirement benefits. Administered by the federal government
through the Social Security Administration, this program provides benefits to previously
Social Security
Employees and employers share in the cost of Social Security through a tax on employees’
wages or salaries. When the law was first enacted, employers and employees each
contributed 1% of worker wages to the fund. By 1990 the rate had increased to 6.2% paid by
Medicare
Medicare is the health insurance program for older Americans (age 65 and above) and for
some disabled citizens. Medicare is funded by a tax on employers and employees. Each party
Medicare is a comprehensive, government-operated insurance program that provides a broad
spectrum of benefits.
B. Workers’ Compensation
Workers’ compensation provides security benefits to workers who are injured on the job. State
Workers’ compensation regulations require employers to give cash benefits, medical care, and
C. Unemployment Compensation
Unemployment compensation was established as part of the Social Security Act of 1935 to
provide a minimum level of benefits for workers who are out of work. Each U.S. state operates
Under normal circumstances, an employee who is out of work and actively looking for
employment can receive up to 26 weeks of pay at the rate of 50% to 80% of normal pay. Most
X. Retirement Benefits
The aging of the workforce in many countries is affecting retirement planning for individuals and
retirement plan costs for employers and governments. In the United States, the number of citizens
at least 55 years or older has increased significantly in recent years, and older citizens constitute a
Unfortunately, most U.S. citizens have inadequate savings and retirement benefits to fund their
retirements. While traditional pension plans that provided a defined amount for retirement at a
defined age were the norm for decades, since the early 1980s fewer companies have provided these
A. Retirement Plan Concepts
Certain rights are associated with retirement plans. One such right called vesting means that the
employee has a benefit that cannot be taken away. If employees resign or are terminated before
they have been employed long enough to be vested, no pension rights accrue to them except the
Another feature of some retirement plans is portability. In a portable plan, employees can move
their retirement benefits from one employer to another. Instead of requiring workers to wait
B. Retirement Plans
A retirement plan is a program established and funded by the employer and/or employees to
fund the employee’s retirement years. Organizations are not required to offer retirement plans to
Defined Benefit Pension Plans
Through a defined benefit (DB) plan, employees are promised a pension amount based on
age and years of service. Contributions are based on actuarial calculations of the benefits to
In a defined contribution (DC) plan, contributions are made to the plan by the employer
and/or employee to fund an account for the employee’s retirement. The key to this plan is the
Cash Balance Pension Plans
Some employers have changed traditional pension plans to hybrids based on ideas from both
defined benefit and defined contribution plans. One such plan is a cash balance plan, in
XI. Legal Regulation of Retirement Benefits
Numerous laws and regulations affect retirement plans. Key regulations govern plan
A. Employee Retirement Income Security Act
Widespread criticism of many pension plans led to enactment of the Employee Retirement
Income Security Act (ERISA) in 1974. The purpose of this law is to insure that private pension
B. Retirement Benefits and Age Discrimination
According to a 1986 amendment to the Age Discrimination in Employment Act (ADEA), most
Employers must decide whether individuals who continue to work past normal retirement age
Early Retirement
Many pension plans include provisions for early retirement to allow workers to retire before
the normal retirement age. Phased retirements are alternatives being used by individuals and
firms. Phased retirement allows employees to bridge between these two states while offering
Older Workers Benefit Protection Act
The Older Workers Benefit Protection Act (OWBPA) was enacted in 1990 as an amendment
to the ADEA. It requires equal treatment for older workers in early retirement or severance
XII. Health Care Benefits
Employers provide a variety of health care and medical benefits, usually through insurance
coverage. The most common plans cover medical, dental, prescription drug, and vision care
A. Increases in Health Benefits Costs
For several decades, the costs of health care have escalated at rates well above those of inflation
B. Health Care Reform Legislation
Landmark legislation enacted in 2010 changed health care in the United States, making
insurance available to an additional 32 million people. The Patient Protection and Affordable
Key Provisions
The PPACA includes many important provisions intended to provide affordable health care
C. Employer-Sponsored Plans
Employers will face a decision about continuing to offer their own health insurance plans or to
drop their plans in favor of government-sponsored coverage. Beginning in 2014, employers
with at least 50 employees are required to provide minimum essential health care coverage to all
D. Controlling Health Care Benefit Costs
Employers offering health care benefits are taking a number of approaches to control and reduce
their costs. The most prominent strategies include the following:
Changing copayments and employee contributions
Using managed care
Increasing Employee Cost Sharing
A deductible is an amount paid by an insured individual for a medical service before the
medical plan pays any expenses. Employers who raise the per-person deductible from $50 to
Copayments are costs that an insured pays for medical treatment. Companies can increase
E. Increasing Employee Contributions
Employees are usually required to pay a portion of the monthly premium to maintain health care
insurance. On average, single employees pay 18% of premiums, while employees with family
coverage pay 28% of premiums.
Using Managed Care
Several other types of programs attempt to reduce health care costs paid by employers.
