National Compensation Survey: Glossary of 

Employee Benefit Terms

September 2020

For use starting with publications containing reference year 2020 estimates.

This glossary is annually updated to reflect changes in the National Compensation 

Survey. Information is applicable to estimates published as of this glossary's release 

date. Prior versions of the glossary are available on the NCS publications page. 

Information on survey concepts, data sources, design, and calculation is available in 

the Handbook of Methods: National Compensation Measures. 

On This Page

• Overview

• Retirement Benefits

• Healthcare Benefits

• Life Insurance Benefits

• Disability Benefits

• Paid Leave Benefits

• Other Benefits
Overview

The definitions of major plans, key provisions, and related terms presented in this 

glossary are those used by the U.S Bureau of Labor Statistics (BLS), National 

Compensation Survey (NCS) program when conducting its survey of employee 

benefits. Under the NCS program, information on the incidence and provision of 

benefits is published in several stages and available on the NCS – Benefits website.

Estimates on the incidence (access to and participation in) and key provisions of 

employer-sponsored benefits for retirement, healthcare, life insurance, paid leave, 

disability, and other benefits are published annually, with a March reference period. 

Incidence and provisions estimates are published for private industry workers, state 

and local government workers, and civilian workers (private industry workers and 

state and local government workers combined).

Estimates on detailed provisions of health and retirement benefits are also published 

annually, with a calendar year reference period. Detailed provisions estimates are 

published for private industry workers and state and local government workers.

Note: Access to employee benefit programs and participation in those programs, as 

these concepts are used in the National Compensation Survey, are defined as 

follows:

• Access to a benefit plan: Employees are considered to have access to a 

benefit plan if it is available for their use. For example, if an employee is 

permitted to participate in a medical care plan offered by the employer, but 

the employee declines to do so, he or she is placed in a category with those 

having access to medical care.

• Participation in a benefit plan: Employees in contributory plans are 

considered participants in an insurance or retirement plan if they have paid 

required contributions and fulfilled any applicable service requirements. 

Employees in noncontributory plans are counted as participating regardless of 

whether they have fulfilled the service requirements. Note that the term 

"incidence" can refer to either rates of access or rates of participation in a 

benefit plan.

• Take-up rate: The percentage of workers with access to a plan who participate 

in the plan.
Retirement Benefits

Retirement plans are classified as defined benefit or defined contribution plans.

Defined benefit plans

Defined benefit pension plans provide employees with guaranteed retirement

benefits based on benefit formulas. An employee’s retirement age, length of service, 

and preretirement earnings may affect the benefits received. Definitions, key 

provisions, and related terms follow.

Traditional defined benefit formulas

Traditional defined benefit plans provide a stipulated dollar amount at retirement or

through a specified formula that includes factors such as career earnings, age, and 

years of service to provide a known dollar amount benefit.

Percent of terminal earnings. Benefits are based on a percentage of average earnings 

during a specified number of years at the end of a worker's career (or when earnings 

are highest), multiplied by the number of years of service recognized by the plan. 

Percent of career earnings. Benefits are based on a percentage of an average of

career earnings for every year of service recognized by the plan.

Dollar amount. Benefits are based on a dollar amount per month for each year of

service recognized by the plan.

Percent of employer contribution. Benefits are based on employer and, occasionally, 

employee contributions. Benefits equal a percentage of total contributions.

Nontraditional defined benefit formulas

Nontraditional defined benefit plans are newer plan types that include cash balance 

plans and pension equity plans. 

Cash balance plans. For each year worked, employees are credited with a specified 

contribution and a rate of interest on that contribution, which together will provide a

lump sum at retirement. The lump sum may also be converted to an annuity.
Pension equity plans. For each year worked, employees are credited with a 

percentage applied to their final average earnings. Benefits generally are distributed 

as a lump sum, but may be converted to an annuity. 

Eligibility requirements

Age and the period of time an employee is expected to work for the employer (a

service requirement) before becoming eligible to enroll in a defined benefit

retirement plan. Some plans require employees to satisfy both the age and the

service requirements before being able to enroll. An example of a minimum age

requirement is 21 years and an example of a minimum service requirement is 12

months.

Frozen retirement plans

Frozen retirement plans are benefit plans that typically are closed to new enrollees

and limit future benefit accruals for some or all active plan participants. Some may

no longer allow participants to accrue additional benefits. Others may change the

plan's prospective benefit formula in such a way as to limit or cease future benefit

accruals for some active participants. The length of time is calculated based on the

year the plan was modified.

Normal retirement

Normal retirement is the specific age, length of service, or a combination of both, at

which point participants may retire and receive all accrued benefits without a

reduction or penalty. In most plans, participants must satisfy a minimum service

requirement to be vested in the plan. The typical vesting requirement is 5 years of

service; these requirements are not included in the service requirements for normal

retirement.

Age and service requirement. The participants' age and service (in years) must each

meet the criteria as specified in the plan, and as long as both conditions are satisfied

employees may retire without incurring a reduction in benefits.

Age plus service requirement. The sum of participants' age and service (in years) 

must meet a total minimum number as specified in the plan, such as 80, and as long

as the condition is satisfied employees may retire without incurring a reduction in

benefits.
Early retirement

Early retirement is the age, length of service, or combination of age and length of 

service at which plan participants may retire and receive all accrued benefits, minus 

a reduction or penalty.

