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A Benefits Glossary

September 09, 1996|KATHY M. KRISTOF

Confused by benefits-speak? Here are definitions of some of the words you're likely to hear this fall--the traditional time for "open enrollment," when most companies allow workers to change their benefits choices. Benefits can account for as much as 40% of your total compensation package--it pays to know what you're talking about.

* BENEFICIARY: A person named to receive all or part of the proceeds of an insurance policy or pension plan if the insured person dies.

* CAFETERIA PLAN: A benefits plan that allows an employee to choose among several benefits, such as health care, life insurance, vacation and disability insurance. Some cafeteria plans give an employee a certain number of benefit "points." The points can be used to purchase one or all of the benefits offered by the company. An employee, for example, who did not want to participate in a health plan could apply more points toward a 401(k) plan, life insurance or any other benefit offered. Under some plans, the credits can be redeemed for cash. Also known as a flexible benefit plan.

* CO-PAYMENT: In most health insurance programs, both the employee and the employer contribute to paying the insurance premium. The employee's portion is called a co-payment. In addition, employees generally face co-payments when using medical services. Typically, a traditional health plan pays 80% of the cost of a doctor's visit, while the employee must come up with a 20% co-payment. In managed care plans, including health maintenance organizations, the employee also faces a co-payment for medical care. That co-payment can be a flat fee or a portion of the overall cost.

* DEDUCTIBLE: The amount a person pays for services covered by their insurance before the insurance company begins to pay a share of the costs. (See also family deductible.)

* DEFINED-BENEFIT PLAN: The traditional retirement plan that pays set monthly benefits to a retiree. The amount paid is based on the retiree's age, tenure and former wages. This type of plan is backed by the Pension Benefit Guaranty Corp., a government agency that pays worker pension benefits, to set limits, in the event of a plan insolvency.

* DEFINED-CONTRIBUTION PLAN: A retirement plan, such as a 401(k), Keogh or IRA, that pays benefits to a participant based on how much money the employee and the employer contributed and how well the money was invested. Under a defined-contribution plan, the employee directs the investment of his or her retirement savings. These plans are not covered by the Pension Benefit Guaranty Corp.

* DENTAL CARE PLAN: An insurance program that provides basic dental care, such as cleanings, cavity repair and necessary dental surgery. Most dental plans do not cover the cost of orthodontia.

* DEPENDENT-CARE SPENDING ACCOUNT: A benefit that allows employees to set aside a portion of their wages, before taxes are taken out, to pay for certain dependent-care expenses such as child care or elder care. The money, up to $5,000 a year, is taken out of an employee's wages through payroll deductions and put into an account controlled by a plan administrator. The employee submits proof of qualified expenses to the plan administrator, who will reimburse the employee from the employee's account. On the plus side: Employees have access to their money before taxes are taken out, which gives them a bigger bang for their buck and saves on income and employment taxes. The downside: Employees have to estimate dependent-care expenses carefully. Any money unused at the end of the year is forfeited. Also known as a tax saver or flexible spending account.

* EMPLOYEE ASSISTANCE PROGRAM: A program through which mental health and substance abuse benefits are provided. At one time, these programs were independent of a company's medical plan and employee use was voluntary. Today, many companies use these programs as a cost management tool that includes reviews of employees' use of medical benefits and referrals to preferred provider networks.

* FAMILY DEDUCTIBLE: Family coverage under many traditional health insurance plans includes two types of deductibles: One for each individual covered and a second for the family as a whole. Once an individual's covered medical expenses exceed the individual deductible, their additional expenses are paid by the insurer. However, if out-of-pocket expenses for the family as a whole exceed the family deductible, future expenses for any member of the family would be covered, regardless of whether or not that individual met the individual deductible as well.

* FLEXIBLE BENEFIT PLAN: See cafeteria plan.

* FLEXIBLE SPENDING ACCOUNT: A savings plan that allows workers to set aside pretax dollars to pay certain qualified expenses for unreimbursed medical costs or dependent-care expenses. These plans are structured like a dependent-care spending account.

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