Companies that want to keep a solid base of quality employees almost have to offer medical and life insurance. Next, I think, most employees look for disability coverage, with most picking short-term before long-term – though we’ll discuss the wisdom of that choice.

If your company is doing well, you also might think about adding a profit sharing plan. A 401(k) is less popular; it involves a lot more administrative cost, and sometimes is hard to sell. While well-paid employees may like it and be able to make the contributions, a 19-year-old is more concerned about making a car payment. That can be a problem because if only high-salaried staff members join your plan, it may become “top heavy” and leave you open to charges of discrimination.

Pension plans often don’t rank high for many small businesses, because of the cost and long-term commitment involved. Today, a pension plan must cover anyone who is eligible, namely those who are 19 or older and who work at least 1,000 hours a year. If you want to plan for retirement, you have to take the staff along.

One other benefit to consider is the premium conversion plan (Section 125), which has become very popular with large employers. It lets employees pay for benefits with pretax dollars. If an employee’s share of medical insurance costs is $2,000, his or her gross pay is reduced by that amount before federal and FICA – and maybe even state – taxes are levied. For someone earning $30,000 a year, this could mean nearly $500 extra a year in take-home pay, a very tangible benefit.

Here’s a detailed look at the options.

MEDICAL AND LIFE

The owner of a small business, say about 10 people, who wants to set up a new medical plan should look at the local Blue Cross organization. Check what the Chamber of Commerce and your business associations may offer. Also look at any small commercial carriers active in your geographic area. Then consider the majors – the companies that operate all across the country, such as Guardian, U.S. Life, Travelers, Aetna, Prudential. They sometimes offer a small-group product.

Most providers offer a combination of medical and life insurance. The life is easy for them; they just tell you the minimum requirement, probably around $10,000 or $15,000. (They’ll accommodate you if you want more, of course.)

While traditional commercial carriers require a minimum amount of life insurance, Blue Cross units and health maintenance organizations (HMOs) do not. When there is a minimum life insurance requirement, especially for a small group, you may not be quoted the most competitive rate. You might get a better price by going out into the life insurance market, but if you want

medical coverage, you don’t have much option – you have to buy life, too. This is one of those little gimmicks of insurance companies.

Today, most employers offer life and medical. However, some employees don’t want medical coverage because they’re covered elsewhere through a spouse. Insurance carriers allow employees to waive the medical if they can prove coverage elsewhere, but they still require the life insurance. The insurance company wants some money, and it’s not a bad policy because $10,000 or $20,000 life coverage can be a real benefit in the case of death.

Is it a good buy? To be sure of getting the best deal, any small employer starting up a plan should find an independent broker or agent. Find one that represents more than one insurance company, someone who will put your program out to bid in the marketplace and shop it to about 10 carriers, including your Blue Cross, your Chamber of Commerce and some HMO options.

You’ll likely find a lot of price variation. The cost for a small employer would be much higher in urban Philadelphia than in rural Lancaster County two hours to the west, for example. The city has teaching hospitals, too. That tends to add to the expense.

But you can get differences in price even within a metropolitan area. If you have an older group, for example, the Blues will probably be less expensive than going to a commercial carrier – perhaps 10% or more. You could pay a $600 family rate for coverage from a commercial carrier in the Philadelphia area right now, but more like $482 under the Blues. That’s a significant difference.

You’re also talking significant differences with HMOs because you are willing to stay within a managed care network. There could be a problem with numbers here; some HMOs will accept a group of 10, but two or three may be too few. Still, HMOs are always worth looking into.

Under Blue Cross, a group of two to 29 will put you into what is called a community pool. The advantage here, at least in Philadelphia, is the age makeup of your group isn’t taken

into consideration. Independence Blue Cross works with a rate structure published each quarter. So if I see a group with a fairly old population, I go right to the Blues.

HMOs also publish rates each quarter, and age does not come into play. But when you look at your commercial marketplace, you need a census of your group – age, sex, whether you are covered as a single or family unit. All these factors are taken into consideration when coming up with rates.

Preexisting problems: Preexisting medical conditions can be a problem, depending where you live. Under medical small-group insurance reform in New Jersey, for example, a person who has a history of participation in one group insurance plan can roll over into a new employer plan with credit for the preexisting condition. He or she has built up a credit and avoids waiting periods of up to one year that some plans have before covering a preexisting condition.

