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CEBS: GBA 1, Module 1 Exam/28 Questions and Answers (Employee Benefits: The Environment)
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CEBS: GBA 1, Module 1 Exam/28 Questionsand Answers (Employee Benefits: The
Environment)
Employee Benefits - -All forms of financial returns and tangible services and
benefits employees receive as apart of an employee relationship
-Broad View of Employee Benefits - -Virtually any form of compensation
other than direct wages, including:
1. Employer's share of legally required payments (Social security and
medicare, unemployment insurance and worker's compensation benefits)
2. Payment for time not worked (paid rest periods, paid sick leave, paid
vacations, holidays, parental leave and the like)
3. Employers share of medical and medically related payments
4. Employer's share of retirement and savings plan payments
5. Misc. benefits payments (employee discounts, severance pay, educational
expenditures, and childcare among others)
-Limited View of Employee Benefits - -Any type of plan sponsored or initiate
unilaterally or jointly by employers and employees in providing benefits that
stem from the employment relationship that are not underwritten by or paid
for directly by government
-Reasons for Growth of Employee Benefits - -1. Business Reasons
2. Collective Bargaining -Labor management relations act (LMRA) /Taft-
Hartley Act
3. Favorable Tax Legislation
4. Efficiency of the Employee Benefits Approach
5. Other Factors
-Business Reasons - -To attract and retain capable employees; the
employers competition may have benefit plans and it's necessary to have
equal or better plans to attract and retain employees.
-Collective Bargaining - -Labor unions have had a historical impact on
benefits, through collective bargaining. In 1948 the National Labor Relations
Board (NLRB) ruled in the Inland Steel case that to bargain over wages
included insurance and fringes such as pension benefits. Shortly after that
W. W. Cross & Co. case ruled that wages included a health and accident plan
-The Labor Management Relations Act (LMRA) -
Taft-Hartley Act - -Set forth the framework for various labor relations
including employee benefits. It along with the Internal Revenue Code (IRC)
, established the distinction between retirement benefits and welfare benefits,
such as life and health insurance.
-Favorable Tax Legislation - -3 Major federal tax advantages associated with
employee benefits are:
1. Most contributions to employee benefit plans by employers are tax
deductible as long as they are reasonable business expenses.
2. With in certain limits these employer contributions are generally not
considered income to employees
3. A certain type of retirement and capital accumulation plans, assets set
aside to fund such plans accumulate tax-free to the employee until
distributed
-Efficiency of the Employee Benefits Approach - -Employment based
insurance coverage is convenient for employees, they do not need to search
for individual coverage, and it is often less expensive. Providers and
suppliers find it more convenient and simpler to communicate and market
employee benefits through and employer
-Other Factors - -Wages stayed stagnant during WWII and the Korean War
due to an imposition of limitations on the size of wage increases during the
time. While wages were frozen, employee benefits were not. As a result,
compensation of employees could increase by provision of larger benefits.
The PPACA.
-Group Technique - -Enables insurance programs such as life and health
insurance to name only two. Based on the group (rather than the individual)
as the unit to be insured. The concept that makes this technique work is a
prevent "Adverse Selection".
-Adverse Selection - -to reduce the possibility that less healthy individuals
may join a group or be a larger percentage of the group than anticipated
because of the availability of the insurance or other benefit.
-Characteristics of the Group Technique - -Provides some or all of the
following:
1. Only certain groups eligible. While most groups qualify, this requirement is
intended to make sure that the obtaining of insurance is incidental to the
group seeking coverage.
2. Steady flow of lives through the group. The theory is that younger
individuals should come into the group while older individuals leave,
maintaining a fairly constant ratio. If the average age of the group increases
substantially, costs could increase dramatically.
3. Minimum number of persons in a group. Typically no less than 10,
designed to prevent less healthy lives from being a major part of the group
or to spread expenses over a larger number of individuals.
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