< back

Purpose of Course: To understand what benefits are, both in the private and public sectors, and to understand their actuarial foundations, their design features and their strategic purposes. We will learn how a benefit plan is developed and its underlying strategic objectives. We will cover legal framework applicable to benefit plans, and how to measure the impact of benefits on the success of the enterprise. Students will gain a solid understanding of the concepts behind various benefits schemes and be able to critically appraise the design of diverse benefits plans. Additionally, students will be given the opportunity to apply their analytical skills to solve various applied benefits issues and problems presented in class. Public policy issues and mandated benefits will also be examined.

Course Format: Lecture and discussion. Students must be prepared to discuss the reading assignments, including any and all chapters, outside readings, and websites. In addition, when requested, they must prepare written responses to Mini Cases, and web site or other homework exercises. Homework may be graded. The Instructor has prepared Power Point slides covering most of the course content. These are available for viewing and copying on Black Board in Course Information. There will also be several guest speakers who are practicing experts in certain areas of benefits. Students will be responsible to attend appearances by guests and will be tested on their topic in the exams.

Writing Requirement: When assigned to "submit" students or student teams will be required to turn into the professor a typed analyses (of appropriate length) of a homework exercise or Mini Case. All homework must typewritten, be completed on time and will be evaluated based upon the comprehensiveness of the research, the depth of the analysis, and the clarity and organization of the writing.

Readings: Reading assignments are listed in Blackboard. The "Tentative Class Schedule" below represents a probable sequence of topics to be covered. Students will be expected to attend class prepared to discuss any and all assignments.

Topics Included in the Course
The following is a tentative sequence of topics to be covered in class. Since there is no textbook, reading assignments, as well as other assignments and relevant information, will be posted by the Instructor on Blackboard. The time spent on each Lesson will vary.

Introduction to Benefits and Benefit Planning: We will review the history of benefits in the U.S as well as the origin of employer-sponsored benefits. Also we will discuss what "benefits" are. What do they include? Is there a distinction between public employer and private employer sponsored benefits? What are the various components of pay and the types of benefits included in total compensation? What are the distinctions between employer sponsored and government mandated or government sponsored benefits? What are some contemporary issues with respect to benefits, such as social security, health care, and equity ownership in the United States and Europe?

Then we will look at strategy. How do we link business strategy to the offering of benefits? How are benefits a part of HRM strategy? What is the importance and relevance of shareholder return and the allocation of capital to all HRM decisions including the offering of benefits? Can benefits render a ROI to the enterprise? How do we apply the template of internal equity, external competition, positive impacts on employee behavior, and administration and cost to the design of benefit plans? How do we develop a "benefits strategy" and set of values: should the enterprise be below market on base pay; at or near market on benefits, have a strong equity component, cost justify compensation, require that benefits be understood and valued, make benefits flexible and rely heavily on choice, encourage long service, meet all catastrophic needs, cause employees to behave as owners, offer productivity (sales, profits) based benefits and bonuses, or actuarially adjusted benefits based upon age?

What is the relevance of benefits to the maturity, size, labor relations, location, cost and price sensitivity of the product or service, and the industry of the employer? What are the different compensation and benefit strategies of a start up versus high growth or mature company in the same industry? How do companies "take labor out of the operation" and pursue the ultimate benefit reduction strategy?

Finally, we will review the basic benefit steps: eligibility, coverage, vesting, relevance of service, benefit levels, allowance of beneficiaries, and funding. We will also here and throughout the course explore the financing of benefits. Do we insure or not insure, require employee cost sharing? How do we allocate financial risks, and exploit the leverage and advantages of tax policy. The use of life insurance as a funding mechanism, the importance of investment strategies, risk allocation among the parties involved with benefits, the dynamics of capitated funding of certain benefits, and current issues of public financing of government mandated benefits will be discussed.