But how preexisting medical conditions are handled differs from state to state. Check this in choosing a provider for medical coverage; it could be very important, particularly if you are starting a new medical plan and some of your employees have been treated for medical problems in the previous months.

If a new employee transfers to your plan from a previous employer plan, there may be a way to handle the preexisting issue, provided the former employer had at least 20 employees. The Consolidated Omnibus Budget Reconciliation Act (COBRA) says affected employers must allow an employee who is leaving to stay on the company group medical plan for a minimum of 18 months. The employee then pays the premiums plus a 2% administration fee. The benefit must be granted whether the employee leaves voluntarily or involuntarily (except in instances where the person is fired for “gross misconduct”) and also is available to a surviving spouse for up to 36 months.

Some employers resent offering COBRA to someone they’ve fired. I’ve had employers tell me, “I caught this guy stealing – I don’t want to offer him COBRA.” It’s your call. You have to decide whether it’s worth the legal fees you would pay if the former employee took you to court – especially when you no longer have to pay his or her premium anyway.

If the departing employee’s new employer has a three-month wait before the person qualifies under the company plan, the employee can use COBRA payments to the former employer to cover the three months COBRA also can come into play in retirement planning. A person who wants to quit before age 65 may choose to go out 18 months early, take COBRA for those months and then go right into Medicare.

Moves to managed care: With most of my smaller clients, I see a transition to more managed care options. They’re doing what bigger employers did five years ago. The only problem is that too often, Mr. Employer doesn’t want to be locked into an HMO. He wants the freedom to choose any doctor he wants.

It may be possible for him to get the best of both worlds. In the Philadelphia area, and this may be true elsewhere, Blue Cross will allow a company to have employees in what it calls the Preferred Provider Organization (PPO) and also in the Blue Cross Keystone HMO. It’s fine if you have only one in the first and five in the HMO. It’s all Blue Cross.

Prudential Insurance has a similar arrangement but requires more employees. So do U.S. Healthcare and Kaiser in California. The concept is now sifting down to the smaller employer, offering cost-effective delivery systems and freedom of choice for the employer. Some employers figure they’ve earned their right to go to any doctor they want while employees generally favor cost-effective plans with low co-pays.

The ultimate option: On medical coverage, let’s look at one final option: opting out.

No law requires an employer to offer benefits. But if you decide to drop medical coverage, you’ll have a hard time hiring people. Those you want to hire almost surely consider medical insurance a non-negotiable part of their employment contract. As much as you’d like to throw up your hands and say you don’t want to be involved in benefits anymore, you almost have to offer life and medical insurance if you want to keep a good base of quality employees.

DISABILITY

It’s standard today for a small company to offer short-term disability, typically for 13 or 26 weeks. Normally, the benefit is 60% of the basic weekly earnings up to a maximum amount based on your highest salary or on some other formula. It covers broken legs, appendicitis, maternity and similar short-term situations.

However, long-term probably is a more valuable coverage. Young employees don’t ever see themselves getting a serious long-term illness, and they think of accidents as something that happens to someone else. But older employees and those with families realize that if they have only 26 weeks of short-term coverage, then in the 27th week there’ll be nothing.

Neither coverage is really expensive. Long-term is cheaper because not that many people become totally disabled and make claims. But it’s nice to know you can offer it. If a valued employee becomes disabled, you soon have to ask, “When do I cut off the medical benefits and salary?” If you have long-term disability, you don’t have to make that decision.

Many factors affect the cost: the makeup of your group, where you’re located, the nature of your industry. I recommend considering self-insuring for short-term coverage. This way, you’re not paying short-term premiums for disabilities that never occur. If you know your group and check your records, you may well find that you had only one or two cases – one a maternity, the other a heart attack – where your short-term policy would have come into use. You probably would have paid more in premiums than in a 50% or 60% replacement of those employees’ weekly earnings.

Here’s how it can work if you self-insure.You set a company policy that if somebody becomes disabled – with sickness or an injury – he or she first must use up all paid sick days, maybe 10, after which you begin to pay 50% of regular weekly earnings up to 13 weeks, or whatever arrangement you choose. Certainly 13 weeks is not a long time for the employer to be at risk. Of course, you’ll want a doctor’s note confirming that the illness or injury is disabling and noting the date the employee should return to work.

Your policy, with all its terms and limitations, should be spelled out clearly in a written document given to each employee.