Flat percent per year. Reduction in the benefit amount for each year by which early 

retirement precedes normal retirement. In specific cases, flat percent per year 

reductions may approximate actuarial reductions, such as early retirement at age 55 

with a reduction of 6 percent per year between age 55 and the plan's normal 

retirement age of 62.

Variable. Reduction that is held constant within age brackets, but differs among 

brackets, sometimes in approximation of an actuarial table. For example, benefits 

may be reduced by 3 percent for each year between age 60 and the plan's normal 

retirement age, and by 6 percent for each year retirement precedes age 60.

Actuarial. Reduction applied to the amount of the normal retirement benefit based 

on actuarial assumptions, so that on average, the beneficiary receives the total 

lifetime benefit of equal value regardless of retirement age.

Benefit payment methods

Payments from defined benefit plans may be in the form of a straight-life annuity, a 

joint-and-survivor annuity, a percentage of the unreduced accrued benefit, or a lump 

sum.

Straight-life annuity. A periodic payment made for the life of the retiree, with no 

additional payments to survivors.

Joint-and-survivor annuity. An immediate annuity for the life of the participant and a 

survivor annuity for the life of the participant's spouse. The amount of the survivor 

annuity may not be less than 50 percent, or more than 100 percent, of the amount 

payable during the time the participant and spouse are both alive. The annuity 

payable for the life of the participant is lower than that for a straight-life annuity; to 

account for the increased length of time over which payments will be made, this 

reduction may be a percentage of the straight-life benefit, such as 10 percent, or 

may be based on the life expectancy of the participant and spouse (an actuarial 

reduction).
Percentage of unreduced accrued benefit. Under this method, the participant's 

pension is not reduced to adjust for survivor benefits. The participant will receive an 

amount equal to the straight-life annuity, and the spouse will receive a proportion of 

that amount, often 50 percent, should the participant die.

Lump-sum payment. The participant may opt for a full lump sum, with no further 

benefits received from the plan. If a plan provides for a partial lump-sum payment, 

the participant receives a reduced annuity as well.

Vesting

Vesting is the period of time a participant must work before earning a nonforfeitable right to retirement benefit. Once the participant is vested, the accrued 

benefit is retained even if the worker leaves the employer before reaching 

retirement age.

Immediate full vesting. An employee is 100 percent vested immediately upon 

enrollment in the plan.

Cliff vesting. No vesting occurs until an employee satisfies the service requirements 

for 100 percent vesting, such as 5 years.

Graded vesting. An employee is entitled to an increasing share of non-forfeitable 

benefits, determined by the years of service with the employer, until eventually 

reaching full vesting. An example would be 50 percent vesting after 3 years of 

service, 75 percent vesting after 4 years of service, and 100 percent vesting after 5 

years of service.

Integration with Social Security

Defined benefit plans may integrate retirement benefits with Social Security 

benefits. Under this approach, the employer's contribution to Social Security Federal 

Insurance Contributions Act (FICA) taxes is taken into account when plan benefits are 

computed. Integration may be accomplished by an offset or a step-rate method.

Offset. Part of a participant's Social Security benefit is subtracted from the benefit 

otherwise payable by the plan. The maximum allowable offset is 83.3 percent of the 

Social Security benefit.
Step rate (or Social Security breakpoint). Lower benefit rates are applied to earnings 

up to the specified taxable Social Security wage base (that is, the earnings subject to 

FICA tax); higher benefit rates are applied to earnings above the wage base.

Portability

Portability is a participant's ability to maintain and transfer accumulated pension 

benefits when changing jobs. Portability provisions in defined benefit plans generally 

cover portability of assets, portability of credited service, or both.

Portability of assets. Participants can withdraw their accumulated pension benefits 

or transfer them to another retirement arrangement.

Portability of credited service. Participants are allowed to count the years of service 

with a previous employer when determining benefits from their current employer.

Disability retirement

Disability retirement is retirement resulting from a totally disabling injury or illness 

prior to eligibility for early or normal retirement. Plans providing disability retirement 

benefits may have a service requirement, such as 10 years or longer.

Immediate disability retirement. Benefits are available upon the onset of disability or 

after a waiting period, such as 6 months. Early retirement reductions do not apply to 

immediate disability benefits; participants' service credits cease to accumulate once 

immediate disability benefits begin.

Deferred disability retirement. Service credits continue to accumulate and payments 

do not begin until participants are eligible for normal retirement.

Preretirement survivor benefits

In the case of death prior to retirement (or prior to eligibility for retirement 

benefits), the surviving spouse becomes eligible for an annuity for the rest of his or 

her life. At the time of death of the participant, the benefits become fully vested. The 

amount of annuity is based on the benefit the participant would have been eligible 

for if retirement had occurred on the date of death.

Defined contribution plans
Defined contribution plans determine the value of individual accounts on the basis of 

the amount of money contributed and the rate of return on the money invested. 

Definitions, key provisions, and related terms follow.

Types of plans

Types of defined contribution plans include savings and thrift plans, money purchase 

pension plans, deferred profit-sharing plans, employee stock ownership plans, 

individual retirement accounts (IRA, including traditional and Roth), simplified 

employee pensions, and savings incentive match plans for employees.

