National Compensation Survey:

Glossary of Employee Benefit Terms

April 2017

Contents

Overview

Retirement Benefits

Health Care Benefits

Life Insurance Benefits

Paid Leave Benefits

Disability 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. Data on the incidence of (access to and participation 

in) selected benefits and detailed provisions of paid leave plans, life insurance plans, disability benefits, 

other selected benefits, and the employer and employee shares of contributions to medical care 

premiums are published annually, with a March reference period. Separate estimates are published for 

civilian workers, private industry employees, and state and local government workers.

Data on detailed provisions of health insurance and retirement benefits for both private industry and 

state and local government also are available. See the BLS website www.bls.gov/ncs/ebs. 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.

Information on the scope of the survey, the sample design, data collection, survey estimation, and the 

reliability of estimates for all NCS products are in the BLS Handbook of Methods, at 

www.bls.gov/opub/hom/pdf/homch8.pdf. 

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Retirement Benefits 

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

plans determine payments according to a fixed formula based on salary, years of service, and age. 

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.

Defined benefit plans

Defined benefit pension plans provide employees with guaranteed retirement benefits based on benefit 

formulas. A participant's retirement age, length of service, and preretirement earnings may affect the 

benefits received. Definitions, key provisions, and related terms follow.

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.

Traditional defined benefit plan formulas

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 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.

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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.

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 plan 

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. Typical vesting 

requirements are 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.

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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 a retirement 

benefit. Once the participant is vested, the accrued benefit is retained even if the worker leaves the 

employer before reaching retirement age.

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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 (or graduated vesting). An employee is entitled to an increasing share of nonforfeitable 

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.

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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 annuity

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 are retirement plans that specify the level of employer contributions and place 

those contributions into individual employee accounts.

Types of plans

Savings and thrift plans. Employees may contribute a predetermined portion of earnings (usually pretax) 

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 longterm 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.

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 

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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 pretax employee contributions 

into a SIMPLE.

Methods of contributions

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 

$18,000 in 2016.

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Investment choices

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 

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.

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Vesting

Vesting is the amount of time a participant must work before earning a nonforfeitable right to a 

retirement benefit. Once the participant is vested, the accrued benefit is retained even if the worker 

leaves the employer before reaching retirement age. Vesting schedules apply only to employer 

contributions; employee contributions are always 100 percent vested.

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 (or graduated vesting). An employee is entitled to an increasing share of nonforfeitable 

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.

Employer contribution methods

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.

Related plans and terms

Stock bonus plan. Contributions are placed in a trust fund that invests in securities, including those of the 

employing company. This type of plan is financed by the employer or jointly by the employer and 

employee. Upon the employee's retirement or separation from the company, proceeds from the trust 

fund are paid out in the form of company stock or cash.

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Automatic enrollment. 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 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.

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Health Care Benefits 

Health care 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

Traditional fee-for-service plan. This type of plan finances, but does not deliver, health care 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 self-fund a fee-for-service plan, in which case the employer, as opposed to an insurance 

company, assumes responsibility for payment of all eligible benefits.

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. 

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

participating health care 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.

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

care providers. Services received within the network or through select medical facilities generally provide 

more generous benefits than services received outside the network. 

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 

health care expenses such as those for prescription medications and doctors' visits. 

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 

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up until they meet the plan deductible. For 2015 and 2016, the Internal Revenue Service (IRS) minimum 

deductible amount allowed for single coverage HDHP plans is $1,300.

Health Maintenance Organizations (HMOs)

HMOs assume both the financial risks associated with providing comprehensive medical services and the 

responsibility for delivering health care 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.

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

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.

Limitations on coverage

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.

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.

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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.

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.

Internal limits. An internal limit applies to individual categories of care—for example, a $250-perprocedure deductible for inpatient surgery.

Plan Networks

In-network. Health care 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.

Out-of-network. Services received outside the network, health care providers with contracted rates,

typically carry a higher cost to the insured person.

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. 

Alternatives to hospitalization

Alternatives are offered as a means of reducing costs.

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.

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Home health care. 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.

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.

Substance abuse treatment. Plans provide at least partial payment for addiction to alcohol and/or drugs.

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.

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.

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.

Miscellaneous terms

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. 

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 

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

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.

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.

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.

Prescription drugs

Prescription drug plans provide coverage for outpatient prescription drugs. Prescription drugs dispensed 

during a hospital stay are covered as hospital miscellaneous charges.

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

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.

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.

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

Drugs not approved by the health care provider are nonformulary drugs, for which enrollees receive less 

generous benefits, such as a higher copayment per prescription.

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Dental care

Dental care plans provide services or payments for restorative care and related treatment to the teeth 

and gums.

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

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.

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. 

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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.

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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 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 sick leave. Sick leave is paid absence from work if an employee is unable to work because of a nonwork-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 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 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 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.

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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 around-the-clock.

Leisure leave. This leave provides access to one or more of the following benefits: paid vacation, paid 

holidays, and paid personal leave.

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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:

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.

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.

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-workrelated 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.

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Other Benefits 

Quality of life benefits

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.

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.

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.

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.

Financial benefits

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 employerprovided 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. 

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 

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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 health care 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 pretax 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 care reimbursement accounts. Also known as flexible spending accounts, health care 

reimbursement accounts can be part of a flexible benefit plan or stand alone. Employees participating in 

these accounts allocate a declared pretax amount, up to a set limit, for out-of-pocket health care 

expenses such as deductibles, copayments, coinsurance, and other qualified health care expenses not 

covered by their health insurance. Any money not used by the end of the plan year is forfeited.

Dependent care reimbursement accounts. Also known 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 pretax 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.

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.

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.

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Financial planning. This is a service to help employees make decisions related to savings, borrowing, 

investing, home purchases, education expenses, and retirement income.

Stock options

Stock option plans allow establishment employees the right to buy company stock at a fixed price by a 

fixed time. Stock options are available only to employees of for-profit private industry establishments.

Performance. This type of stock option is offered to employees only if certain company performance 

criteria, such as earnings-per-share targets, are met.

Signing. This type of stock option is offered to employees to join a firm by giving them a chance to make 

a significant capital gain.

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 health care found in health insurance plans that provide post-hospitalization benefits for a limited 

period.

Retiree health care. 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.

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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-the-month 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.

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.

Payment in lieu of benefits. This is a payment to employees in lieu of the employer's providing a benefit, 

such as health care. In some cases, the employer offers cash to employees who waive employersponsored benefits, such as sick leave. When this occurs, the employer passes the savings from the 

waived benefit to the employee.

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.

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

the company.

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.

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.

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.

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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.

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 health care plans and survivor benefits within defined benefit retirement plans.

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