two generic pension plans are
- defined benefit plans (DB)
- defined contributions plans (DC)
to what plan have many companies shifted toward?
401(k) plans – dollar contribution is known and controllable
defined benefit plans
- guarantees a specified level of retirement income
- employer sets up a pension fun to invest contributions
- must meet funding requirement of Employee Retirement Income Security Act (ERISA) of 1974
- employer MUST contribute enough for the plan to cover all benefits to be paid out to retirees
defined contribution plans
- employer sets up an investment account for each participating employee AND specifies the size of the investment into that account
- when employee retires, pension is based on:
- their contributions
- employer contributions
- any gains (or losses) in stock investments
comparing DB and DC
Defined benefit (DB) plans:
- Employer promises the employee a monthly benefit after retirement.
- Focused on income, usually for life.
- Employer is responsible for funding and bears the funding risk
Defined contribution (DC) plans:
- It is the contribution, not the ultimate benefit, that is funded.
- It is focused on saving/accumulation.
- Individual typically has choice over how to invest, how much to save, etc., but also bears the investment risk
employee retirement income security act (ERISA)
does not require that employers offer a pension plan. But if a company decides to have one, it has to comply with ERISA provisions
- general requirements
- vesting and portability
- pension benefit guaranty corporation (PBGC)
- pension protection act of 2006 (PPA)
ERISA – general requirements
- employees are eligible for pension plans from age 21
- employers may require 1-3 years of service
ERISA – vesting and portability
vesting – REQUIREMENT for employee AND employer contributions
portability – does not require mandatory portability of private pensions
ERISA – pension benefit guaranty corporation (PBGC)
- established by ERISA
- employers MUST buy insurance from PBGC who guarantee payment of vested benefits
ERISA – pension protection act of 2006 (PPA)
- allows employees in publicly traded companies to sell off any employer stock purchased through deferrals or after-tax contributions
- identifies ‘at risk’ plans that are less than 70% funded
life insurance
Three-fourths of employees have paid life insurance.
- Typically one to two times annual salary.
- Most premiums are paid by the employer.
- Nearly all are forfeitable upon quitting.
- Some offer a basic life coverage with optional additional coverage available
medical and medically related payments
General Health Care
Short- and Long-Term Disability
- Salary continuation plans and Long-term disability plans.
- Short-term illness is covered by paid time off (PTO)
- Short-term disability (STD) pays a percentage of an employee’s salary for temporary disability.
- Long-term disability (LTD) plans, take over when short-term plans expire: Usually underwritten by insurance, provides 60 to 70 percent of pay for two years, up to life.
Dental Insurance & Vision Care
Flexible Spending Account (FSA)
payments for time not worked
paid time off during work hours for rest periods, lunch, etc
also includes:
- vacation and holidays
- paid sick leave
- other payments such as jury duty
maternity leave
miscellaneous benefits
- continuous education
- child care
- elder care
- domestic partner benefits
- legal insurance