Labor Economics - Benefit Issues: Here we will identify the basic labor economic concepts underlying the funding and design of benefits. For example, why do employers offer benefits? Why not just offer cash? What are the economic (leverage) and legal (tax) reasons that underlie this decision? What are the strategic reasons? Economic analysis will re-appear throughout the course. Do defined benefit retirement plans really encourage or discourage retention? What are the basic labor theories applicable to Human Capital, compensation, organizational structure, and benefit design? How can benefits affect sorting and employer signaling? How does mortality affect retirement decisions? Which retirement plans produce the highest level of benefits? What is adverse selection? Should the government provide health care to all? What are the real costs of equity plans and what impact do they have on the organization? How can benefits affect behavior, staffing, and ultimately sales and profits?

Actuarial Concepts: In this Lesson we will include discussions of how the future costs of benefits, the time to save, the investment return, and a variety of other actuarial concepts affect benefit decisions and designs. For example, how much should a couple save for a child's college education or save for the purchase of a house? We will demonstrate the relevant variables and connect this analysis to the funding of a pension or other benefit plan. Once this understanding is established you will be able to comprehend more complex design alternatives in all types of benefit offerings in either the public or private arena. For example, what is an actuarial reduction and when does it apply to a retirement calculation? Why do salary increases negatively affect replacement income predictions? What is the impact of mortality tables on the cost of a pension plan? What is risk adjustment and how could it be applied to health care offerings? What is cost shifting and how can it be mitigated? These important principles are basic to a fundamental and working knowledge of employee benefits.

Life Cycle Events: In this Lesson we will examine the various life events that occur that could trigger the need for a benefit. Everything from the loss of a job to a divorce, or a health disability, or a person's plan for early retirement directly affects the need for a benefit plan and, indeed specific design alternatives. The purpose here is to learn how to apply the demographics and expressed needs of your employees and others> This will lead to an analysis as to what, when, and where benefits are needed and how to best design them to respond to these cyclic needs. Of course, this must be balanced by maintaining a linkage to the overall business and human resource management strategy.

Retirement: We will begin with a brief discussion of HRM strategy with respect to retirement. Why do employees retire? Do benefit plans inhibit or discourage the retention of older workers? What are you trying to accomplish by offering a retirement plan? Should employers sponsor retirement plans? Why? What are the driving forces here? What about self-funded retirement? How does that work? Also, you will be reintroduced to some of the actuarial concepts, such as mortality, turnover, retirement ages and dates, and beneficiaries all of which affect retirement benefits and costs. We will learn about important design features such as coverage, vesting, benefit accruals, benefit distribution, cost of living adjustments, plan administration, social security offsets, benefit distribution options, retirement planning, the effect of the stock market on funding, and overall pension objectives such as achieving some percentage of final pay.

Alternative designs such as Defined Contribution Plans, Cash Balance Plans, Profit Sharing Plans, IRAs, and appropriate retirement vehicles for small employers will be discussed and explored. Further, economic and behavioral issues will be included with respect to retirement. For example, should a retirement plan encourage long service, mid-level service, or simply ignore this strategic issue? Who should assume the risk with respect to retirement benefits? How can tax policy affect this? Should benefits be portable in this age of changing work? What is the power of compounding, the role of tax deferral, and the importance of asset allocation? How can retirement plans be used for other business strategies such as cost reduction, workforce reduction, and unit closings?

We will also discuss publicly funded retirement plans, such as Social Security, both in the U.S. and abroad. This will involve explorations of plan design, funding, coordination among EU countries and the U.S. of publicly funded plans and the integration of public funded retirement plans with privately sponsored plans. Since benefit costs relate significantly to product costs and global competition, we will compare and contrast these labor costs here and abroad. We will also discuss Social Security reform proposals.

