RMI 3501 - Topic 1 Quiz
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102 Terms
What are employee benefits?
Employee benefits are non-wage compensation provided to employees besides their normal wages or salaries
What are loss exposures managed in an employee benefit plan?
In respect to an employee, loss exposures managed in an employee benefit plan would include: loss of income to an employee and medical expenses for an employee
In respect to an employer, loss exposures managed in an employee benefit plan would include: loss of productivity in the workplace
What are some perils associated with employee benefits?
Perils associated with employee benefits would include injury, illness, sickness, death, unemployment, and retirement
What is the broad view of employee benefits?
The broad view is also known as the total compensation view. It includes all benefits and services, other than wages for time worked, that employees receive in whole or in part from their employers
What is the narrow view of employee benefits?
The narrow view of employee benefits only includes employer-provided benefits for situations involving death, accident, sickness, retirement, or unemployment.
Any plan that is sponsored or initiated unilaterally or jointly by the employer and/or employee
Benefits stem from an employment relationship and does not include social insurance programs that are financed by employer contributions.
e.g. workers' compensation, unemployment, Social Security, and Medicare
What might an employer do to address medical expenses for employees both pre- and post-retirement?
During active employment, an employer may provide health insurance and/or specialized coverages for "narrowly defined" perils
e.g. Indemnity plan, managed care plan, dental insurance, prescription drug insurance
For post-retirement, an employer provides Medicare and may provide post-retirement health benefits (medigap policies)
What may cause a loss of income for an employee?
1) Disability both non-occupational and occupational
2) Death
3) Unemployment
4) Retirement
Name some remedies for non-occupational loss of income for employees due to disability.
1) Sick leave/paid time off (short-term)
2) Short-term disability insurance
3) Long-term disability insurance (6 months - 2 years)
4) Accidental death and dismemberment insurance (AD&D)
5) Social Security disability benefits (OASDI)
Name some remedies for occupational loss of income for employees due to disability.
The following are remembers for occupational loss of income due to disability and are all integrated together:
1) Workers compensation disability benefits
2) OASDI (Social Security disability benefits)
3) Accidental death and dismemberment insurance (AD&D)
What would happen if short term disability and long term disability were occupational?
If short-term and long-term disability were both occupational, there would be overinsurance, subsequently leading to potential moral hazard
(incentive to get injured on the job)
Name some remedies for loss of income for an employee due to death.
1) Employer-provided life insurance (Group term life insurance)
2) Retirement plan survivor benefit
3) Accidental death and dismemberment insurance
4) OASDI (survivor benefits)
5) Workers' compensation death benefits
6) Business travel accident insurance
Name some remedies for loss of income for an employee due to unemployment.
1) Unemployment insurance
2) Severance package
Name some remedies for loss of income for an employee due to retirement.
Pension plans can be used as a remedy for retirement:
1) Defined contribution plan
2) 401(k) or 403(b)
3) Defined benefit plan
Social Security retirement benefits (OASDI for old age)
What are the benefits that employers are required to provide?
Employers are required to provide the following types of benefits:
1) OASDI (Social security)
2) Workers' compensation
3) Health insurance (some firms)
4) Unemployment
What types of compensation would fall under the broad view of employee benefits?
1) Legally required payments for government programs
2) Payments for private insurance and retirement plans
3) Payments or other benefits for time not worked
4) Extra cash payments, other than wages and bonuses based on performance, to employees
5) Cost of services to employees - de minimus fringes
What factors contributed in the growth of employee benefits over time?
1) Industrialization
2) Influence of organized labor
3) Wage and price controls
4) Cost advantages
5) Inflation
6) State and federal legislation
How did industrialization contribute to the growth of employee benefits?
During the 19th century, there was an economic shift from the agrarian to industrialized/urbanized.
This shift made the economic consequences of death, sickness, accidents and old age more significant as more people depended on wages as opposed to family ties.
Employers began to provide retirement, death, and medical benefits to their employees
In turn, this improved morale, productivity, and reduced turnover/expenses associated.
What did the Wagner Act do?
(National Labor Relations Act of 1935)
Gives the right to private sector employees to organize into trade unions and engage in collective bargaining for better terms and conditions at work.
Summarize the Inland Steel Case of 1948.
The question at hand was whether wages include benefits or just salary.
Validated under this case, benefits are considered a bargain-able issue.
What is the Taft-Hartley Act of 1947?
The purpose of the act was to lessen industrial disputes and to place employers in a more equal position with unions in bargaining and labor relations procedures
What are the reasons for including employee benefits as a part of compensation?
1) Favorable tax treatment
2) Attract and retain capable employees
3) Group insurance advantages
4) Improve employee productivity
5) Concern for the wellbeing of the employee
Explain what it means to be tax deductible in terms of an employer providing benefits and compensation.
This means that the employer may deduct most contributions as usual business expenses
What does it mean to have favorable tax treatment?
The employer may expense most benefits on their income so they are not impacted by the favorable tax treatment. (Tax deductible)
The employee is not taxed on the value of employer-provided benefits
What are the implications of the favorable tax treatment?
Because the IRS subsidizes the purchase of health insurance and other employee benefits by not taxing the employee on the value of those benefits, there is an issue raised on how the government is not raising enough revenue.
What is the criteria for a plan to receive favorable tax treatment?
A plan must demonstrate that it is a qualified plan
If a plan is non-qualified, does it receive favorable tax treatment?
No, a non-qualified plan does not receive favorable tax treatment.
What makes a benefit plan qualified?
A plan must go through discrimination testing in order to be considered as qualified.
What is a discriminatory plan? What is a nondiscriminatory plan?
A discriminatory plan deny favorable tax treatment to some employees if the benefit plan does not provide equitable benefits to a large cross section of employees
A nondiscriminatory plan is a qualified plan that can potentially have favorable tax treatment for employees
Why do highly compensated employees benefit more from favorable tax treatment?
If you look at marginal tax rates, one could say they are regressive - the tax rate increases as income increases. This causes individuals of lower-income to pay a larger share of their income compared to high income individuals.
If an employer gave 1 dollar in tax free compensation to each employee, all of them would benefit from the favorable tax treatment.
10% - save .10 , 15% - save .15, etc.
What does it mean if a plan is "top heavy"?
When key employees design the benefit plan, they may be setting up a plan that benefits the higher up more than the non key employees.
What are the two types of discrimination tests?
There are two types of discrimination tests
1) Eligibility to participate or be covered (participation/coverage test)
2) Benefits test
What would happen if the the plan is non-qualified/ discriminatory?
The key employees / highly compensated would not be able to receive favorable tax treatment
Non key employees would still receive favorable tax treatment
What is the ACA Cadillac tax?
The Cadillac tax is a 40% excise tax on the value of plans exceeding single $10,200 and family $27,500
What are the implications of the Cadillac tax?
The cadillac tax incentivizes employers to provide plans that reduce the cost of healthcare because they will most likely be the ones that are taxed if the third party pushes it off to them in result.