Health Insurance Plans
- Medical Care:
- About 64% of all employees in the USA participate in an employer-sponsored
medical benefit plan. There are two health insurance plans:Fee-for-Service
(FFS) plan and Managed Care
plans. Each protects the employee in a different way. In FFS the
patient chooses any provider and pays for medical procedures as
expenses are incurred. FFS plans are financed in three different
ways. First: self-insurance, where the employer accepts the
risk paying for all covered medical services. Second way is commercial
insurance plan (experience-based) and third: Blue Cross/
Blue Shield plans which have the rates based on the medical
experience of the entire community. With Fee-for-Service plans members
pay the bills themselves and then submit their claims to the carrier
(like Blue Cross or Blue Shield) for reimbursement. Preventive care
is not covered. There are three managed care plans: HMO, PPO and
POS. Health Maintenance Organizations
(HMOs) provide comprehensive health service for a flat fee,
are restrictive because each person covered under the plan must
choose primary physician (gatekeeper), who decides whether a member
may use the service outside the network. PPOs
are similar to HMOs but more expensive, offer wider range of choices
and do not require gatekeeper. POSs
are similar to PPOs but with less structure.
- Dental
- These plans cover all or a part of the cost of some regular procedures.
The companies sometimes offer dental care as a part of a health-insurance
package and sometimes as a separate policy. Most dental plans have
deductibles.
- Vision
- Most vision plans have restriction to routine eye exams and to
the cost of eyeglasses. Table
Retirement
Plans
Legally required Social Security Payments are only one component
of properly designed retirement plan. Another component are payments,
which the worker receives from organization. The employer is not
required to provide the retirement plan but if he does, he is subject
to the regulations of ERISA - Employee Retirement Income Security
Act (1974). ERISA protects employee retirement benefits. Under regulations
of ERISA vesting rights comes after 5 years of service and and all
employees older than 21 should be included in plan If one employer
voluntarily terminate a pension program, the Pension Benefit Guaranty
Corporation (PBGC) should be notified. This organization lays claim
to corporate assets to pay or fund inadequate pension programs.
Also one ERISA requirement is Summary Plan Description, which are
designed to explain to employees their pension program and rights.
There are two basic retirement plans: Defined Benefit Plan and Defined
Contribution Plan.
- Defined Benefit Plan
- In the past the most popular program was Defined Benefit Plan
(often called traditional pension plan) , which provides fixed benefits
after retirement. These plans are most common among government employers
and Old Economy Companies. This plan offers a set payoff to retirees,
usually determined by a formula based on years of service and salary.
It is usually funded entirely by the employer in private sector,
although public sector defined-benefit plans also get money from
employees. The investments are controlled by a pension manager.
Advantages of this plan: The employees are encouraged to stay with
the company, they can count on fixed amount of retirement income
and can make pretax contribution. Disadvantages: Administrative
cost can be high, the plans are not portable - by changing the job
the employee can lose some or all benefits. Table
-
- Defined Contribution
Plan are more common among New Economy companies.
Many companies that long have offered traditional pension plans
also offer complementary defined-contribution programs. Under this
plan each employee has an individual account, to which both the
employer and employee make contributions. The amount contributed
is not fixed. Most popular variants of this plan are: 401k, Profit
Sharing and Employee Stock Plan.
- 401(k)or Thrift-savings
plan
- was established under the Tax Equity and Fiscal Responsible Act
(TEFRA) as capital accumulation program. This plan if founded by
employer and employee and pays retirement benefits based on the
market performance of investments made with plan money. Each employee
has his own tax-deferred account and can contribute as much as 15
percent of his income into the 401(k) fund. The employee decides
how the retirement money should be invested and allows him/her to
move funds frequently. The employee can withdraw the retirement
money when leaving the company to transfer it into another retirement
fund. Advantages of this plan: favorable tax treatment, lower administration
cost and portability. Disadvantages: There are no guaranteed payouts;
investment risks fall on employees; there are heavy tax penalties(10
percent) for early withdrawals unless for serious reason such as
disability. There are many providers of this plan, but for the company
is important to find the best one. It is necessary to ask about
the management fees, vendor's reputation, documentation for the
employees, whether employee can choose individual funds from different
companies, how easily can employee switch their investments (should
be at least quarterly), how many investment choices the employees
have etc. Table
- Profit Sharing Plan
- This plan is variation of defined contribution plans. The employer
takes the percentage of a company's annual profits and distribute
it directly to the employees. There are two categories: Cash
plan - Payments are distributed quarterly or annually and Deferred
plan- the company invests the profit sharing payment in a fund
and pays out to employee when he retires or leaves the company.
- Employee Stock Plans
- Stock option plan allows the employee to purchase shares in the
company. The stock is offered at the cheaper price. Employer should
reserve between 5-10% of outstanding stock for this purpose. Often
the employee has to be with company for a specified period of time
(vesting); some plans require approval of current shareholders,
sometimes employer has to provide periodic financial reports to
option holders. Table
Disability Insurance Programs
- Life
- Life insurance programs offered to employees typically come in
two varieties- noncontributory and contributory policies. Noncontributory
is employer funded and offers group term life insurance to the employees.
In case of death the policy provides one to five times annual rate
of pay, and should an employee's death result from an accident ,the
benefit is twice the policy value.
- Short-and Long-term
Disability
- The focus of the sick-leave policy, short-term disability policy
and workers' compensation is to provide replacement income in the
case of injury or a short-time illness. This period is six months
or less. If the short-time coverage is expired and the employee
is not able to return to work, he is insured under long-term disability
program. Disability can be temporary, when employee cannot perform
his or her duties for the first 24 months after injury or permanent,
when the employee cannot perform in any occupation. The most common
salary replacement is 60% of salary. Table
Paid Time Off
- Sick Leave
- Some companies give the employees between 6 to 12 days a year.
If the employee doesn't use his allotment of sick-days, the employer
can reward her/him with the cash payment for a percentage (usually
half) of an employee's unused sick leave at the year-end or when
she/he leaves the company.
- Personal Leave
- The employee can take an extended period of time without pay,
but still maintain his employee status. This leave can be taken
for a variety of reasons: maternity, illness, education, travel,
military obligation etc. Except for Family Medical Leave and military
obligations, the employer decides how long employee can be out of
work and what job will she/he takes when the leave is over.
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