Always insure for long-term disability. There’s too much risk not to. You should have an insured contract that goes to age 65 for long-term disability and a salary continuation plan. The policy can kick in on the 90th or 180th day or after one year, whatever you choose. This will depend on how you handle short-term disability.

KEYMAN

The law allows you to offer certain policies to certain key employees. These policies do not violate antidiscrimination rules even though they’re not available to every employee.

Such “keyman” policies are written essentially to provide cash to buy out the stock of executives if they die or to provide the resources to hire a talented and highly paid replacement. In the stock buy-out, the goal usually is to prevent the stock – and perhaps control of the company – from passing to an outsider – most often a spouse.

It’s also possible, under certain circumstances, to offer your highest-paid people richer group life insurance as well as disability coverage not available to rank-and-file employees.

SICK DAYS AND VACATIONS

Most companies, small or large, base sick days on years of service with the company. Typically, someone starting in January gets five sick days in the first year. If the person starts in July, he or she might get part of a week. After the first year, the employee may get a maximum of 10 sick days and that usually doesn’t change.

Vacation days are different. They’re also tied to years of service, but in a much stronger fashion. Typically, an employee gets one week in the first year, two weeks for two to five or two to 10 years of service and three weeks after 10. This is a realistic schedule.

I’ve had some interesting arrangements with employers who have many female employees with young children. They get tired of employees trying to decide, when the kids get sick, whether to take a vacation day, a personal day or a sick day. So they give employees 17 days (10 vacation days, five sick days and two personal days) to use any way they wish. Employees don’t have to say which type of free day they’re taking.

Some companies allow employees to carry any unused days off into the following year (sometimes with a cap on how many days can be carried over). Or if someone has a lot of days left at the end of the year and it’s not practical to use them all in December – certainly true in retailing – they pay the employee for the days not used. This may not be the full amount, but perhaps 60% of the value of that day. That can be a nice bonus at the end of the year.

Today’s work force needs some flexibility, and your employees will appreciate having it. In return, you’ll find they’ll support you when you really need them to do a special job.

PENSIONS

A profit-sharing plan can be used to build a retirement benefit. It’s a good vehicle because it provides an incentive for employees. If they work hard, the company grows and is able to make a bigger profit-sharing contribution. If there are no profits, the company doesn’t have to put any money into the plan, though if no profits are put in for five years, the IRS is likely to ask if it’s really a profit-sharing plan.

Profit-sharing allows the company to put aside pretax dollars, with the company’s contribution generally based on a percentage of total compensation. The plan is a way for the employer to shelter funds for corporate tax and personal reasons.

Vesting for a profit-sharing plan is strict and usually is set in your plan document. The administrator must follow this schedule. If an employee leaves before being vested, any money put aside on his or her behalf falls back into the pool.

A 401(k) is another retirement option for a small company, even one with only 10 employees. But it’s costly to administer and you’ve really got to shop to find an administrator who does just small-group 401(k)s. It might cost between $1,500 and $2,000 a year to have someone administer a small-group plan.

From the employee’s point of view, there are a lot of participation regulations with 401(k)s. There’s another potential problem. Highly compensated employees may want to jump in because they see the value, even if the company doesn’t put in any matching funds, and they can afford to put aside 3% of their pay. But it may be harder to get the less-well-paid staff members to sign up, especially if there’s no company contribution. It may be a real struggle for them to have something like $50 taken out of their pay check. I think you need at least 25 people for a 401(k); this gives you a better shot at getting a fair mix of salaries. And offering a company match – even if it’s 10 n the dollar – is a big incentive.

Normally, 401(k)s have a vesting schedule. One formula is 20-40-60-80, which means the employee is 20% vested in the first year and the percentage accumulates each year until it reaches 100%. In a 401(k), employees always get back all money they contribute, even if they leave before being fully vested, but the matching amount from the company is subject to the vesting schedule.

If an employee gets a year-end bonus and wants to spend the money, that’s fully taxable. Lower-paid employees, especially younger ones, love getting and spending a bonus at the end of the year. Older employees with families may prefer to shelter some of the bonus. For these staffers, you can arrange to have some or all of the money put into a 401(k).

Defined contribution, defined benefit: Regular pensions fall into two categories:

• Defined contribution, which covers profit sharing and 401(k) plans. The contributions can be made by the employee and employer (in the case of a 401(k) plan) or by the employer alone (in the case of profit sharing). There is no guarantee of what that benefit’s going to be at age 65; you just define the contribution the company will make. In a profit-sharing plan, for example, it may be defined as a yearly contribution of 1%, 2% or 5% of total compensation.