Managed care consists of approaches that monitor and reduce medical costs through
Spousal Exclusions
Spousal exclusion provisions limit access to a company’s health plan when an employee’s
spouse works for another company that offers health insurance. Companies may charge a
F. Consumer-Driven Health Plans
Some employers are turning to health insurance plans where the employee chooses the
insurance. The most widely used is a consumer-driven health (CDH) plan in which the
G. Dental and Vision Coverage
Additional health benefits frequently include coverage for dental and vision care expenses.
H. Improving Health through Wellness Initiatives
Preventive and wellness efforts can take many forms. Many employers offer programs to
educate employees about health care costs and how to reduce them. Newsletters, formal classes,
I. Health Care Legislation
Several laws have been enacted to provide protection for employees who leave their employers,
COBRA Provisions
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires that most
employers with 20 or more full-time and/or part-time employees offer extended health care
coverage to certain groups of plan participants. The different groups are as follows:
Employees who voluntarily quit or are terminated
Widowed or divorced spouses and dependent children of former or current employees
Any child who is born or adopted by a covered employee
A qualifying event is an event that causes a plan participant to lose group health benefits.
Typically, reduction in work hours or loss of employment constitutes a qualifying event for
The individual no longer employed by the organization must pay the premiums, but the
HIPAA Provisions
The Health Insurance Portability and Accountability Act (HIPAA) of 1996 allows employees
to switch their health insurance plans when they change employers and to enroll in health
One of the greatest impacts of HIPAA comes from its provisions regarding the privacy of
XIII. Financial Benefits
Companies may offer employees a wide range of special benefits that provide financial support to
A. Insurance Benefits
In addition to health care insurance, some companies provide other types of insurance. These
benefits offer major advantages for employees because employers pay some or all of the costs.
B. Financial Services
Financial benefits include a wide variety of items. A credit union sponsored by the employer
provides saving and lending services for employees. Purchase discounts allow employees to
Employee thrift plans, savings plans, or stock purchase plans may be available. Financial
planning and counseling are especially valuable services for executives, many of whom may
C. Education Assistance
Another benefit that is popular with employees is education assistance and tuition aid, which
D. Severance Pay
Companies may provide severance pay to individuals whose jobs are eliminated or who leave
the company by mutual agreement. While the Worker Adjustment and Retraining Notification
Act (WARN) of 1988 requires employers to give 60 days’ notice of mass layoff or plant
XIV. Family-Oriented Benefits
Workers seek out companies that balance work and nonwork obligations and offer family-friendly
A. Family and Medical Leave Act
The FMLA was enacted in 1993 and amended several times. It covers all federal, state, and
private employers with 50 or more employees who live within 75 miles of the workplace. Only
FMLA Leave Provisions
The law requires that employers allow eligible employees to take a maximum of 12 weeks of
unpaid, job-protected leave during any 12-month period for the following situations:
Birth of a child and care for the newborn within one year of birth
Adoption or foster care placement of a child
Caring for a spouse, child, or parent with a serious health condition
Military family members who must handle the affairs for military members called to
A serious health condition is an illness or injury that requires inpatient care or continuing
treatment by a health care provider for medical problems that exist beyond three days. An
B. Family-Care Benefits
Family issues are important for many organizations and workers. Companies may offer
Adoption Benefits
Many employers provide maternity and paternity benefits to employees who give birth to
children. A comparatively small number of employees adopt children, and in the interest of
Child-Care and Elder-Care Assistance
Balancing work and family responsibilities is a major challenge for many workers. Whether
they are single parents or dual-career couples, employees often experience difficulty
XV. Paid-Time-Off Benefits
Time-off benefits represent a significant portion of total benefits costs. Employers give employees
A. Vacation Pay
Paid vacations are a common benefit. Employers often use graduated vacation-time scales based
on the employees’ lengths of service. Some companies have a “use it or lose it” policy whereby
B. Holiday Pay
Most employers provide pay for a variety of holidays. Employers in the United States,
C. Leaves of Absence
Employers grant leaves of absence, taken as time off with or without pay, for a variety of
reasons. Leaves are given for a variety of purposes. Some, such as military leave, election
Family Leave
FMLA guarantees unpaid leave for certain family and medical reasons. Even though
paternity leave for male workers is available under the FMLA, a relatively low percentage of
Sick Leave
Many employers allow employees to miss a limited number of days because of illness
without losing pay. Others pay their employees for unused sick leave. Some companies have
D. Paid-Time-Off Plans
A growing number of employers have made use of a paid-time-off (PTO) plan, which
combines all sick leave, vacation time, and holidays into a total number of hours or days that
E. Employee-Paid Group Benefits
To combat the high cost of benefit programs, some companies offer employees the opportunity
to purchase benefits through payroll deductions. The cost for these benefits is typically less than
Adding employee-paid voluntary benefits is becoming a popular cost-effective strategy for
many companies. It is part of a trend that gives employees choices but also makes them