Savings and thrift plans. Employees may contribute a predetermined portion of 

earnings (usually pre-tax) to an individual account. Employers may match a fixed 

percentage of employee contributions or a percentage that varies by length of 

service, amount of employee contribution, or other factors. Contributions are 

invested as directed by the employee or employer. Although usually designed as a 

long-term savings vehicle, savings and thrift plans may allow withdrawals and loans 

before retirement.

Money purchase pension plans. Fixed employer contributions, typically calculated as 

a percentage of employee earnings, are allocated to individual employee accounts 

each year. Employers also may make profit-sharing contributions to these plans at 

their discretion.

Deferred profit-sharing plans. The employer contributes a fixed or discretionary 

amount of company profits to employees' accounts. The employer contribution is 

based on the profits of the company and may be zero. The contributions may be 

spread equally among all employees or may be based on the employee salary. Unlike 

a savings and thrift plan, a deferred profit-sharing plan does not require employees 

to contribute to their account in order to receive the employer's benefit.

Employee stock ownership plans (ESOPs). The employer pays a designated amount, 

often borrowed, into a fund that is then invested, primarily in company stock. Any 

debt incurred in the purchase of the stock is repaid by the company. Stock is then 

distributed to employees according to a formula. (Available in private industry only.)

Individual retirement accounts (IRAs). An IRA is a retirement savings plan. There are 

several types of IRAs: traditional IRAs, Roth IRAs, simplified employee pension (SEP) 

IRAs, and savings incentive match plans for employees (SIMPLE) IRAs.
Traditional and Roth IRAs are established by individuals who are allowed to

contribute earnings up to a set maximum dollar amount. SEPs and SIMPLE are

retirement plans established by employers.

Simplified employee pensions (SEPs). An individual retirement account (IRA) is

established for each eligible employee. The employee is immediately vested in

employer contributions and generally directs the investment of the money.

Savings incentive match plans for employees (SIMPLE). This type of plan is limited to

employers with fewer than 100 employees and who also do not have any other

qualified retirement plan. SIMPLE can be either part of a 401(k) plan or established

as IRAs. Employers must either make matching contributions of up to 3 percent of

compensation or make a 2 percent nonelective contribution to all eligible

employees. Participants who are 50 years or older may make additional pre-tax 

employee contributions into a SIMPLE.

Methods of contributions

Methods of contributions can include employee or employer contributions, detailed

below.

Employee contribution methods

Pre-tax contributions. This type of contribution is a feature of many savings and thrift

plans and other defined contribution plans that allow employees to make

contributions to deferred compensation plans through salary reduction agreements

before federal and state taxes are deducted from pay. Distributions from a plan

funded by pre-tax contributions are taxable at distribution.

Post-tax contributions. This type of contribution combines features of a Roth IRA

plan and a 401(k) or 403(b) plan. Under these plans, employees are allowed to make

part or all of their retirement plan contributions after taxes have been deducted,

similar to the way a Roth IRA plan works. Post-tax contributions and their earnings

are not subject to income tax upon distribution.

Amounts up to Internal Revenue Code (IRC) limit. The IRC provides for dollar

limitations on benefits and contributions under qualified defined contribution plans.

The IRC limit on employee contributions was $19,500 in 2020, $19,000 in 2019, and

was $18,500 in 2018. To see a historical list of IRC limits, see the Internal Revenue 

Service's cost-of-living adjustments for retirement items PDF. 
Employer contribution methods

Methods employers may use for contributing to defined contribution plans include 

specified matching percent, fixed percentage of profits formula, and a percentage of 

employee earnings.

Specified matching percent. This feature is common in savings and thrift plans. The 

employer matches a specified percentage of employee contributions. The matching 

percentage can vary by length of service, amount of employee contribution, and 

other factors.

Fixed percentage of profits formula. This feature is common in deferred profit 

sharing plans. The employer contributes a fixed percentage of total annual profits to 

the plan. For example, no matter what the level of profits, 5 percent is contributed to 

the plan.

Profits may include those for the entire company or just those in a specific business 

unit. In a variation of this formula, employers set aside a reserve amount of profits 

(for example, $1 million) and pay only a fixed percentage of any profits above this 

amount into the employees' defined contribution plan.

Percentage of employee earnings. The employer contributes a fixed percentage of 

each employee's earnings to his or her individual account. This feature is common in 

money purchase pension plans.

Automatic enrollment

Automatic enrollment is a feature of some savings and thrift plans. As soon as 

eligibility requirements are met, employees become covered under a plan, but have 

the right to decline coverage at any time. A minimum default employee contribution 

and default investment vehicles usually are set, but employees may choose to 

contribute a different percentage and change investments.

Automatic enrollment provision. Workers are automatically enrolled in the 

retirement plan once they meet eligibility requirements unless they explicitly opt 

out.

Automatic escalation. Employee contributions are automatically increased at a 

predetermined rate over time, raising the contribution rate as a share of earnings. 

Employees may choose to contribute a different percentage.
Default contributions. The plan specifies the initial level of employee contribution. 

Employees may elect to contribute a percentage of earnings different from the 

default rate.

Maximum potential match. The plan indicates the maximum percentage of employee 

contributions that are matched by the employer either by employee election or 

through automatic escalation. Once this maximum is realized the employee may 

elect to contribute above that limit but employer contributions are capped.

