Employee Benefits
Employee Benefits tests plan types, financing, compliance, and cost management across health, welfare, retirement, and paid leave. Expect questions on ERISA, ACA mandates, COBRA, 401(k) nondiscrimination testing, and benefit-value calculations.
Health and welfare plans
Medical, dental, vision, life, and disability plans may be fully insured or self-funded. Self-funded plans carry stop-loss insurance and ERISA fiduciary duties; fully insured plans transfer more risk to the insurer. The ACA employer mandate applies to applicable large employers, generally 50 or more full-time equivalents, and requires offered coverage to meet affordability and minimum-value rules. COBRA provides continuation coverage after qualifying events; HIPAA includes portability and privacy rules. Section 125 cafeteria plans allow pre-tax employee premium contributions. Health savings accounts require a qualifying high-deductible health plan and are employee-owned and portable; health reimbursement arrangements are employer-funded.
Retirement plans
Defined contribution plans include 401(k), 403(b), and governmental 457(b) plans. Employer matches and nonelective contributions are subject to vesting schedules and indexed limits. ADP and ACP nondiscrimination tests compare highly compensated and non-highly compensated employees; safe-harbor designs avoid some testing. Defined benefit plans promise a formula-based benefit and require funding and PBGC coverage in many private plans. ERISA imposes fiduciary duties of loyalty and prudence.
Other benefits
Paid time off, FMLA leave, short- and long-term disability, workers’ compensation, employee assistance programs, tuition reimbursement, and voluntary benefits complete the portfolio. Cost management uses plan design, vendor negotiation, care management, and employee cost-sharing.
Worked example
A 401(k) match is 100% of the first 3% of pay plus 50% of the next 2%. An employee earning $60,000 defers 6%, or $3,600. The match is 3% x $60,000 = $1,800, plus 50% x 2% x $60,000 = $600, for a total of $2,400, or 4% of pay. The employee’s 6% deferral plus the 4% match equals 10% of pay. If the employee deferred only 4%, the match would be $1,800 plus $300, or $2,100, which is 3.5% of pay.
Traps that cost marks
Do not confuse elective deferral limits with overall contribution limits. Do not ignore ADP or ACP testing. Do not treat COBRA as free coverage. Do not assume the ACA mandate applies to every employer. Do not confuse an HSA with an HRA. Do not overlook ERISA fiduciary responsibility.