Health Care: We will first re-introduce some labor economic and HRM issues. Why do employers offer health care? What are the economic drivers? How do taxes relate to this benefit? What are the underlying issues between insured and self-insured health care plans? Essential to an understanding of health care plans is the relevance and impact of traditional market conditions and factors, the numerous parties in the health care scene, and the importance of values and goals of health care plans which ultimately determine their design features. For example, what are the roles of cost effectiveness, quality, and choice? Who are the parties in the health care arena? What are the relationships and involvements of providers, employers, patients, government, alliances, and insurance companies? What are the market and behavior factors that affect plan design? For example, what market factors led to the evolution from indemnity plans to PPOs, to POS', to HMOs, to Direct Contracting, to Consumer Driven Health Care? Further, how do employer- sponsors of health care plans determine who and what is covered and at what rate? What are the underwriting issues? What is the role of government in these privately sponsored plans?

We will continue to look at benefit metrics. How do we measure the effectiveness of various plans offered by networks? What quantitative analysis can be used to assess the appropriateness of health care, and how do risk, cost shifting, demographics, and degree of provider competition affect the choice of plan to be offered? How do internal equity, external competitiveness, employee behavior, and cost effectiveness play a role in the design of plans? An understanding of these concepts will enable you to deal with both current and future health care critical issues.

Finally, there are some important public issues to discuss such as HMO malpractice litigation, public policy reform proposals for health care, and the uninsured. We will explore how Medicare and Medicaid work and identify their underlying economic, market, actuarial, and financing issues. These principles will be most helpful as we embark upon an analysis of single payer, universal health care programs, and other "national" health care initiatives. We will also explore the business strategy, underwriting, and policy issues pertaining to domestic partner health insurance.

Legal Compliance: We will discuss the policies behind the laws pertaining to benefits: secure the promise and the benefit; encourage retirement savings; encourage employer funding of pension and health care plans; provide transparency in administration; have employers act in the best interests of the participants; avoid discrimination in favor of highly paid employees; avoid a crazy quilt of local and state regulations and insurance regulations; allow employers to insure benefits through a government agency; and do not permit excessive tax advantages to participants and employers. How are these policies manifested in ERISA and the Internal Revenue Code? Other laws affecting benefits which we will discuss are: COBRA, HIPPA, FMLA, NLRA, USRRA, MPPA, PBGC, ADEA, EEO, WARN, SEC, Bankruptcy, and Sarbanes-Oxley.

Measuring and Evaluating Benefits - The Value Proposition: One of the most critical processes within an enterprise involves the allocation of capital. How does the corporation decide where and when to spend its capital? What are the analytical steps and quantitative measures that assist this determination as it relates to benefits? This Lesson will provide clear insights as to how we measure the effectiveness of benefit plans. For example, do certain benefits achieve the results predicted with respect to employee selection, retention, and motivation? How do we analyze employee attitudes with respect to their perceived value of certain benefits? How do we create financial models to measure the impact of benefits on productivity, costs, sales, customer service, and profits? What are the steps we follow in setting up such analyses? What are the metrics we use to find alternative benefit designs that are more compatible with the business strategy? How do we measure, for example, the impact of health care benefits on attendance? What is the ROI of such plans? How do we measure the effectiveness of certain service providers in the benefit world such as doctors, hospitals, insurance companies, benefits administrators and outsourced benefit processes? This will be a unique and very important exercise.

Life Insurance, Disability, and Paid Time Off: Here we will cover basic life insurance options, employer provided life insurance, underwriting issues, corporate owned life insurance, and the use of life insurance as a financing tool. Additionally, paid time off which would include privately sponsored and public disability benefits, unemployment benefits, vacation, sick days, holidays, workers' compensation and its legal foundation, as well as leaves of absence will be reviewed. The labor economic issues which apply here would include the rationale of paid time off, the alternatives, the impact on productivity, global comparisons, and the available steps to mitigate costs.

