NATIONAL COMPENSTION SURVEY 

GLOSSARY OF EMPLOYEE BENEFIT TERMS 

July 2009 
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Table of Contents 

 Page 

Overview 3 

Retirement Benefits 4 

 Defined benefit plans 4 

 Defined contribution plans 7 

Health Care Benefits 11 

 Medical care 11 

 Prescription drugs 14 

 Dental care 14 

 Vision care 15 

Life Insurance Benefits 16 

Paid Leave Benefits 17 

Disability Benefits 19 

 Short-term disability 19 

 Long-term disability 20 

Other Benefits 21 

 Quality of life benefits 21 

 Financial benefits 21 

 Health-related benefits 23 

 Nonproduction bonuses 23 
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Overview 

The definitions of the 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 benefits in private industry are available 

in another publication. Previous publications containing information on health and 

retirement benefits for private industry employees and State and local government 

workers also are available. 

For the data available, see the BLS Web site www.bls.gov/ncs/ebs. 

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, available online at www.bls.gov/opub/hom/home.htm.
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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. 

Traditional defined benefit formulas 

Terminal-earnings formulas. 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. 

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

earnings for every year of service recognized by the plan. 

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

of service recognized by the plan. 

Percentage-of-contribution formulas. Benefits are based on employer and, occasionally, 

employee contributions. Benefits equal a percentage of total contributions. 

Nontraditional defined benefit formulas 

Cash balance plans. Benefits are computed as a percentage of each employee’s account 

balance. Employers specify a contribution, and a rate of interest on that contribution, that 

will provide a set amount at retirement, generally as a lump sum. 

Pension equity plans. For each year of work, employees are credited with a percentage 

applied to their final average earnings. Benefits are generally disbursed as a lump sum. 

Frozen retirement plans 

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

that may limit future benefit accruals for some or all active plan participants. These plans 

may be of different types. 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 
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limit future benefit accruals. Other may use a prospective benefit formula to limit or 

cease accruals of benefits for some of the active participants. 

Normal retirement 

Normal retirement is the age at which plan participants may retire and receive all accrued 

benefits. 

Early retirement

Early retirement is the age (or a combination of age and service) at which plan 

participants may retire and receive all accrued benefits, minus a reduction for the number 

of years by which their retirement age precedes their normal retirement age. 

Benefit payment methods 

Payments from defined benefit plans may be in the form of a straight life annuity, a jointand-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. The Employee Retirement Income Security Act of 1974 

(ERISA) requires defined benefit pension plans that offer an annuity as a payment option 

to provide a qualified joint-and-survivor annuity (QJSA) as the normal benefit payment 

for married participants. A QJSA is 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. 

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 

will receive a reduced annuity as well. 
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Vesting 

Vesting refers to 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. 

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

100-percent vesting—for example, 5 years. 

Graded vesting. An employee’s nonforfeitable percentage of employer contributions 

increases over time, until reaching 100 percent. 

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 (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. The most common offset is 50 percent. 

Step rate. Lower benefit rates are applied to earnings up to the specified taxable Social 

Security wage base (that is, the earnings subject to Social Security 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 of 10 years or more. Benefits may be immediate or 

deferred. 
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Defined contribution plans 

Defined contribution plans are retirement plans that specify the level of employer 

contributions and place those contributions into individual employee accounts.

Plan types 

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

(usually pretax)—all or part of which the employer matches—to an individual account. 

Employers may match a fixed percentage of employee contributions or a percentage that 

varies by length of service, the 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. 

Deferred profit sharing plans. A defined contribution plan under which a company 

credits shares of company profits to participating employees’ accounts. Plans may set a 

fixed formula for sharing profits, but are not required to do so. Profit sharing 

contributions to employees’ accounts may be at the discretion of the company. 

Companies must set a method of allocating profit sharing contributions to individual 

employees. Common allocation methods include allocation proportional to employee 

salary and equal allocation to all employees. Contributions and any accrued investment 

earnings on the accounts normally are not distributed until an employee’s retirement from 

the company. The plan may allow employee contributions, but employees seldom are 

required to contribute to the plan. 

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

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

year. Some plans may allow employee contributions, but employees usually are not 

required to make any contributions. 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 which then is invested primarily in company stock. Any debt 

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

to employees according to a formula. 

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

several types of IRAs: Traditional IRAs, Roth IRAs, Simplified employee pensions 

(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 plans are retirement 

plans established by employers. 
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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. These arrangements are 

sometimes called SEPIRAs. 

