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In order to understand the differences between these types of benefits, we should start by looking at the names of the types of benefits. The first type of benefit is legally required benefits. As their name implies, these are benefits that employers are required (by law) to provide for their employees. For example, all employers must provide contributions to their employees’ Social Security funds. They also have to provide workers’ compensation premiums for their workers. The second type of benefit is discretionary benefits. These are benefits that employers may offer even though they are not required to do so. Employers typically offer these benefits as a way of attracting better workers. They feel that they will not be able to attract the best workers unless they offer discretionary benefits. The most common of these benefits are things like health insurance and sick and personal leave.
These two types of benefits affect employer sponsored plans because they determine what those plans will include. Of course, all employers must pay Social Security and Medicare taxes. The fact that these programs exist make it possible for some employers to get away without providing retirement or health insurance plans. They also make it so that employers that do offer plans do not need to provide as much in the way of benefits.
The greater impact on employer sponsored plans comes from discretionary benefits. Employers decide how many discretionary benefits they need to offer in order to attract employees who are well-suited for the jobs in the firm. Their choices determine the size and the nature of the plans that they offer.
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