Investment choices

Defined contribution plans either allot or provide choice to investment options, 

including the following.

Company stock. Employees receive equity in the company that sponsors the defined 

contribution plan.

Common stock fund. This is a professionally managed fund invested in the common 

stock of a variety of companies.

Fixed-interest securities. These securities include bonds and other nonfederal 

instruments that pay a fixed interest rate over a predetermined period.

Diversified investments. These are professionally managed funds that are invested in 

more than one type of equity or debt instrument.

Money market fund. This is a professionally managed mutual fund that invests in 

short-term Treasury bills, certificates of deposit, or corporate bonds. The fund 

managers sell shares to investors, who receive regular payments of interest.

Lifecycle fund (or target date fund). This is a balanced fund designed to become more 

conservative as the investor approaches retirement by moving from equity funds to 

fixed-income mutual funds.

Withdrawals, loans and transfers

Prior to retirement employees may want to use retirement funds for a variety of 

purposes. The IRS allows and plans may include provisions for accessing these funds. 

In some cases there are stipulations of the purposes for using the funds.
Withdrawals. Prior to normal payout (usually at retirement), defined contribution 

plan participants may be allowed to withdraw all or a portion of the employer funds 

from their accounts.

Hardship withdrawals. Employees usually are not penalized when money is 

withdrawn as a result of a hardship, often defined as the death or illness of a family 

member, educational expenses, sudden uninsured losses, or a need to prevent 

eviction from one's primary residence.

Loans. Defined contribution plans may allow participants to borrow employer funds, 

with interest, from their accounts. Loan amounts often are limited to a portion of the 

account balance. They usually have to be repaid within 5 years, but longer payment 

periods may apply for home purchase or renovation loans.

Transfers or rollovers. A direct payment of plan benefits from a defined contribution 

plan into an IRA or another employer's plan. In a direct transfer or rollover, the 

employee is not taxed on the payment until it is withdrawn or distributed later.

Healthcare Benefits

Healthcare benefits provide preventive and protective medical, dental, vision, or 

prescription drug coverage to employees and their families. Most employer-provided 

plans cover the employee and the employee’s dependents, including spouse and 

children.

Medical care

Medical care plans provide services or payments for services rendered in the hospital 

or by a qualified medical care provider.

Fee-for-service plans

Consumer-driven health plan (CDHP). This type of plan combines a high-deductible 

health policy that provides protection from catastrophic medical expenses with a 

tax-favored account that pays routine healthcare expenses such as those for 

prescription medications and doctors’ visits.

Exclusive provider organization (EPO). This type of plan obligates employees to use 

only the plan’s providers in order to receive coverage, in contrast to PPO benefit 
plans, which merely offer a financial incentive for enrollees to use the preferred 

provider.

High deductible health plan (HDHP). This type of plan typically features a higher 

deductible and lower insurance premiums than those of traditional health plans. The 

plan includes catastrophic coverage to protect against large medical expenses, but 

the insured is responsible for routine out-of-pocket expenses up until they meet the 

plan deductible. For 2018, the Internal Revenue Service (IRS) minimum deductible 

amount allowed for single coverage HDHP plans is $1,350; for 2015-17 the amount 

was $1,300.

Point-of-service (POS) plan. This type of plan provides services through a network of 

participating healthcare providers. Services received within the network or through 

select medical facilities generally provide more generous benefits than services 

received outside the network.

Preferred provider organization (PPO). This type of plan provides coverage through a 

network of participating healthcare providers. Enrollees may receive services outside 

the network, but generally at higher costs. The additional costs may be in the form of 

higher deductibles, higher coinsurance rates, or both, or in the form of 

nondiscounted charges from providers.

Traditional fee-for-service plan. This type of plan finances, but does not deliver, 

healthcare services; the plan allows participants the choice of any provider, without 

affecting reimbursement. Employers pay premiums to a private insurance carrier to 

provide a specific package of health benefits. Some employers may choose to selffund a fee-for-service plan, in which case the employer, as opposed to an insurance 

company, assumes responsibility for payment of all eligible benefits.

Health Maintenance Organizations (HMOs)

HMOs assume both the financial risks associated with providing comprehensive 

medical services and the responsibility for delivering healthcare in a particular 

geographic area, usually in return for a fixed, prepaid fee from members. HMOs 

emphasize preventive care and cover most types of care in full or subject to a 

copayment.

Open-access HMOs. This type of HMO allows enrollees to receive services from a 

non-network provider at a higher cost than the enrollee would pay at a network 
provider. The additional costs may be in the form of higher deductibles, copayments, 

or coinsurance.

Traditional HMOs. This type of HMO provides no benefits for services obtained 

outside the network.

Limitations on coverage

Coinsurance. This form of medical cost sharing requires an insured person to pay a 

stated percentage of medical expenses after the deductible amount, if any, is paid. 

After any deductible amount and coinsurance are paid, the insurer is responsible for 

the rest of the reimbursement for covered benefits, up to the maximum allowed 

charges. The individual is responsible for any charges in excess of what the insurer 

determines to be “usual, customary, and reasonable.” Coinsurance rates may differ 

between services received from an approved provider and those received from 

providers not on the approved list.

Copayments. The fixed dollar amount that an insured person must pay when a 

service is received before any remaining charges are paid by the insurer.