• Defined benefit plan, which is the old-fashioned pension plan, one that’s most in use at large companies. This plan defines the benefit that each vested employee will qualify for at age 65.

Defined benefit plans are best for employees because the company is required to fund the program every year – whether or not it had a good year. This guarantees that employees will reach retirement age with a nest egg, even if they haven’t saved money on their own. Another benefit to the employee: the company puts the handling of its retirement fund into the hands of an expert. Such plans have an investment manager who normally chooses a company such as Merrill Lynch or Smith Barney to manage the money.

But companies probably prefer defined contribution plans, which make no guarantees other than a certain matching contribution in a 401(k) plan and a yearly decision by the board of directors whether the company can afford a contribution to the profit-sharing plan. It’s up to the owner and, to some extent, the employees to guide investment policy for defined contribution plans. The owner is rarely an investment expert, so he or she has to pursue due diligence and hire a firm to invest the money, to make it grow and to get the correct asset mix so it shows a steady return in low and high markets. The onus is on the employer to make proper selection of funds and on the employee to invest wisely.

Employees have to make decisions when they participate in a 401(k). Normally, they choose from among three or four investment choices. There may be a number of funds: fixed-income, money market, bond, equity or maybe a balanced fund. It’s up to the employees to know what is happening in the finance world so they can make intelligent choices. If they’re too conservative – and studies show that many people with little financial know-how are – it will be difficult to turn an investment into a nest egg by age 65.

Picture this scene for your 10-person staff.

Thanks to a strategic alliance you’ve made, they enjoy a benefits package comparable to that available at most of the nation’s Fortune 500 companies. You have access to similar coverage for yourself, of course, though you may choose a richer package.

There’s more. Under this alliance, you also rid yourself of the agony of payroll paperwork and all the tedious filings required under state and federal work procedures. And for good measure, you also delegate all routine queries and gripes on personnel and payroll issues to someone else.

Where’s the catch?

One, the alliance calls for you to cede all your employees to another company and lease them back. Two, you pay for the privilege. The cost can be a charge equal to about 3% to 6% of total payroll, a flat fee of between $500 and $2,000 per person per year or a combination of both.

“Medical usually is the hook that brings them in,” says Steven A. Tessler, president of Corporate Management Group, a New York City company that thrives on such alliances. “But six months later, it’s the savings in time that keep them. So often I’ve heard businesspeople say, ‘I can always make another dollar, but I can’t make another hour.'”

Corporate Management Group (CMG) represents a business phenomenon that waxed in the late 1980s, then waned and now seems to be waxing again. The premise is simple. A company with expertise in all areas of personnel management becomes the employer-of-record for the staffs of many small to medium-sized businesses and then uses the power of numbers to build benefits packages unavailable (in richness, cost or both) to the individual small companies. At the same time, it has the people-power to take over back-office operations that often are a real burden to the small-time entrepreneur.

CMG has more than 10,000 employees in scores of companies that range in size from three employees to about 1,000. “We are,” says Tessler, “the out-source resource.”

Emotional obstacle: The biggest issue for business owners is the perception of loss of control. Under such an alliance, your employees may work in your store, but they are employees of a distant, absentee owner.

Tessler likes to allay such fears quickly. He explains that for all practical purposes, the owner continues to run the business just as he or she always did – hiring, firing, promoting, rewarding and disciplining the employees just like before the alliance. All such points are spelled out in a detailed contract.

CMG and potential client companies examine each other diligently before any contract is signed. In fact, CMG rejects about one-third of the companies interested in joining, most often because of employees with bad medical histories or lack of financial stability.

The American Gem Society brought its headquarters staff into the group and, at a recent AGS Conclave in Phoenix, it strongly recommended that members check out CMG. At least one well-known jewelry manufacturer also is now a CMG client.

Once an agreement is signed, CMG requires the new member to put the equivalent of one complete payroll plus taxes on deposit. From then on, payroll is transmitted to CMG’s bank in enough time for it to send checks or direct-deposit wages on the due date (CMG performs all payroll functions with appropriate deductions).

CMG sends a two-person team to the new member for a series of one-on-one conversations with employees, primarily to determine their benefits needs and wishes, but also to discuss other personnel issues. Em ployees may call CMG toll-free any time with payroll or personnel questions.

