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Employee Benefits (FSA (2 types (Medical (medical expenses- not fully…
Employee Benefits
FSA
EE agrees to take pre-tax salary deduction
funds deposited into an FSA
Reimburse centrain eligible expenses
2 types
Medical
medical expenses- not fully covered by health care plan
deductible, copayment coninsurance
cost sharing items
medical expenses
not covered at all by a health care plan
department care
child care expense
elder case expense
Adv.s
Tax savings
eg.EE $5000 in child care exp.
place $5000 into a dependent FSA or not?
combined tax rate=40%
what's the potential tax savings
$2000 (5000*40%)
use-it-or-lose-it rule
any unused funds
forfeited by the EE
a. plan yr= 12 months
default option
b. 2.5 yr month extension
plan yr= 14.5 month
c. $500 carry over provision
plan yr= 12 years
could carry 500 to next year:)
max. contribution
Who care? - IRS
dependent care
$5,000
medical care
$2,650
Why company offer benefits? (more)
attract or retain capable EEs
Enhance Productivity
bonus/ profit sharing
flexible leave time
prevent burn out
day care programs
Group Insurance
Group VS Indi.
ins. is offered to the group as a whole
one rate for the group
Only evidence of insurability
be a member of the group
adverse selection(dis)
higher risk can get ins. (adv)
group ins. -cheaper
agent commission :arrow_down:
underwriting costs are :arrow_down:
how do insurers underwrite for group?correct price
group's history
groups demographics
industry
lower search costs
less of a problem now for H.I.&ACA
Downsides of group ins.
One-size-fit-all
cafeteria/ flexible benefit
adverse selection for the above
Tax advantages
Suppose you are given a raise
A) $5000 in cash
tax rates include federal; PA; philly: OASDI; Medicare
total 38.6107%
every $ you make, you do not get 38.6017% of it
(1-t)*5000=3069.47
if you raise $5000, you will get $3069.47
B) all expense paid vacation worth $5000
pay taxes on that full vacation
same, tax rate 38.61%
you owe $1930.53
C) Health Insurance Premium $5000
NO TAXES!
Cadilac tax
start in 2020 40% tax on premium
10200 for individual
27500 for family
except for health economist and Obama; others hate it
2013 ER reports how much paid on HI
260 B (77Bfor mortgages)
Life Ins.
up ro $50,000 tax free
over that get taxed
Disability Ins.
80% of income for me
depends on who paid the premium
non-contributory (ER Pays)
benefits are taxable
EE pays all
benefits are not taxable
contributory
Split it ER 75% EE 25%
pay taxes on the one ER %
Flexible Spending Account(FSA)
Who pays for benefits?
Non- contributory
ERs pay everything
auto-roll
contributory
ER+EE split
ER pays more
optional
sometimes you can a pay bump
spouse has it you go with that as well
EE pay all (voluntary benefits)
Dental; vision; life ins.; pet ins.
Total compensation
current cash salary
non-cash compensation(EE benefit)
any type of compesastion other than direct current wage paid to EE
Examples of EE Benefit
medical exp.
health ins.
Loss of income
disability
WC
occupational diseases+injuries
S+L Term
disability ins.
non-occupational disabilities
sick leave
Social security disability income benefit
death
ER provided life ins.
WC death benifits
social security death benegit
survival benefits
retirement
ER
sponsored retirement plan
eg. 401K (pension)
social security retirement plan
which benefits are required to be offered by firms? (by law)
Health Ins. (some firm)
Social Insurance Program
Social security
OASDI
Old Age Survivor Disability Insurance
Unemployment Insurance
WC
Why do Firms Offer EE benefits as part of compensation?
comparison
1.40 in salary + no benefits
$1 in salary in 40 cents in benefits
Reasons
take advantage of group ins.
to enhance productivity of EE
health ins.
profit sharing programs
ESOPS
employee stock ownership program
Day Care Prorgram
Flexible leave program
attract & retain capable EE
Income Tax adv. to EE
Why are EE benefits important to ERs?
40% of payroll on EE benefit
Cost increases 10-12% per year
Firms aggressively "manage" EE benefit costs
Eligibility VS. Participation in an EE Benefit Plan
E
every benefit has certain eligibility condition and standard
full time EE/ waiting period (1 yr)
Usually employer-driven
P
in a benefit means a person has satisfied all eligibility standards
insured by the health care plan
401 K: contributions are made by EE/ER
EEs -human capital
loss exposure
income to EE or EE's dependents
disability; injury; sickness
death
unemployment
retirement
medical expenses for EE
productivity to ER