Deductible. The deductible is a dollar amount that an insured person pays during the 

benefit period—usually a year—before the insurer starts to make payments for 

covered medical services. Plans may have both individual and family deductibles. 

Some plans have separate deductibles for specific services. For example, a plan may 

have a hospitalization deductible per admission. Deductibles may differ between 

services received from an approved provider (that is, a provider with whom the 

insurer has a contract or an agreement specifying payment levels and other 

requirements) and those received from providers not on the approved list.

Internal limits. An internal limit applies to individual categories of care—for example, 

a $250-per-procedure deductible for inpatient surgery.

Maximum dollar limit. This limit is the maximum amount payable by the insurer for 

covered expenses for the insured and each covered dependent while the insured is 

enrolled in the health plan. Plans can have a yearly or a lifetime maximum dollar 

limit. The most typical maximum limit is a lifetime amount of $1 million per 

individual. Under the Patient Protection and Affordable Care Act (PPACA), as of 

September 23, 2010, employers with 50 or more employees were required to 

eliminate lifetime maximums on eligible medical care.
Maximum out-of-pocket expense. This feature limits the dollar amount a group 

member is required to pay out-of-pocket during a year, in addition to the plan 

deductible. Until it is met, the plan and the member share in the cost of covered 

expenses. After the maximum is reached, the insurer pays all covered expenses.

Overall limits. The NCS uses this term to refer to restrictions that apply to all or most 

benefits under the plan, as opposed to selected individual benefits. An example of an 

overall limit is a $300-per-year deductible that must be paid before medical expenses 

become eligible for reimbursement. Another example is an 80-percent coinsurance 

that applies to all categories of care except outpatient surgery.

Plan Networks

In-network. Healthcare providers (e.g., specialists, hospitals, laboratories) that have 

accepted contracted rates with the insurer are considered in-network. The insured 

person typically pays a lower price for using services within the network.

Most-generous coverage. Insurers may offer tiered networks and provide the 

insured person with the most-generous coverage, lowest costs, for using the 

preferred provider(s). The insured person may also receive services from the other 

in-network providers.

Out-of-network. Services received outside the network, healthcare providers with 

contracted rates, typically carry a higher cost to the insured person.

Alternatives to hospitalization

Alternatives are offered as a means of reducing costs.

Home healthcare. This benefit provides skilled nursing and therapeutic services to 

patients in their own homes.

Hospice care. These programs provide nursing care and psychological support for 

terminally ill patients and their families, either on an inpatient basis or in the 

patient’s home.

Outpatient surgery. Surgical procedures performed in the outpatient department of 

a hospital or ambulatory facility.
Skilled nursing facilities. This benefit provides rehabilitation and convalescent 

services, as well as skilled nursing care, to patients who require less intensive 

treatment than that provided in a hospital.

Mental health and substance abuse treatment

These services include inpatient and outpatient care for psychiatric conditions and 

alcohol and drug dependency. In the past, coverage for these services was usually 

more restrictive than that for general medical conditions. Under the Mental Health 

Parity and Addiction Equity Act of 2008 (MHPAEA), employers with 50 employees or 

more are required to offer medical plans with restrictions on mental health and 

substance abuse coverage identical to those on the coverage of general medical 

conditions.

Detoxification. Involves supervised care by medical personnel that is designed to 

reduce or eliminate the symptoms of chemical dependency. Treatment must occur 

on an inpatient basis.

Inpatient care. Includes institutional treatment in a hospital or specialized facility.

Outpatient care. Includes treatment in one or more of the following: outpatient 

department of hospital, residential treatment center, organized outpatient clinic, 

day-night treatment center, and doctor’s office.

Rehabilitation. Intended to alter the behavior of substance abusers and usually are 

provided after detoxification is complete. Services can be provided on an inpatient or 

outpatient basis.

Substance abuse treatment. Plans provide at least partial payment for addiction to 

alcohol and/or drugs.

Miscellaneous terms

Administrative services only (ASO). Under this type of plan, a third party disburses 

the employer’s funds to pay claims and handle other administrative details.

Insured plan. In an insured plan, the employer contracts with another organization to 

assume financial responsibility for the costs of enrollees’ medical claims.
Premium. A premium is the fee paid for coverage of medical benefits for a defined 

period. Premiums can be paid by employers, unions, or employees or can be shared 

by the enrollee and the plan sponsor.

Provider network. Under nontraditional fee-for-services plans and HMOs, this is a 

network of approved providers with whom the insurer has a contract or an 

agreement specifying payment levels and other requirements and whose services 

are covered more generously by the plan than if they are obtained elsewhere.

Self-insured plan. Under this type of plan, employers directly assume the major cost 

of health insurance for their employees. Some self-insured plans bear the entire risk. 

Other self-insured plans insure against large claims through the purchase of stop-loss 

coverage. Some self-insured plans contract with insurance carriers or third-party 

administrators for claims processing and other administrative services; other selfinsured plans are self-administered.

Well-baby care. A well-baby care benefit provides for preventive doctors’ visits for 

children 2 years of age and younger. The benefit includes preventive pediatric care, 

routine pediatric care, and routine pediatric immunizations. Care immediately after 

the birth of the child is not included.

Dental care

Dental care plans provide services or payments for restorative care and related 

treatment to the teeth and gums.