Tessler says one of the main appeals to employees is the diversity of the health insurance plans available. Among them:

• Cafeteria plans, which allow employees to pick and choose among various benefits at a cost that’s within their budget.

• Choice between conventional indemnity medical plans and health maintenance organization plans.

• Flexible spending plans that, among other things, offer coverage for dependent care.

• Various life insurance and savings plans, including 401(k)s.

Many employees like the flexibility, Tessler says. For example, someone who might be covered for medical insurance through a spouse still can pick up dental. And employees who make a personal contribution to their medical coverage (and many do) may do so on a pretax basis under some plans. (Someone with $25,000 annual income who contributes $2,000 toward medical coverage, for example, would have gross taxable income of $23,000.)

“Our goal is to create a plan that’s designed to meet individual needs,” says Tessler. “They decide how much they want to spend, and we work out a plan to fit that budget.”

What it costs: The size of the company seeking to join CMG has a direct bearing on cost. For example, a jeweler with operations in a number of states will have more complex compliance regulations than one with a single store. But in general, the cost is 3%-6% of total payroll or a certain amount per employee (usually $500-$2,000 per person). The dollar charge often is used in the case of a high-salaried employee, possibly the boss.

Tessler estimates that CMG can cut health-care costs 10%-40%. On total service, he estimates that a 50-person company should save about $100,000 a year, after paying its fee, by using all CMG services. He quotes the case of a jewelry company with 80 employees and a $2 million payroll that saved $162,000 by contracting with CMG.

If the savings are so great, why don’t more companies use the service and why don’t more companies such as CMG get into the business? On the first point, says Tessler, use is limited because the idea of sending off employees to another “boss” and then leasing them back is too big a mental hurdle for a lot of business owners to make. On the second, he offers no particular answer other than it takes a lot of work to learn the business. He launched his company in 1992 and competition still is fairly limited.

There’s also the fact that people-leasing companies have had some bad publicity. One major company that was widely publicized in the late 1980s failed when its management allegedly played tricks with finances.

Under the CMG contract, either party may quit with 30 days’ notice or immediately if any “gross errors” are uncovered.

Steven A. Tessler, Corporate Management Group, 189 Broadway, New York, N.Y. 10007; (212) 843-6600.

JEWELER PROFILE

The jeweler: Single store on fashionable avenue in southern town of about 270,000. Five full-time employees (including owner) and three part-time. Annual volume, $500,000 to $1 million.

The benefits: Medical and life insurance, pension plan, paid sick days and vacations, education financial assistance, merchandise discounts and unpaid family emergency leave. Also pays for lunch for full-time employees. Does not offer 401(k) (“too hard to administer”), dental plan (“still trying to get comfortable with medical”) or long-term disability (“just haven’t explored it; the staff hasn’t asked about it”).

Costs: For medical coverage, the owner encouraged the staff to look at many plans and finally picked the local Blue Cross/Blue Shield. Although it was more costly, it offered better benefits, including a “cafeteria plan” under which employees can pick and choose among available levels and types of coverage. Employer and employee split the cost, each paying about $125 a month. Some opt out because they’re covered through spouses.

Life insurance and the defined contribution pension plan are offered as part of a Single Employee Pension Plan. The owner picked this plan because it offered the option for profit sharing; the company contributes about $3,000 a year for the entire package. Employees are encouraged to contribute (particularly their Christmas bonus) to shelter the contribution from taxes; younger employees are largely indifferent to this option. The insurance policy has a payout of about $12,000. Employees can take part after two years’service.

The company pays for three sick days a year (either time off or pay) with no monitoring at an annual cost of about $1,000 – mostly in cash. “If I trust them with the keys to the store,” says the owner, “I can trust them to decide if they are sick or not.” Vacation policy is one week after one year, two weeks after two years and an extra day a year for each succeeding year to a maximum of three weeks. The store also allows unpaid leave during slow periods.

The business, a member of the American Gem Society, requires all full-time employees to take Gemological Institute of America and AGS courses to earn the AGS Certified Gemologist Appraiser title. Employees pay their own expenses up front, get a pay increase on completion and full reimbursement one year after completion. The owner encourages staff members to get outside financial support; a number have received scholarships from Jewelers of America. Total annual cost to the company: about $2,000.

Store merchandise is available to employees at cost with no cap on dollars or units. A house account can run for a maximum of one year; any departing employee must settle the account before leaving. The owner considers this benefit as a service and declines to attach a dollar value.

