Cash or Deferred Arrangements (CODAs) It permits employees to defer part of their compensation to the trust of a qualified defined contribution

plan. Only private sector or tax- exempt employers are eligible to sponsor 401(k)plans

It offers tax benefits. Employees do not pay income taxes on the contributions to the plan until they withdraw funds. Employers deduct their contributions to the plan from taxable income.

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3. Investment gains are not taxed until participants received payments.

To distribute money to employees. Companies start by establishing a profit sharing pool. Companies determine the pool of profitsharing money by application of a formula.

Fixed first-dollar- of profits formula

Graduated first- dollar-of profits formula

Profitability threshold formula

Allocation Formulas:

Equal Payments All employees should share equally in the companys gains in order to promote cooperation among employees. Proportional payments to employees based on their annual salary higher paying jobs presumably indicate the greatest potential to influence a companys competitive position.

Proportional payments to employees based on their contribution to profit- measure employee contributions to profits based on job performance.

Rewards employees with company stock. Benefits are also paid in shares of company stock. Participants of stock bonus plans possess the right to vote as shareholders.

Leveraged or Non Leveraged

Leveraged ESOPs plan administrator borrows money from a financial institution to purchase company stock. Non Leveraged ESOPs- the company contributes stock or cash to buy stock.

Determines pension due at normal retirement age. An annuity- series of payments beginning at the plans normal age for the life of the participant.

Determines amount regularly contributed to individual account. A single lump sum distribution anytime.

Defined Benefit Plan

Defined Contribution Plan

Employee is guaranteed benefits regardless of investment returns on trust. Employer is responsible for ensuring sufficient funding to pay promised benefit. Generally insured by PBGC.

Employee bears the investment risk, which can result in higher investment returns or the loss of previously accumulated pension benefits. By individual investment vehicle, if any.

Defined Benefit Plan

Defined Contribution Plan

Hybrid plans- combine features of traditional defined benefit and defined contribution plan. Cash Balance Plans- defined benefit plans that define benefits for each employee by reference to the amount of the employees hypothetical balance.

Cash balance plans are less costly to employers than defined benefit plans.
Cash balance plans pay out benefits in a lump sum instead of a series of payment.

Health Insurance covers the cost of a variety of services that promote sound physical and mental health, including physical examinations, diagnostic testing, surgery, hospitalization, psychotherapy, dental treatments and corrective prescription for lenses for vision deficiencies. Insurance Policy- specifies the amount of money the insurance company will pay for such particular services such as physical examinations.

Multiple Payer System- more than one party is responsible for covering the cost of health care, including the government, employers, labor unions, employees or individuals not currently employed. Single Payer System- government regulates the health care system and uses taxpayers dollars to fund health care.

Premium- the amount paid by the employers to insurance companies, to establish and maintain insurance policies. Insured refers to employees covered by the insurance policy.

The single payer system is referred to as universal health care systems because the government ensures that all of its citizens have access to quality health care regardless of ability to pay.

Single Coverage- extends benefit only to the covered employee. Family Coverage- offers benefits to the covered employee and his or her family members as defined by the plan. Group Coverage- extends coverage to a group of employees and their dependents under a single master contract.

Provides protection against health care expenses in the form of a cash benefit paid to the insured or directly to the health care provider after the employee has received health care services. Pay benefits on a reimbursement basis.

Two types of fee-for- service plans:

Indemnity plans based on a contract between the employer and an insurance company. Self funded plans- operates in the same fashion as indemnity plans.

In Indemnity plans, Insurance companies pay benefits from their financial reserves, which are based on the premiums companies and employees pay to receive insurance. In self- fund insurance, such companies pay benefits directly from their own assets, either current cash flow, or funds set aside in advance for potential future claims.

Features of Fee-for-Service Plans

Deductable Coinsurance Out-of-Pocket Maximum Pre existing Condition Clauses Pre admission Certification Second Surgical Opinions Maximum Benefit Limits

Emphasize Cost Control by limiting employee's choice of doctors and hospitals.

Health Maintenance Organization (HMOs),Preferred Provider Organization (PPOs), Point-of-service (POS plans)

Provides prepaid medical services for all medically necessary services, only if the services are delivered or approved by the HMO.

Features of Health Maintenance Organizations

Out-of-pocket maximums Pre existing condition clauses Preadmission Certifications Second Surgical Opinions Maximum benefits limit Primary Care Physicians Copayments