Basic services. Services include fillings, dental surgery, periodontal care (treatment 

for gum disease), and endodontics (root canal therapy).

Major services. Services include procedures such as crowns and prosthetics 

(replacement of missing teeth with bridgework or dentures).

Orthodontia services. These are services for the correction of malpositioned teeth.

Preventive services. Services include routine exams, cleanings, x-rays, and other 

preventive care.

Vision care
Vision care plans provide coverage for the improvement of eyesight, including 

eyeglasses and contact lenses. Coverage typically is limited and is subject to 

applicable copayments or scheduled cash allowances.

Prescription drugs

Prescription drug plans provide coverage for outpatient prescription drugs. 

Prescription drugs dispensed during a hospital stay are covered as hospital 

miscellaneous charges.

Generic drugs. These are drugs that are not under any patents. Once a drug’s patent 

has expired, some plans provide more generous coverage for same-formula generic 

drugs than for name-brand drugs; the practice is adopted as a cost containment 

measure.

Formulary drugs. These are both generic and brand-name drugs approved by the 

healthcare provider. Drugs not approved by the healthcare provider are 

nonformulary drugs, for which enrollees receive less generous benefits, such as a 

higher copayment per prescription.

Mail-order drugs. These are drugs that can be ordered through the mail. As a cost 

containment measure, some plans use mail-order pharmacies that typically provide a 

3-month supply of maintenance drugs.

Name-brand drugs. These are drugs that once were, or still are, under patents.
Life Insurance Benefits

Life insurance provides a lump-sum payment to a designated beneficiary or 

beneficiaries of a deceased employee. Companies may provide a basic amount of life 

insurance benefits, which may vary with an employee’s age, income, and occupation. 

Companies also may allow employees to pay for additional amounts of coverage.

Benefit formulas

Fixed-multiple-of-earnings benefit plans. These plans link the benefit amount to 

employee earnings, usually rounded to a stated dollar amount. This link enables the 

level of protection to increase automatically as income rises.

Variable-multiple-of-earnings benefit plans. Benefit calculations under these plans 

use multiples that are based on employee earnings. For example, employees earning 

up to $50,000 per year might receive a benefit equal to their annual earnings, 

whereas employees earning more than $50,000 per year might receive twice their 

annual earnings.

Flat-dollar-amount benefit plans. These plans provide a fixed life insurance benefit 

amount. Insurance amounts ranging from $10,000 to $25,000 are common in such 

plans.

Variable-dollar-amount benefit plans. These plans provide a dollar amount that 

varies with an employee’s earnings and length of service.
Disability Benefits

Disability benefits provide protection against loss of income due to a 

nonoccupational illness or injury.

Short-term disability

Short-term disability plans provide benefits for non-work-related illnesses or 

accidents on a per-disability basis, typically for a 6-month to 12-month period. 

Benefits are paid as a percentage of employee earnings or as a flat dollar amount. 

Short-term disability benefits vary with the amount of predisability earnings, length 

of service with the establishment, or length of disability.

Plans can be funded in any of the following ways:

Commercially insured. The employer pays monthly premiums to an insurance carrier 

in exchange for the carrier assuming all risks of underwriting a short-term disability 

policy. The actuarially determined premium is often specified as a rate per $10 of 

weekly benefit per month. In some cases, the employer contributes a specific 

amount (often a number of cents per hour worked for each employee) to a 

designated union fund that provides welfare benefits.

Noncommercially insured. The employer is required to have liquid assets 

corresponding to the projected liability of the plan. These plans must be registered 

with the Department of Labor and are guaranteed by ERISA. The employer assumes 

all risks and expenses of providing the benefit.

State temporary disability plans. The states of California, Rhode Island, Hawaii, New 

Jersey, and New York require temporary disability insurance (TDI) coverage. These 

plans provide temporary income for a limited period to workers who are unable to 

work because of non-work-related accidents or illnesses. California and Rhode Island 

mandated plans do not require employer contributions; Hawaii, New Jersey, and 

New York require employer contributions to disability plans.

Long-term disability

Long-term disability plans provide a monthly benefit to eligible employees who, 

because of a non-work-related illness or injury, are unable to work for an extended 

length of time. Benefits usually are paid as a fixed percentage of predisability 

earnings, up to a set limit. Most participants have a waiting period of 3 to 6 months, 
or until sick leave or short-term disability benefits end, before long-term disability 

benefits begin. Long-term disability benefits generally continue until retirement or a 

specified age, or for a period that varies with the employee’s age at the time of the 

disability.
Paid Leave Benefits

Paid holidays. Holidays are days of special religious, cultural, social, or patriotic 

significance on which work and business ordinarily cease. Employees usually have 

these days off from work and may receive either full or partial pay for holidays.

Paid sick leave. Sick leave is paid absence from work if an employee is unable to work 

because of a non-work-related illness or injury. The employer usually provides all or 

part of an employee’s earnings. Employees commonly receive their regular pay for a 

specified number of days off per year. Sick leave is provided on a per-year basis, 

usually expressed in days, and is never insured.

Paid vacations. Vacations are leave from work (or pay in lieu of time off) provided on 

an annual basis and normally taken in blocks of days or weeks. Paid vacations 

commonly are granted to employees only after they meet specified service 

requirements. The amount of vacation leave received each year usually varies with 

the length of service. Vacation time off normally is paid at full pay or partial pay, or it 

may be a percentage of employee earnings.