The annual lunch bill (paid because salespeople must be on the floor during the busy lunch hour) comes to about $3,125 a year.

Owner comment: “When I saw the local White Castle hamburger shop with signs saying it’s hiring hamburger flippers for $6 an hour and offering a sign-up bonus and paid vacations, then I became even more aware of the need to give my employees good benefits.”

JEWELER PROFILE

The jeweler: Single store in moderate-size midwestern city with market area of about 50,000. Seven full-time employees. Annual volume, $700,000 to $1 million.

The benefits: Medical, dental and prescription drug insurance, paid sick days and vacation, bonus program, education financial assistance and merchandise discounts. The dental program is about a year old. The company has never had a pension program or any disability insurance (on disability, “it just never arose”). Company policy gives seven sick days. Vacation policy: one week after one year, two weeks for two to five years, three weeks for more than five years.

Costs: The total medical cost is about $165 a month per employee through a group plan with other retailers and with manufacturing companies in the city. “We’re very satisfied with the plan we’ve got,” says the owner. “We don’t believe in shopping around. We want to stick with what’s good.” The company pays for 100% of medical coverage for all employees.

The total bonus cost is $30,000 to $35,000 a year.

Owner comments: “If you treat people decently, they’ll respond. No one abuses sick days. Good benefits are essential. Employers who take care of their help get loyal help.”

JEWELER PROFILE

The jeweler: Three-store company in affluent western community. Immediate market area of more than 100,000; major metropolitan area within easy driving distance. About 40 full-time employees. Annual sales, $5 million-plus.

The benefits: Offers a full range of benefits, including health, dental, vision and life insurance. Also offers 401(k) savings plan, long-term disability, paid sick days and vacation, free parking and unpaid family emergency leave. Has liberal bonus plan under which top producers can earn up to 25% more in total salary.

Also offers vision care, which is about one-quarter the cost of dental care, which is about one-seventh the cost of medical. Sick leave provides six paid days; unused sick days are reimbursed at the end of the year up to four days maximum.

Full-time employees may buy merchandise at cost plus 10% with no limit. This formula was suggested by employees and accepted by management. The company reserves the right to put certain merchandise off-limits, usually one-of-a-kind pieces.

Costs: Total benefit cost is about 8%-10% of payroll, or about $135,000 to $170,000 yearly. Each employee receives an annual accounting of the company contribution for various benefits. Example: an employee with gross income (including commissions and bonus) of $35,000 is told he/she received a company contribution of $3,100 worth of medical, dental and vision care; $108 of life insurance; and $1,350 for education (including attendance at meetings and shows). Employees and the company share medical costs. Employees who take a Gemological Institute of America home-study course are paid half the cost up front and the balance upon completion.

Owner comment: The owner offers a rich benefits package to provide a “good place to work” and to attract and keep well-qualified employees in an intensely competitive market. Other employers in the market offer “humongous” benefits and high pay.

“We don’t review our medical plan often enough, but the one we have is good. A change can be very disruptive. People don’t like the prospect of going to a new doctor. We don’t want to be too restrictive.”

Regarding the merchandise benefit: “It’s a real advantage to have our associates wearing nice jewelry. And it’s great that some of them want to buy real dogs. It cleans out our inventory!”

JEWELER PROFILE

The jeweler: Single store in vital downtown in northeastern town of about 75,000. Eight full-time employees (including owner) and eight part-timers. Uses a salary plus commission compensation plan. Annual volume, $1.1 million.

The benefits: Offers medical, life and dental insurance, short- and long-term disability coverage, paid vacations, education financial assistance and unpaid family emergency leave. Also provides manager and assistant manager with free parking. Considering a pension plan with employee contribution but finds younger staffers are not interested. No savings plan or paid sick days. Owner feels the current benefits level is all the business can afford; employees have not requested any changes.

Costs: Medical coverage provided through local health maintenance organization that the owner contacted in his role as a member of a hospital board. It is a co-pay plan with the cost split 50/50 by employer and employee; each pays about $80 a month. A Travelers Insurance life policy was adopted at the suggestion of a good customer who is a Travelers’ agent. The policy ties in with disability insurance, which kicks in the next day for an injury and after one week for an illness. The disability policy pays $175 for the first week, $115 a week for the next four. The total annual cost to the company for this program is $2,580.

Dental coverage is available free to all full-time employees. The cost of this private plan to the company is $2,150.