Savings-incentive match plans for employees (SIMPLE plan). A plan limited to 

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

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

In addition, participants aged 50 years or older may make additional pretax employee 

contributions into a SIMPLE plan. Employers must either make matching contributions 

of up to 3 percent of compensation or make a 2-percent nonelective contribution to all 

eligible employees. 

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 non-Federal 

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 shortterm Treasury bills, certificates of deposit, or corporate bonds. The fund managers sell 

shares to investors, who receive regular payments of interest. 

Withdrawals and loans 

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. Although most early withdrawals incur tax penalties, hardship withdrawals do 

not. To avoid tax penalties, many plans have loan provisions that allow employees to 

borrow from their accounts, with interest, for a specified period. 

Hardship withdrawals. Employees usually are not penalized when money is withdrawn 

as a result of a hardship, often defined as a 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 
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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 rollover is a direct payment of plan benefits from a defined 

contribution plan into an IRA or another employer’s plan. In a direct rollover, the 

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

Vesting 

Vesting refers to 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. 

Under ERISA, defined contribution plans are subject to the same vesting rules as defined 

benefit plans, but vesting schedules vary. Vesting schedules apply only to employer 

contributions; employee contributions (including pretax contributions) are always 100 

percent vested. 

Immediate full vesting. Employees are immediately eligible to receive 100 percent of 

employer contributions. 

Graded vesting. An employee’s nonforfeitable percentage of employer contributions 

increases over time, until vesting reaches 100 percent. 

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

100 percent vesting—for example, 5 years. 

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 plans. 
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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. 

Automatic enrollment. As soon as eligibility requirements are met, employees become 

automatically covered under a plan, but have the right to decline coverage at any time. A 

minimum default employee contribution usually is set, but 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. 

Plans and systems 

Fee-for-service plans

Traditional fee-for-service plan. A plan that 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-forservice plan, in which case the employer, as opposed to an insurance company, assumes 

responsibility for payment of all eligible benefits. 

Preferred provider organization (PPO). A plan that provides coverage through a network 

of participating health care providers. Enrollees may receive services outside the 

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

deductibles, higher coinsurance rates, or both, or nondiscounted charges from providers. 

Exclusive provider organization (EPO). A plan that obligates employees to use their 

providers exclusively to receive coverage, in contrast to PPO benefit plans, which merely 

offer a financial incentive for enrollees to use the preferred provider. An EPO is a 

specific type of PPO plan that can be either self-insured or insured through an insurance 

company. 

Point-of-service plan (POS). A plan that combines features of PPOs and traditional 

HMOs. POS enrollees receive more generous benefits for services within the network 

and for specialist care authorized by their primary care physicians. Benefits are less 

generous for care received outside the network and for self-referrals. 

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. An HMO that provides no benefits for services obtained outside the 

network. 
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Open access HMOs. An HMO that allows enrollees to receive services outside the 

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

deductibles, copayments, or coinsurance. 

Limitations on coverage 

Maximum dollar limit. The maximum amount payable by the insurer for covered 

expenses for the insured and each covered dependent while the ensured 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. 

Maximum out-of-pocket expense. A limit on the dollar amount a group member is 

required to pay out of pocket during a year. Until this maximum 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, often up to a lifetime maximum. 

Deductible. The deductible is a fixed 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. 

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. 

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 per procedure deductible for inpatient surgery. 
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Alternatives to hospitalization 

Alternatives are offered as a means of reducing costs. 

Skilled nursing facilities. A benefit that provides rehabilitation and convalescent services, 

as well as skilled nursing care, to patients who require less intensive treatment than that 

provided in a hospital. 

Home health care. These services provide skilled nursing and related care of 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. 

Mental health and substance abuse treatment 

These services are comprised of inpatient and outpatient care for psychiatric conditions 

and alcohol or drug dependency. The coverage usually is more restrictive than that for 

general medical conditions. 

Substance abuse treatment

Substance abuse treatment plans provide at least partial payment for inpatient 

institutional treatment (in a hospital or specialized facility) for addiction to alcohol or 

drugs. To be a benefit, drug abuse or alcoholism treatment must include an impatient 

confinement. 

Detoxification. This treatment involves supervised care by medical personnel that is 

designed to reduce or eliminate the symptoms of chemical dependency. Treatment can 

occur on an inpatient or an outpatient basis. 