Paid personal leave. Personal leave is a general-purpose leave benefit, used for 

reasons important to the individual employee, but not otherwise provided by other 

forms of leave. Some employers place restrictions on the purposes for which 

personal leave may be used.

Paid funeral leave. Funeral leave provides time off from work because of a death in 

the family. The period of absence is usually limited to a few days (for example, 3 paid 

days of leave for immediate family members and 1 paid day for other relatives).

Paid jury duty leave. Jury duty leave provides a paid absence from work when one is 

summoned to serve as a juror. Employer payments commonly make up the 

difference between the employee’s regular pay and the court’s jury allowance.

Paid military leave. Military leave is paid absence from work to fulfill military 

commitments. Pay may be either regular pay or the difference between employees’ 

regular earnings and the amount they receive from the military.

Paid family leave. Family leave is granted to an employee to care for a family 

member and includes paid maternity and paternity leave. The leave may be available 
to care for a newborn child, an adopted child, a sick child, or a sick adult relative. 

Paid family leave is given in addition to any sick leave, vacation, personal leave, or 

short-term disability leave that is available to the employee.

Unpaid family leave. This leave is granted to an employee to care for a family 

member. The leave may be used to care for a newborn child, an adopted child, a sick 

child, or a sick adult relative. A typical family leave plan extends leave without pay to 

an employee for a period of several months while the employee cares for the family 

member. The Family and Medical Leave Act (FMLA) of 1993 is a Federal law 

providing unpaid job-protected leave to eligible workers for the care of their families 

or themselves for specified family and medical conditions. The FMLA provides 

eligible workers with up to 12 workweeks of unpaid leave per year for the birth, 

adoption, or foster care placement of a child; the care of a spouse, son, daughter, or 

parent with a serious health condition; or the employee's own serious health 

condition resulting in an inability to work. Employers with fewer than 50 employees 

at a worksite (and within 75 miles of that worksite) are excluded from the FMLA.

Consolidated leave plans. These are plans that replace different types of leave, such 

as vacation, sick leave, and personal leave. In consolidated leave plans, all types of 

leave are combined or used interchangeably within a single plan. Employees are 

allowed to use leave for any purpose that is stipulated by the plan. These plans are 

most often found at establishments such as hospitals, which must be open aroundthe-clock.
Other Benefits

Quality of life benefits

Childcare assistance. This benefit provides either full or partial reimbursement for

the cost of caring for an employee's children in a nursery or daycare center or by a

babysitter. Care can be provided in facilities either on or off the employer's premises.

Employee assistance programs (EAPs). These programs provide structured plans,

closely related to employee wellness programs, which typically deal with more

serious personal problems than the essentially medical problems covered by

wellness programs. EAPs can offer referral services, or referral services in

combination with counseling services. Both the referral services and the counseling

services may be supplied by company personnel, by an outside organization under

contract, or by a combination of both.

Flexible work schedule. This benefit permits employees to set their own schedules

within a general set of parameters. Employees generally are required to work a

minimum number of core hours each day.

Flexible workplace. This benefit permits workers to work an agreed-upon portion of

their work schedule at home or at some other approved location, such as a regional

work center. Such arrangements are especially compatible with work requiring the

use of computers linking the home or work center to the central office.

Wellness programs. These programs provide a structured plan, independent from 

health insurance that offers employees two or more of the following benefits:

smoking cessation programs, exercise or physical fitness programs, weight control

programs, nutrition education, hypertension tests, periodic physical examinations,

stress management programs, back-care courses, and lifestyle assessment tests.

Financial benefits 

Dependent care flexible spending accounts. Formerly referred to as flexible spending 

accounts, dependent care reimbursement accounts can be part of a flexible benefit

plan or stand alone. Employees participating in these accounts allocate a declared

pre-tax amount, up to a set limit, for out-of-pocket qualified expenses, including

childcare, elder care, or services to a disabled dependent. Any money not used by

the end of the plan year is forfeited.
Financial planning. This is a service to help employees make decisions related to 

savings, borrowing, investing, home purchases, education expenses, and retirement 

income.

Flexible benefit plans. Also known as cafeteria benefit plans, flexible benefit plans are 

operated under provisions of Section 125 of the Internal Revenue Code. Section 125 

allows employees to make a choice between cash (taxable) and noncash 

(nontaxable) benefits. The code permits companies providing flexible benefit plans 

to offer employees the following options: accident and health insurance plans, 

including healthcare spending accounts; group term life insurance and dependent 

coverage; disability benefits and accidental death and dismemberment plans; 

employee contributions to 401(k) plans or other thrift or savings plans (either pre-tax 

or after tax); dependent care assistance plans, including spending accounts; vacation 

days; and group legal services. Flexible benefit plans may be funded solely by the 

employer or through joint employer-employee contributions. Employers usually 

grant each employee credits to purchase benefits covered by the plan. Many plans 

include a core group of benefits (for example, life insurance coverage of $25,000) 

and allow employees to purchase additional levels of the core benefit as well as 

benefits not included in the core group. An example is the employer’s offering an 

additional $20,000 in life insurance coverage.