Paid vacation policy is two weeks after one year and three weeks after 10. The owner encourages employees who want to pursue further education (especially through Gemological Institute of America courses) to apply for scholarships. All have done so successfully. For those who cannot get a scholarship, the company is willing to pay 50 n the dollar for out-of-pocket expenses.

Merchandise discounts are cost plus 10%, with purchases restricted to personal use or for members of the immediate family. There is no cap. Unpaid emergency leave can be offered for up to three months – depending on the employee’s need – and is restricted to immediate family – mother, father, spouse and child.

JEWELER PROFILE

The jeweler: Single store in high-end shopping district of large eastern metropolitan area. Two full-time and three part-time employees. Annual sales, about $700,000. Targets affluent customers, offers specialized merchandise.

The benefits: Offers full-time staff medical coverage through health maintenance organization, sick and vacation leave, profit-sharing pension plan, unpaid leave for family emergencies, financial help for education and merchandise discounts. Does not offer life or dental insurance.

Costs: The medical plan costs the company about $1,200 yearly; the cost to each participating employee is about $150 a month. Sick leave last year amounted to about 10 days. Figuring hourly pay at about $12, the total sick leave cost ran somewhat over $1,000. The company last year contributed about $6,000 to the defined contribution pension plan; administrative costs were “very, very minor.” Vacation policy: 10 days for one to five years of service, 15 days for six to 10 years, and 20 days for more than 10 years.

Education costs average $2,000 to $5,000 a year for courses offered by the Gemological Institute of America and the International Society of Appraisers and/or special seminars offered by the Diamond Promotion Service. Payments to employees are made up front.

Merchandise purchases, at cost, totaled about $2,200 last year. The owner declines to estimate how much extra income the company would have earned had the merchandise been sold at regular retail. “It’s important for employees to wear good jewelry.”

Owner comment: “We did not try to shop around for benefits. We rely on our accountant for good advice on the pension plan. He recommended Vanguard, which gives us a plan that offers a lot of flexibility.

“We try to be as generous as we can afford to be. Sometimes, we give extra coverage if we can afford it. Of course, we offer unpaid family leave. People have lives, you know. People have emergencies and they have to deal with them. We want to make this a pleasant place to work.”

JEWELER PROFILE

The jeweler: Two-store operation in a metropolitan area of about 2.2 million in western U.S. Sixteen full-time employees, including owner. Both units are destination stores in shopping centers. They cater to a retirement market of about 60,000 and a business/professional market of about 200,000. Annual volume, $1 million to $1.5 million.

The benefits: Offers health/medical and life insurance, paid sick days and vacations, profit sharing in a bonus system, education financial assistance, merchandise discounts and unpaid emergency family leave. Does not offer dental insurance because it’s too costly in the local market; the staff is unwilling to participate because of the cost. A pension plan was dropped because of the annual administrative cost of about $5,000 and the lack of appeal to the staff. A 401(k) plan is not offered “because of the owner’s procrastination.”

Costs: Last fiscal year, the company’s expense for the life/health package was $10,250. Employees who participate (a total of nine) contribute according to the following formulas: for full-time employees with 20 years or less of service, the company pays 75% of the individual’s costs and 25% of dependents’; for those with more than 20 years of service, the company pays all the individual’s costs and 75% of dependents’.

When changing providers last year, the owner hired a consultant who brought in five to eight companies to discuss what they offer; employees spoke with the three finalists. The owner also did some personal research among providers “to keep the consultant honest.” In the end, the company chose the provider recommended by the consultant. It’s a private company – not a health maintenance organization – offering considerable flexibility in choice of doctors.

For life insurance, the company pays 75% of the individual’s cost and 25% of dependents’.

The change of insurance provider reduced costs 33% and increased benefit coverage. “The package, especially health insurance, is very important to some employees and for others it is a convenience,” says the owner.

In the profit sharing plan, each store has a monthly sales goal. If the store makes the goal, the company pays a percent of gross revenue and of net profits into a pool; if the goal isn’t met, only a percent of net profit is paid. At the end of the year, the total pool is split among staff members (75% to the sales staff, 25% to the support staff).

Sick leave is calculated on the basis of one paid day after one year with an additional day added up to the fifth year. The benefit may be taken, without question, in time or cash and does not accumulate past the year-end. Vacation policy: one week after one year, two weeks for two to 10 years, three weeks for 11 to 20 years and four weeks after 20 years. The company allows a mix of time or cash “within reason.”

