Human Resoures

Topics: Pension, Cash balance plan, Insurance Pages: 20 (4502 words) Published: October 25, 2014
MGMT 202 – Human Resources Management
Spring 2014
Study Guide – Chapter 13
(Page 558) What are the aspects that make benefits quite different from direct compensation?
(1) Although direct compensation is subject to government regulation, the scope and impact of regulation on benefits is far greater. Some benefits, such as Social Security, are mandated by law. Others, although not mandated, are subject to significant regulation.

(2) Organizations so typically offer benefits that they have come to be institutionalized. Providing medical and retirement benefits of some sort remains almost obligatory for many (e.g., large) employers.

(3) Benefits programs are much more complex than most compensation programs. Benefits rules and their advantages and disadvantages are very difficult to communicate and understand, particularly if an employee does not have experience with using their benefits.

(Pages 562 – 563) Discuss the Social Security Act of 1935. The Social Security Act of 1935 was the establishment of old-age insurance and unemployment insurance. The act was later amended to add survivors insurance, disability insurance, hospital insurance, and supplemental medical insurance. Together, these provisions constitute the federal Old Age, Survivors, Disability, and Health Insurance (OASDHI) program. Over 90 percent of U.S. workers are covered by this program, the main exceptions being railroad, federal, state, and local government employees. An individual employee must meet certain eligibility requirements to be covered. To be fully insured typically requires 40 quarters of covered employment and minimum earnings of $1,120 per quarter in 2011. Social Security retirement (old-age insurance) benefits for fully insured workers begin at age 65 years and 6 months (full benefits) or age 62 (at a permanent reduction in benefits) for those born in 1940.

(Pages 567 – 568) Discuss defined benefit and defined contribution plans. A defined benefit plan guarantees a specified retirement benefit level to employees based typically on a combination of years of service and age as well as on the employee's earnings level. The plan insulates employees from investment risk, which is borne by the company. In the event of severe financial difficulties that force a company to terminate or reduce employee pension benefits, the Pension Benefit Guaranty Corporation provides some protection of benefits. A defined contribution plan does not promise a specific benefit level for employees upon retirement. Rather, an individual account is set up for each employee with a guaranteed size of contribution. The advantage of such plans for employers is that they shift investment risks to employees and present fewer administrative challenges because there is no need to calculate payments based on age and service and no need to make payments to the PBGC. While many companies have both types of plans, defined contributions are much more prevalent within small companies.

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MGMT 202 – Human Resources Management
Spring 2014
Study Guide – Chapter 13

(Pages 569 – 570) As a manager, what retirement plan will you incorporate in order to combine the advantages of defined benefit plans and defined contribution plans?
One way to combine the advantages of defined benefit plans and defined contribution plans is to use a cash balance plan. This type of retirement plan consists of individual accounts, as in a 401(k) plan. But in contrast to a 401(k), all the contributions come from the employer. Usually, the employer contributes a percentage of the employee's salary, say, 4% or 5%. The money in the cash balance plan earns interest according to a predetermined rate, such as the rate paid on U.S. Treasury bills. Employers guarantee this rate as in a defined benefit plan. This arrangement helps employers plan their contributions and helps employees predict their retirement benefits. If employees change jobs, they generally can roll over the balance into an...
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