Rehabilitation. These services are 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. 
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Some self-insured plans contract with insurance carriers or third-party administrators for 

claims processing and other administrative services; other self-insured plans are selfadministered. 

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 patent. 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 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. 

Dental care

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

services.

Preventive services. Preventive services are routine exams, cleanings, and x-rays. 

Major services. Major services are dental surgery, endodontics (root canal therapy), 

periodontics (treatment for gum disease), crowns, and prosthetics (replacement of 

missing teeth with bridgework or dentures). 

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

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

including coverage for 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 deceased employees. Companies may provide a basic amount of life insurance 

benefits, which may vary with an employee’s age, income, or 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’s 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 or length of service. 
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Paid Leave Benefits

Paid holidays. Holidays are days off from work on days of special religious, cultural, 

social, or patriotic significance on which work and business ordinarily cease. Employees 

may receive either full or partial pay for holidays. 

Paid vacation. 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 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 for by other forms of 

leave. Some employers place restrictions on the purposes for which personal leave may 

be used. 

Paid sick leave. Sick leave provides all or part of an employee’s earnings if he or she is 

unable to work because of a non-work-related illness or injury. 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 

for immediate family and 1 paid day for other relatives). 

Paid jury duty. 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. 

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-
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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; 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 FMLA. 

Consolidated leave plans. These are plans that provide a single amount of time off for 

workers to use for any of a number of purposes, such as vacation, illness, or personal 

business. 

Leisure leave. 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 (STD) 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. STD 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: 

Unfunded salary continuation. The employer pays the benefit from operating revenue, 

assuming all associated risks and expenses. 

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. 
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Long-term disability 

Long-term disability (LTD) 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 

STD benefits end, before LTD benefits begin. LTD 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. 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. Provides either the full or partial 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. Permits workers to work an agreed-upon portion of their work 

schedule at home or 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. A structured plan, independent from health insurance, that offers 

employees two or more of the following benefits: smoking cessation programs, 

exercise/physical fitness programs, weight control programs, nutrition education, 

hypertension tests, periodic physical examinations, stress management programs, back 

care courses, and life style assessment tests. 

Employee assistance programs (EAPs). A structured plan, closely related to employee 

wellness programs, that typically deals 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). Portable accounts owned by employees and used to pay 

for medical expenses with tax-exempt contributions. 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.

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 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 
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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 would be 

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. 

Pretax savings with no employer contributions. These are cash or deferred arrangements 

used to fund savings and retirement plans authorized by section 401(k), 403(b), or 457 of 

the Internal Revenue Code. The employees’ contributions reduce their salaries for tax 

purposes. 

Financial planning. 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. Stock options offered to employees only if certain company performance 

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

Signing. Stock options offered to employees to join a firm by giving them a chance to 

make a significant capital gain. 
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Health-related benefits 

Long-term care insurance. A health plan that provides long-term (more than 1 year) 

custodial care, home care, or nursing home care. Coverage may be extended to active 

employees, retirees, parents of active employees, or 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 or home health care found in 

health insurance plans that provide posthospitalization benefits for a limited period. 

Retiree health care. A health plan that 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. 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. Payment to employees in recognition of their contribution to 

company profitability. Payments may vary with length of service. 

Employee recognition bonus. A payment to employees that rewards performance or 

significant accomplishments, such as an employee of the month award. 

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

appreciation for working hard throughout the year. 

Holiday bonus. A payment to employees at a holiday as a sign of appreciation. This 

payment is usually a token payment, with all employees receiving the same amount. 

Payment in lieu of benefits. 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 employer-sponsored benefits, such as sick leave. When this occurs, the employer 

passes the savings from the waived benefit to the employee. 

Safety bonus. A payment to employees for maintaining a high level of safety in the 

workplace. For example, a department receives a bonus for experiencing no injury days 

during a quarter. 
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Suggestion bonus. 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. A payment made by an employer to induce an individual to accept 

employment with the company. 

Longevity bonus. 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. A payment given to employees for recommending a qualified applicant 

who is hired by the establishment. 

Retention bonus. A payment made by an employer to an incumbent to retain that 

individual with the establishment. 

Union-related bonus. A payment to employees covered by a collective bargaining 

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

Management incentive bonus. 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 receives a bonus for having the 

highest sales. 

Other bonus. A payment to employees that is not applicable to other listed nonproduction 

bonus categories—for example, birthday bonuses and retirement bonuses.