HRM 324 Week 4 Benefits and Retirement Plans Example

Thirty Cents of Every Pay Dollar: Rethinking Health Coverage, a Retirement Plan With Automatic Enrollment and Paid Time Off for 650 Employees at a Minnesota Manufacturer

[Student Name]

University of Phoenix

HRM/324: Total Compensation

Week 4 Assignment

[Instructor Name]

[Date]

Northfield Precision Plastics and all cost figures are composites written for a model paper; benefit rules and research findings come from the sources listed and are stated generally.

Benefits at Northfield Precision Plastics cost about $9,600 per employee last year, about 30 percent of total compensation, and rose 9 percent, mostly from health insurance claims. Meanwhile, only 54 percent of employees participated in the 401(k) plan, and the new state paid leave law requires changes. Employees rarely mention benefits when they compare job offers, focusing on hourly wages. Benefits are pay in another form, so they deserve the same test as wages: does each dollar buy something employees value and the company needs? This paper applies that test.

Why Employers Provide Benefits

Employers offer benefits partly because of taxes (Milkovich et al., 2020): employer-paid health insurance is excluded from employees' taxable income, so a dollar spent on coverage is worth more to employees than a dollar of taxable wages. Group plans also buy insurance more cheaply than individuals can. And benefits such as retirement plans help attract and retain employees who value long-term security.

Who Pays

Summers (1989) explained that when the government requires or employers provide benefits, wages tend to adjust downward over time, so employees bear much of the cost, especially when they value the benefit. Benefits that employees value less than their cost are therefore a poor use of compensation dollars. That insight guides Northfield's redesign: spend benefit dollars where employees value them most.

The Employer Coverage Requirement

With far more than 50 full-time-equivalent employees, Northfield must offer full-time employees health coverage that meets minimum value and is affordable, meaning the employee's share for self-only coverage stays below a percentage of income set each year, or risk a penalty if employees obtain subsidized marketplace coverage. Northfield's current plan meets the requirement, and any redesign must continue to.

Comparing Health Plan Designs

Northfield's current plan has a $1,000 deductible and costs $8,400 per enrolled employee for employer premiums. A high-deductible plan with a $3,400 deductible, together with a company deposit of $1,000 a year into each employee's health savings account, would cost about $6,900 in premiums plus the account contribution, about $7,900. Employees who use little care would come out ahead, since they keep unused account money; those with chronic conditions would pay more out of pocket.

Protecting Lower-Paid Employees

For a machine operator earning $45,000, a $3,400 deductible is a large share of income. Northfield will keep both plans, contribute more to the account for employees earning under $55,000 and make preventive care and generic drugs for chronic conditions free in both plans, protecting access for those most likely to delay care.

Self-Funding

With about 600 enrolled employees, Northfield is large enough to consider self-funding, paying claims directly with stop-loss insurance against large claims, instead of buying fully insured coverage. Self-funding saves insurer margins and state premium taxes and gives the company claims data, but exposes it to cost swings. A broker's analysis estimated savings of 4 to 6 percent with acceptable risk if stop-loss covers individual claims above $150,000.

Redesigning the Retirement Plan

Only 54 percent of eligible employees contribute to the 401(k), and participation is lowest among younger production workers. At one large employer studied by Madrian and Shea (2001), the share of new hires saving in the plan more than doubled once enrollment became the default, because most people keep whatever choice is made for them. Northfield will automatically enroll new and current non-participating employees at 4 percent of pay, with automatic increases of one point a year up to 8 percent, and the right to opt out.

The Match

The current match of 50 percent of contributions up to 6 percent of pay will change to a safe harbor match of 100 percent of the first 3 percent and 50 percent of the next 2 percent. The new match costs more per participant but avoids annual nondiscrimination testing and encourages employees to contribute at least 5 percent.

Paid Time Off and New Leave Laws

Minnesota requires employers to provide earned sick and safe time, accruing at least one hour for every 30 hours worked, and has created a statewide paid family and medical leave insurance program funded by premiums shared between employers and employees, with benefits beginning in 2026. Northfield will revise its paid time off policy to meet the sick time rules and coordinate company leave with the state program, avoiding duplication while making sure employees understand both.

The Total Cost

The health plan changes save about $350,000 a year, self-funding about $200,000, while the retirement changes add about $420,000 as participation rises and the match improves, and the leave program premiums add about $150,000. Net benefit costs rise slightly, by about $20,000, but the package shifts spending toward retirement security, which employees value and which supports retention.

Wellness and Claims Drivers

Claims data from the broker show that musculoskeletal injuries, diabetes and mental health conditions drive a large share of Northfield's health costs. Rather than a generic wellness program, the company will offer on-site physical therapy two days a week near the molding floor, a diabetes management program with free supplies and expanded access to counseling through the employee assistance program. Targeting the conditions that drive claims gives employees services they use while addressing the cost increases directly.

Communicating the Value

Employees often underestimate what benefits cost the company. Northfield will send each employee an annual total compensation statement showing wages, health contributions, retirement match and leave, and hold enrollment meetings on each shift explaining the plan choices with examples.

Measuring Results

The company will track health costs per enrollee, plan enrollment by income level, retirement participation and deferral rates, leave usage and employees' ratings of benefits in the engagement survey.

Conclusion

Northfield's benefits cost nearly a third of pay, and research suggests employees ultimately pay for much of that cost, so each benefit must deliver value. Offering a high-deductible option with protections for lower-paid workers, exploring self-funding, automatically enrolling employees in a stronger retirement plan and updating leave for state law spend benefit dollars more wisely at roughly the same total cost.

References

Madrian, B. C., & Shea, D. F. (2001). The power of suggestion: Inertia in 401(k) participation and savings behavior. The Quarterly Journal of Economics, 116(4), 1149-1187. https://doi.org/10.1162/003355301753265543

Milkovich, G. T., Newman, J. M., & Gerhart, B. (2020). Compensation (13th ed.). McGraw Hill Education.

Summers, L. H. (1989). Some simple economics of mandated benefits. The American Economic Review, 79(2), 177-183.