Employee Benefits Strategies

EMPLOYEE BENEFITS PLAN DEVELOPMENT

As part of implementing a strategic plan, you will need to select specific plans for each employee group. Legally required benefits must be offered; but beyond that, benefits are discretionary. The possible variety of benefits is almost endless.

It may be useful for you to first group benefits options into the following categories:

• health and welfare programs
• retirement programs
• payment for time not worked and perquisites

Health and Welfare Programs

There have been huge increases in medical plan costs. As a result, health and welfare is probably the most expensive category of benefits and is offered as three different benefit plans:

• health
• disability and
• life

Benefit programs offered by organizations have two major advantages: First, as a benefit, payments made by the employer for the insurance are not considered to be taxable income to the employee. And second, the employer, acting as a representative of the group of employees, can obtain a better rate for all employees by putting them into a group program.

Health programs

For the employee, the financial impact of illness and injury can be enormous. That is why health programs are so important.

The purpose of health programs is to provide protection from these costs. There are a variety of plans available, categorized as follows:

• Managed Care Plans. Managed care plans provide benefits through contracted health care providers. They offer comprehensive health care and often require selection of a Primary Care Physician (PCP) who makes referrals to specialists when needed. Managed care plans focus on preventive medicine, as well as on taking care of current health problems. Managed care plans may include Health Maintenance Organizations (HMO), Exclusive Provider Organizations (EPO), or other hybrid variations of health-care delivery.

• Traditional Plans. This category includes traditional indemnity plans, Preferred Provider Organizations (PPO), and Point of Service (POS) Plans. Coverage may be arranged through an insurance carrier or the employer may self-insure benefits.

Some health plans include vision or dental care coverage.

Dental care

Dental care is an aspect of health care, but insurance plans ordinarily separate the two. Dental insurance usually covers diagnostic and preventative care and treatment of teeth and gums. Plans might also cover orthodontia and cosmetic work.

Vision Care

Vision care, like dental care, is often offered through a plan that is separate from the health care plan. Coverage may include vision checkup visits, frames and lenses for eyeglasses, and contact lenses.

Disability insurance

Workers' Compensation takes care of disability resulting from injury on the job, and health insurance takes care of the medical costs of non-work-related injuries. But a person who is out of work because of a non-work-related injury or illness faces a loss of income at the very time it's needed most. Disability insurance is designed to fill this need. Several states (and Puerto Rico) have a legal requirement to provide employee disability insurance.

The most immediate form of disability coverage is sick leave. This is not really 'insurance,' but payment for time not worked. Still, the effect is the same: the employee's salary continues while he or she is ill. From the organization's standpoint, it's like self-insurance.

Short-term disability is offered by some employers to fill in the gap between sick leave and long-term disability. This type of insurance pays a stated portion of the employee's salary for a specified period of time, normally no more than 26 weeks. This insurance is usually employer sponsored, but the cost may be paid entirely by the employer, or the employer may share the cost of insurance with the employee.

Long-term disability is taken care of by an insurance program that specifically pays a portion (usually 60-70%) of the employee's salary for a specified period. This insurance may be employer sponsored or offered on a voluntary basis where employees pay for it themselves. If the company pays the premiums for this benefit, then any benefits paid out to the employee are taxable. If the employee pays the premiums with after tax dollars, then the benefits are non-taxable.

Life insurance

Life insurance is one of the most common benefits offered by organizations. The insurance is usually of the group-term type, which provides coverage for a certain period with no cash surrender value or investment value. The amount of coverage may be arranged as a fixed dollar amount or based on the base salary of the employee. The higher the base salary, the more insurance the employee is provided.

Most organizations pay for some basic life insurance, and many offer additional protection on a voluntary employee paid basis. When these benefits are paid for by an employer, coverage above $50,000 creates imputed income that is shown on the employee's W-2 each year.

For more information on these insurance plans, see DLC Course 50: Employee Life and Disability Insurance