Equity Benefits: Making employees owners has become an important benefit strategy for many companies. The potential linkage between employees and shareholders and the application of the Agency Theory of labor have offered employers an opportunity to create a common mindset and identity between owners and employees resulting in improved productivity and business growth. Many companies offer stock options, restricted stock, discount stock purchase plans, ESOPS, stock appreciation rights, and newer performance based equity opportunities for their employees. Again, labor economic, behavioral, and HRM strategy issues will be applied to this subject. Then, design alternatives, costs, and measurement issues will be explored.

Global Benefits: How are benefits relevant to the business strategy and how are they both affected by global competition? What is the evolution from local to global? What operations and strategic partnership decisions can be affected by labor costs and practices abroad? What about outsourcing, contract manufacturing, joint ventures, acquisitions, and green field expansions in other countries? What is the relevance of benefits to these steps? What is the foreign landscape: laws, customs, economics, taxes, politics, and human resource capacity? What are the real comparative labor and benefit costs? How do laws and practices affect U.S. traditional HRM practices such as bonus, equity benefits, contribution plans, and other compensation and benefit practices? How do global companies integrate their pay and benefit practices? How do companies compensate ex-patriots?

Collective Bargaining and Benefits: What is the process of negotiating benefits in a collective bargaining environment? How do plan design and administration issues differ? What are some competitive issues with respect to bargaining benefits? What are the parties' legal obligations in bargaining? What is MPPA and how does it apply to jointly administered plans?

Benefit Administration: Here we will explore the factors underlying choices available to both private and public sponsors of benefit plans with respect to plan administration. We will begin by pointing out ERISA-mandated fiduciary responsibilities. Then plan administrative alternatives such as delegation, outsourcing, and, very importantly, the web-based, self administration of plans will be explored. We will also examine HR information system programs that can control benefit eligibility and participation, benefit enrollments, and calculations.

Accommodation Benefits: We will review a variety of accommodation and enhancements benefits. In many cases these plans support the business and HRM strategy without adding substantial labor costs. Many of these plans are supported by a favorable tax treatment, and utilize the purchasing leverage of the employer. Some examples we will cover include facilitating the availability of quality day care, Flexible Spending Accounts for health and dependent care, concierge amenities, financial planning programs, and retirement education sessions, employee assistance plans, educational subsidies, and long term care.

Applied Research Paper

Students will write an 8-10 page paper. The Instructor must approve your topic. A schedule for choosing your topic and submitting your outlines, rough and final drafts will be discussed in class and announced on Blackboard. For your assignment, you may choose a local (Butler, Hamilton, and Warren Counties) company or organization and conduct first-hand (in person) research of their total benefit practices or a special benefit issue and assess how the benefits fit within the employer's total compensation scheme and how they are linked to the business strategy. You must prepare a detailed description of the company's benefit practices, their design features, and intended strategic purposes. Students may also elect to research major contemporary benefits issues as their paper topic. In either case, the instructor must approve the topic.

Based upon what we have learned, you must include a comprehensive and critical appraisal of the benefit plans. You must also examine how the benefit fits into the business strategy and the overall HRM strategy. Your evaluation of their benefits will incorporate the measurement tools, research, and analyses learned in this course and apply the relevant literature and research. Finally, you must make a comprehensive recommendation with respect to the benefits that corresponds to the learning of the course and is supported by your research. Your paper will be evaluated based upon the clarity and organization of the writing, the depth and quality of the research, and the strength of the analysis and recommendation.

If you choose a general topic of current interest, the paper must include a detailed analysis of issues related to the topic, relevant economic and policy matters, the conflicts surrounding the topic, a discussion of the strengths and weaknesses of the conflicts, your evaluation of the topic as well as the application of relevant metrics, principles, and strategic tools covered in class.

You will be expected to include both end notes and a bibliography, and the paper should be at least 8- 10 pages long (1-inch margins, double spaced, size 12 Arial Font). Your paper and the preceding topics and outlines, must be submitted on the dates due or they will not be accepted.