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					Introduction to Employee Benefits

Professor Thomas E. Murphy 2006

Some Basic Issues
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What are Benefits? Why give them? How do they relate to Compensation? What are design variables and principles? What are the legal issues? What are government mandated benefits? How do benefits support business strategy?

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What are Benefits?
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Retirement Health Insurance Life Insurance Disability Insurance Long Term Care Paid Time Off Equity Benefits

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Unemployment Benefits Worker’s Compensation Social Security Benefits Medicare Quality of Work Life

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Benefit Principles
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Goals of benefits – attract, retain, motivate Relevance of basic actuarial principles Connection to the Business Strategy Internal alignment with HR strategy The importance of U.S. tax laws The allocation of funding and risk Measurement and evaluation

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Benefit Strategy Alignment
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What is the business strategy? How do all HRM practices align and support this strategy? This includes organizational and job design, recruitment and selection, training and development, and compensation, benefits, and rewards

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Design Principles – The Pay Model
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Are benefits internally equitable? How do they compare to those of competitors in the your market? Are they designed to positively affect employee behavior? Are they cost effective? Are they administered well?

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Actuarial Considerations
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What is relevance of time? Importance of expected investment return. Future cost of benefits Net present value and role of interest rates Mortality tables Demographics of workforce Turnover of workforce Participants and their beneficiaries

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Actuarial Considerations
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Query: How do the stock market, bond rates, and an aging work force affect the funding of a retirement plan? Query: What is the impact on a retirement plan if people are retiring early and living longer? What are aggregation and dis-aggregation?

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Why Employers Offer Benefits?
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Why not just give cash? How do the tax laws affect this issue? What is the role of leverage? What is adverse selection? Should employees be given more choices with respect to benefits? How would this work? What are your competitors doing?

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The Employer’s Dilemma
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Costs of benefits are rising Should benefits be reduced or eliminated? Is this legal? How can benefit re-design help to alleviate the problem? What is the competitive impact of such cost increases? Possible effects on recruiting and retention

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Legally Mandated Benefits
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Social Security Worker’s Compensation Family Medical Leave Act COBRA HIPPA

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Unemployment Compensation HMO Act Medicare State Insurance Requirements

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Laws Affecting Benefits
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ERISA PBGC Mental Health Parity Accounting Rules (FASB) Internal Revenue Code FLSA ADA

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Title VII (Civil Rights) New Corporate Ethics Legislation Pregnancy Discrimination Act National Labor Relations Act Uniformed Services Reemployment

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Funding and Risk
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How are benefits funded? Should funding be legally required? How can productivity fund benefits? What about risk? Who should bear the principle risk? Employee or Employer? How are the costs to be accounted? How does stock market affect Benefits?

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Measurement
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Should we measure the effects of benefits on our business and HR strategies? How? ROI? NPV? Productivity? Six Sygma? Do certain benefits appeal only to special segments of the workforce? Are benefits valued by employees? How should employee choice play a role in benefit design?

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Measurement
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Can you apply Balanced Score Card in design and measurement? What should be the fundamental measurement for a health care plan? Comparative benefit costs? Benchmarking against industry or competition? Should you have goals and values apply to your benefit plans?

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Cost and Administration
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Are we administering our benefits in a cost effective way? Can we leverage the resources of our workforce to self-administer their benefits? How can systems help? Who should decide what benefits to offer? Is there a strategic value in having healthy employees?

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HR Strategist
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Assess, measure, find the gaps. Identify the optimal benefit solutions using company values, design principles, and alignment criteria. Find most effective administration process Evaluate and measure Remember importance of market forces

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Perspective – Current Issues
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Under funding of benefits Re-allocation of risk Adjusting design factors to make benefits more affordable Expanding government role

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Continued importance of Total Shareholder Return Major issues of benefit integration in mergers and acquisitions International and Global issues

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Fundamentals Design Factors
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Goals and strategy Eligibility Participation Vesting/Forfeitable Benefit levels Actuarial adjustments Benefit distribution

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Beneficiaries and dependents Insured or self insured Risk allocation Cost sharing Portability

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