Health savings accounts (HSAs). These financial tools are employee-owned portable 

accounts that use tax-exempt contributions to pay for medical expenses. HSAs are 

used in combination with employer-provided high-deductible health plans (HDHPs) 

with annual maximum limits on out-of-pocket and deductible expenses. Other 

features include the rollover of unused contributions from year to year and tax-free 

interest.

Healthcare flexible spending accounts. Previously referred to as healthcare

reimbursement accounts, healthcare reimbursement accounts can be part of a 

flexible benefit plan or stand alone. Employees participating in these accounts 

allocate a declared pre-tax amount, up to a set limit, for out-of-pocket healthcare 

expenses such as deductibles, copayments, coinsurance, and other qualified 

healthcare expenses not covered by their health insurance. Any money not used by 

the end of the plan year is forfeited.

Payroll deduction IRA. This plan is established by the employer on behalf of the 

employee, but with no employer contributions. The employee can open either a 

traditional (tax deductible) or Roth (contributions are made after taxes but 
accumulate tax-free until retirement) plan with a financial institution, and the 

employee authorizes a payroll deduction by the employer. As long as the employer’s 

involvement is minimal, the plan is not treated as an employer-sponsored retirement 

plan and it is not subject to the legal requirements of such plans.

Savings with no employer contributions. These are cash or deferred arrangement 

plans used to fund savings and retirement plans authorized by section 401(k), 403(b), 

or 457 of the Internal Revenue Code. The employees’ contributions can be pre- and 

post-tax.

Student loan repayment. Also referred to as a tuition forgiveness program, this 

benefit provides support to employees for education already obtained. This does not 

include instances where the employer supports ongoing education expenses by the 

employee, but focuses on education already obtained by the worker.

Health-related benefits

Long-term care insurance. This type of health plan provides long-term (more than 1 

year) custodial care, home care, and nursing home care. Coverage may be extended 

to active employees, retirees, parents of active employees, and dependents of active 

employees and retirees. Premiums are generally, though not necessarily, paid by 

employees. These plans are separate from coverage for extended care facilities and 

home healthcare found in health insurance plans that provide post-hospitalization 

benefits for a limited period.

Retiree healthcare. This type of health plan provides coverage to a retiree beyond 

what is mandated by COBRA or other health continuation laws. Coverage must 

include provisions typically found in a medical plan, such as hospitalization and 

doctor’s care. The retiree plan does not have to be the same plan provided to active 

employees, nor does it matter whether the retiree pays the entire premium. Plans 

that cover only dental, vision, or prescription drugs are not included.

Nonproduction bonuses

Nonproduction bonuses are payments to employees that are not directly related by 

any formula to individual employee productivity.

Attendance bonus. This is a payment to employees who achieve a specified 

attendance goal. For example, all employees who take 2 or fewer days of sick leave 

within a given year are paid an attendance bonus of $500.
Cash profit sharing. This is a payment to employees in recognition of their 

contribution to company profitability. Payments may vary with length of service.

Employee recognition bonus. This is a payment to employees that rewards 

performance or significant accomplishments. An example is an employee-of-themonth award.

End-of-year bonus. This is a payment to employees near the end of the year as a sign 

of appreciation for working hard throughout the year.

Hiring bonus. This payment is made by an employer to induce an individual to accept 

employment with the company.

Holiday bonus. This payment to employees is made on a holiday and as a sign of 

appreciation. The payment is usually a token gesture, with all employees receiving 

the same amount.

Longevity bonus. This is a bonus or a lump-sum payment of some kind (for example, 

a government savings bond or an add-on to severance pay) paid to employees on the 

basis of their length of service.

Management incentive bonus. This is a payment to managers or supervisors, 

rewarding them for their ability to direct the performance of a group of employees in 

their charge in the attainment of a specified goal. For example, a manager may 

receive a bonus for having the highest sales.

Other bonus. This is a payment to employees that is not applicable to other listed 

nonproduction bonus categories. Examples are birthday bonuses and retirement 

bonuses.

Payment in lieu of benefits. This is a payment to employees in lieu of the employer’s 

providing a benefit, such as healthcare. In some cases, the employer offers cash to 

employees who waive employer-sponsored benefits, such as sick leave. When this 

occurs, the employer passes the savings from the waived benefit to the employee.

Referral bonus. This payment is given to employees for recommending a qualified 

applicant who is hired by the establishment.

Retention bonus. This payment is made by an employer to an incumbent to retain 

that individual within the establishment.
Safety bonus. This is a payment to employees for maintaining a high level of safety in 

the workplace. For example, a department may receive a bonus for experiencing no 

injury days during a quarter.

Suggestion bonus. This is a payment to employees whose innovative suggestions to 

create better work processes and improve efficiency in the establishment have been 

considered or implemented.

Union-related bonus. This is a payment to employees covered by a collective 

bargaining agreement upon signing a new labor contract or in lieu of a general wage 

increase.

Unmarried domestic partner benefits

Some employers extend benefits to domestic partners, defined as two unrelated, 

unmarried adults who share the same household. In order to qualify for benefits, an 

employee may need to demonstrate that a partner meets certain criteria set by the 

employer. Employers may set their own criteria for what constitutes an eligible 

domestic partner. Benefits offered employees that extend to domestic partners 

include healthcare plans and survivor benefits within defined benefit retirement 

plans. For more information, see Employer-sponsored benefits extended to domestic 

partners.