Employee Benefit Plan Design
This article introduces and analyzes the history and significance of employee benefit plan design. The following sections, which provide an overview of the main types of employee benefit plans including retirement benefits, health benefits, and leave benefits and the history of employee benefit plans, will serve as the foundation for later discussions of employee benefit plan design. The issues associated with the costs of employee benefit plans and member education will be addressed.
Keywords Employee Benefits; Health Benefits; Leave Benefits; Plan Design; Retirement Benefits
Employee benefit plans are developed, designed, and implemented, in both the public and private sectors, by benefit managers, human resource directors, administrators, trustees, benefit or compensation plans consultants, accountants, actuaries, and attorneys. There are numerous categories of employee benefit plans available to many workers in the United States including retirement benefits, health benefits, life insurance benefits, severance benefits, and leave benefits. The federal government heavily regulates employee benefit plans. The U.S. government, as part of its overall commitment to consumers, social welfare, and public safety and health, oversees benefit plan design compliance, reporting, and transparency requirements. The U.S. Department of Labor (DOL), under the authority of laws passed throughout the twentieth century, administers the majority of regulations governing employee benefit plans. For example, the Employment Retirement Income Security Act (ERISA) established the parameters for retirement benefit plans; the Consolidated Omnibus Budget Reconciliation Act (COBRA) and other federal laws established the parameters for health benefit plans; and the Family and Medical Leave Act (FMLA) established the parameters of leave benefit plans.
The design of employee benefit plans has changed significantly since the 1970s. Reasons for the shift in employee benefit plan design include the shift in thinking from a paternalistic approach to managing employees to employee empowerment. In the current employee benefits culture or environment of most organizations and institutions, employees are required to assume responsibility for making appropriate benefit plan choices. New employee empowerment benefit design plans include flex and defined contribution benefit plans. Employee benefit plans are increasingly managed through self-service benefits administration tools such as human resource information systems and consolidated benefits databases (Randolph, 1995).
This article introduces and analyzes the history and significance of employee benefit plan design. The following sections, which provide an overview of the main types of employee benefit plans and the history of employee benefit plans, will serve as the foundation for later discussions of employee benefit plan design. The issues associated with the costs of employee benefit plans and member education will be addressed.
Types of Employee Benefit Plans
The three main types of employee health plans discussed in this article, including retirement benefits, health benefits, and leave benefits, are all subject to government reporting requirements and standards of operation. The three types of employee benefit plans are generally regulated and enforced by different agencies.
Employee Health Plans
Employee health benefit plans generally include coverage such as the COBRA provision to provide some workers and their families with the right to continue their health coverage for a limited time after the loss of a job, including primary medical care, hospitalization coverage, mental health benefits, newborn and maternity health benefits, and cancer rights protections. Employee health plans, along with retirement plans, are regulated by the Employee Retirement Income Security Act (ERISA) of 1974 which sets minimum standards for most voluntarily established benefits plans in private industry to provide protection for individuals in these plans.
There are two main types of retirement and savings plans including the defined benefit plans and defined contribution plans. Defined benefit plans promise a specified monthly benefit at retirement. Examples of the defined benefit plan include a profit sharing plan or stock bonus plan and a 401(k) plan. A 401(k) plan is a plan in which employees can elect to defer receiving a portion of their salary that is instead contributed on their behalf, before taxes, to the 401(k) plan. The defined contribution plan requires that the employee or the employer contribute to the employee's individual account under the plan, sometimes at a set rate. Examples of the defined contribution plan include a money purchase pension plan and an employee stock ownership plan (ESOP).
Employee Leave Plans
Employee leave benefits provide benefits, such as health care and salary, during an employee's approved leave from work. Common types of leave benefits include family and medical leave, funeral or bereavement leave, holidays, jury duty, voting, personal leave, sick leave, military leave, personal leave, leave of absence, and vacations. Leave benefits, which are generally negotiated between employers and employees, are either required by law or voluntarily offered and paid by employers or plan sponsors. The Family Medical Leave Act (FMLA) of 1993 is one of the most influential forces shaping current employee leave plans. The Family Medical Leave Act guarantees that eligible employees receive up to a total of 12 workweeks of unpaid leave during any 12-month period for one or more of the following reasons: The birth and care of the newborn child of the employee; the placement with the employee of a son or daughter for adoption or foster care; to care for an immediate family member (spouse, child, or parent) with a serious health condition; or to take medical leave when the employee is unable to work because of a serious health condition.
History of Employee Benefits
Employee benefits became common in the United States during the early twentieth century. Twentieth-century labor and socio-economic history is characterized, in part, by a switch in national perspective from individualism to interdependence. During the early twentieth century, the social safety net switched from private sector (family, charity, community) to public sector (social policies such as welfare). The government became a source for labor regulations, such as mandated employee benefits and safe working conditions, and social welfare provisions, such as public education, welfare payments, pensions, and social security for disadvantaged groups such as poor families, elderly, disabled and students (Amenta & Bonastia, 2001). Significant labor policy of the twentieth-century includes the Organic Act of the Department of Labor, National Labor Relations (Wagner) Act, the Labor-Management Relations Act (also referred to as the Taft-Hartley Act), and the Employee Retirement Income Security Act. America's system of labor oversight and regulation has become increasingly complex throughout the twentieth century as the federal government simultaneously worked to protect the labor force and the interests of business.
In 1913, the Organic Act of the Department of Labor (Public Law 426-62) established the U.S. Department of Labor (DOL) to administer and oversee a wide variety of laws and regulations concerning employment benefits. Public Law 426-62 states that the purpose of the Department of Labor shall be to foster, promote, and develop the welfare of the wage earners of the United States, to improve their working conditions, and to advance their opportunities for profitable employment.
In 1935, the National Labor Relations (Wagner) Act established the regulations governing labor relations of enterprises engaged in interstate commerce. The National Labor Relations Act established the National Labor Relations Board (NLRB) to protect labor's right to organize and bargain collectively through representatives of their own choice or to refrain from such activities. The National Labor Relations Board includes five presidentially-appointed members and 33 regional directors. This board determines proper bargaining units, conducts elections for union representation, and investigates charges of unfair labor practices by employers. Examples of unfair practices include interference, coercion, or restraint in labor's self-organizational rights; interference with the formation of labor unions; encouraging or discouraging membership in a...
(The entire section is 3795 words.)