Gemological Institute of America courses or other courses that relate to a person’s job are paid for upon successful completion. Merchandise discounts are available, with no cap on purchases, for cost plus 10%.

ABOUT THE AUTHOR

Sharon Krimm counsels employers on the design and administration of employee health-care plans. Before joining Charon Planning, she spent 10 years as a health-care consultant for Sedgwick Noble Lowndes, an international employee benefits consulting organization. She started her career as an account representative for Lincoln National Life Insurance, where she was responsible for marketing group life, health and disability products. She is a graduate of Widener University in Chester, Pa.

Charon Planning Corp. offers consulting services, including those for executive compensation, employee benefits and qualified plans such as profit sharing and 401(k) savings. Charon Planning Corp., 10 S. Clinton St., Suite 302, Doylestown, Pa. 18901; (215) 230-8470.

JCK MANAGEMENT STUDY CENTER QUIZ

If you want to take this quiz, fill in the answers, photocopy your reply and send it with your name and address to “JCK Management Study Center, 1 Chilton Way, Radnor, Pa. 19089.” Replies to

the current test should be postmarked no later than July 15, 1995.

1. A 401(k) is most likely to be welcomed by:

q a. A young, newly-married worker anxious to save for a rainy day.

q b. The boss’s wife because it will help her pay for her new home.

q c. The highest-paid people in the business.

2. A premium conversion plan allows employees:

q a. To pay for their medical insurance with pre-tax dollars.

q b. To convert their insurance premiums into cash to meet an emergency.

q c. To change their jobs with the company to a new “premium” level after they reach age 45.

3. One of the big advantages of handling health insurance through a Blue Cross plan is that:

q a. The name is so well-known everyone will sign up.

q b. If you fall into a Blue Cross community pool the age makeup of your group probably will not be a factor in granting coverage.

q c. By joining Blue Cross at the start of the year you automatically qualify for free life insurance as part of your medical policy.

4. The Consolidated Omnibus Budget Reconciliation Act is important in benefit planning because:

q a. It helps employers share the cost of medical insurance with their employees.

q b. It can provide an employee with a continuation of health care coverage for up to 18 months if the employee quits to take it easy or take another job.

q c. It can be invoked if the employee has a row with the boss to bring in an arbitrator who will seek a reconciliation.

5. More employers are moving toward managed-care health plans because:

q a. They help control costs.

q b. They give the store owner the right to deny any medical expense over a certain limit.

q c. They qualify the company using them for matching federal funds.

6. One of the most telling reasons to offer employees a long-term disability plan is that:

q a. You only have to pay premiums on the policy after the employee reaches age 50.

q b. If a long-term employee becomes too ill to work you won’t face having to decide when to cut off his salary as a store expense.

q c. It offers you the opportunity to turn over your aging deadwood employees to the insurance company rather than fire them.

7. More companies are disregarding the distinction between vacation, sick or personal days because:

q a. It means employees are less likely to take time off to visit the doctor.

q b. It offers employees, especially those with small children, more flexibility in handling their time off.

q c. It means the employer can cut back vacation time because employees can use sick or personal days for vacations.

8. Profit-sharing plans are popular because:

q a. They allow both employers and employees to shelter some of their income from taxes.

q b. If the employers don’t want to share any of their profits they can tell employees they didn’t make any.

q c. No matter when an employee quits, he or she knows there’ll be a nice payout.

9. The difference between a defined benefit retirement plan and a defined contribution one is:

q a. In the defined benefit plan the employer defines the benefit and in the defined contribution plan the employees decide on the contribution.

q b. In a defined benefit plan the employer makes a commitment to provide a specific retirement benefit while in the defined contribution plan the employer commits only to make contributions to a retirement fund, provided the resources are available.

q c. There is no difference; they both pay the same benefits, only in different ways.

10. What is the most probable reason for a jeweler to discharge and lease back employees?

q a. It means that their new employer of record is now responsible for getting and administering the best possible benefits package for the least possible cost.

q b. It means the jeweler can rely on someone else to discipline or fire difficult employees.

q c. It means that the new employer of record will pay Christmas bonuses instead of the jeweler.

– The JCK Management Study Center is sponsored jointly by JCK and the Jewelers Education Foundation of the American Gem Society. This report on employee benefits was prepared by George Holmes, JCK editor in chief, and Charlotte Preston, executive director of JEF.