Question

In: Finance

A. ERISA. ERISA does not require that employers offer a pension plan. But if a company...

A. ERISA. ERISA does not require that employers offer a pension plan. But if a company decides to have one, it is rigidly controlled by ERISA provisions. These provisions were designed to achieve two (2) goals. What are they?

B. Defined Contribution Plans. Why are defined-contribution pension plans gaining in popularity in the United States and defined benefit plans losing popularity?

C. Health Insurance. Name and describe the three general strategies available to benefits managers for controlling the rapidly escalating costs of health care. Identify which strategy your organization (or an organization with which you are familiar) has selected to strategically control health care costs. Explain why. Also share your view regarding whether the selected strategy was the best option for the organization.

D. Legally Required Benefits. Discuss the rationale for legally required benefits, varieties of legally required benefits, and the implications for strategic compensation.

Solutions

Expert Solution

  1. ERISA. The Employee Retirement Income Security Act, 1974 (ERISA) is a federal law which sets minimum standards for the pension and health plans to protect the interest of participants by furnishing information about the plan such as plan features eligible criteria, benefit accrual and funding, fiduciary responsibilities and grievance procedure.

These provisions are set to achieve the following goals:

  1. To supply the plan information to the participants about minimum standards of participation, funding and grievance procedure.
  2. To prevent the misuse of assets as plan fiduciaries are accountable for it.
  1. Defined Contribution Plans. Defined Contribution plan such as 401(k) or 403(b) are the plans which are primarily funded by the employee with the employer matching contribution to a certain amount. On a contrary, Defined Benefit plans are the traditional plans in which employer guarantee a specific retirement benefit to the participant i.e. employee based on the employee salary and years of service.

Defined Contribution Plan is gaining popularity as there is a low risk to employer and administration costs are not very high as in the case of Defined Benefit plan.Through the Defined Contribution Plan employee will have an adequate asset for retirement.

  1. The three general strategies available to benefits managers for controlling the rapidly escalating costs of health care are:
  1. Monitor Medical Plan Provider network and Drug Discounts: Here, manager need to set up a network of physicians and hospitals through third party administrator, to monitor on regular basis the discounts available on drugs and make the health care plan effective.
  2. Set an appropriate level of cost sharing with employees: The plans must be designed in such a way to understand it by employee the trade off betwwen increasing health care cost and other forms of compensation.
  3. Analyse risk in self insurance: employer will gain the benefit by self insuring the health plan as he pays for each claim instead of regular premiums.

The best strategy that my organization will follow is the third strategy, that is Self insurance as the manager can set the insurance premium by appointing the actuary, watch administrative fees, carve out high cost claim anduse data to improve wellness program which will ultimately be a cost effective one.

D. In legally required benefits there are laws in work place to protect employee health and financial well being. It states the minimum required employee benefits.

These are Disability insurance, Family and medical leave etc.


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