Employee Benefit

FALL 2020
FloorMart, Inc.
In this project, your group will serve as Employee Benefits Consultants and provide advice to your client.
The Group Project is focused on your analysis of the case described in the information below.
Don Ron Tovi and Enola Waters are co-CEOs of FloorMart, Inc. (FMI), and they have hired you to redesign
FMI’s Employee Benefits package. FMI is one of the nation’s largest distributors of all types of residential and
commercial flooring products. FMI’s sales are 60 percent US, 20 percent Asia, 10 percent South America,
and 10% Europe. FMI’s value proposition is that they provide high-quality flooring materials at prices and
service levels that are unmatched by competitors.
Assume that FMI’s fiscal year begins on January 1st.
Salaries have been growing for each employee consistently at 3% each year.
The FMI workforce (with each employee’s name and other information) is shown below for this year:
Years of Health In
Employee(s) Age Salary Service Plan DB Plan
CEO: Don Ron Tovi** 41 $240K 8 Y Y
CEO: Enola Waters** 24 $200K 3 Y Y
President: Lemon Breeland* 26 $100K 4 Y Y
Other Officers:
V-P Employee Benefits & Risk Management:
Lavon Hayes* 38 $90K 6 Y Y
Information Technology Team
Johann Bennett III 26 $75K 2 Y Y
Bella Brooklyn 41 $65K 4 Y Y
Bill McGuire 41 $60K 3 Y Y
Izzy Althat 61 $50K 5 Y Y
Jake Hare 19 $40K 0 (new) No No
Online Sales Hosts
Veronica Phelps 45 $35K 3 Y Y
Patti Vacay 32 $40K 5 Y Y
Fred Berch 34 $42K 1 No No
Clerical, part-time (20 hrs. per week)
10 Employees 25(average) $25K .5 year(avg) No No
**Owns 8% of company stock. *Owns 4% of company stock.
FMI has been growing erratically since its inception in 2012. Recently, FMI has found that employees are
expressing dissatisfaction with the company’s Employee Benefits package. Don Ron and Enola believe they
should look into their Employee Benefits program, and they would like you to identify problems in their current
plan, as well as put together a proposal for a new comprehensive Employee Benefits plan.
Don Ron and Enola note that all employees are participating in FMI’s 401(k) plan, and all employees have
been and currently are maxing out their contributions to the 401(k). FMI is adamant that the firm will continue
to provide the DB plan.
Also, assume that FMI will close its doors when Enola Waters reaches age 50, and that all other employees
will continue working only until Enola retires, when the company will be sold or shut down.
FMI’s current Employee Benefit plan provides the following:
a. Only full-time employees are eligible for any Employee Benefits.
b. Minimum Service Requirement to participate in any / all Benefits is 2 years.
c. Minimum Age Requirement to participate in all Benefits is 24.
d. FMI deducts 6.20% from all full-time employee salaries for contributions to OASDHI for each
e. FMI also deducts 2.45% from all full-time employee salaries (up to $137,700) for contributions to the
Health Program (Medicare) of Social Security for each employee.
f. FMI offers and pays for an ACA-Compliant Gold Health Plan to all employees, with no employee
contributions toward the cost of the health coverage. The deductible is $1,000 per year for an
individual and $2,000 per year for family coverage. Employees may choose to participate in the health
plan (after the minimum age and service requirements are met), and they may annually choose to enroll
during the 90-day open enrollment period if they aren’t already signed up.
g. Employees who enroll in the health plan also are enrolled in an employer-sponsored HSA, and FMI
contributes $50 to each employee’s HSA.
h. FMI offers an optional 401(k) plan in which all employees may contribute up to 2% of annual salary.
FMI matches employee contributions with $0.30 for every $1 of employee contributions. FMI matches
employee contributions at the end of each year, if and only if the worker is still employed at FMI.
i. The firm (TrendingUp) that manages the mutual funds for the 401(k) plan charges each employee’s
account an annual 1.5% fee on (beginning of each year) total assets in the employee’s account.
j. A noncontributory defined benefit (DB) plan is offered to all employees. The plan provides a
retirement benefit of 1% of an employee’s highest annual salary for every year the employee is in the
plan. The plan offers immediate 100% vesting. The maximum number of years an employee can earn
is 35.
k. For employees who stay in the office on Fridays, FMI pays for lunch (up to $10).
l. FMI offers all employees 5 days off per year, but no additional federal or state holidays.
m. Employees may participate in both the DB plan and the DC plan.
n. FMI provides a wellness program that also covers $2,000 per year toward the cost of a health/fitness
club membership for all employees.
o. Mr. Tovi receives life insurance under a Universal Life insurance plan (option B) that provides him
with $2,000,000 of coverage, for which the firm pays the full cost. The plan began when he started the
company, and the company pays $10,000 per year for the premium. The insurer charges $1 per
thousand of coverage starting at age 20, and the mortality charge increases at 3% each year. The plan
charges an annual expense fee of $200, and the policy is projected to earn annual interest of 4%.
p. Ms. Waters receives life insurance under a Universal Life insurance plan (option B) that provides her
with $2,000,000 of coverage, for which the firm pays the full cost. The plan began when she joined
the company, and the company pays $10,000 per year for the premium. The insurer charges $1 per
thousand of coverage starting at age 20, and the mortality charge increases at 3% each year. The plan
charges an annual expense fee of $200, and the policy is projected to earn annual interest of 4%.
q. For all employees except the CEOs, employees receive a flat 2 times current salary in Term Life
insurance, paid for by FMI.
r. FMI encourages all employees to apply for Social Security retirement benefits at the earliest possible
No other employee benefits are offered. All full-time (but not part-time) employees are eligible for all benefits,
subject to the limitations mentioned above.
Mr. Tovi and Ms. Waters want FMI to be more competitive in their EB package. Although the CEOs recognize
that the firm might need to make some changes, they want you to identify any and all issues/problems with the
existing benefits and compensation package, and they want you to provide support for any changes that you
recommend for a new EB package.
Your task as FMI’s Employee Benefits Consultants is to write a report for FMI where you describe your
criticisms of the current plan, along with your recommendations for FMI’s overall employee benefits plan.
The overall report should include a one-page cover letter (in the front of your project) to Mr. Tovi and Ms.
Waters in which you briefly describe your recommendations for FMI.
In your report, you should divide your discussion into two main sections: One section based on the CURRENT
Based on the CURRENT EMPLOYEE BENEFITS PLAN (even if some aspects make the plan nonqualified), include answers to the following questions:
A. Identify problems/issues/red flags with the existing employee benefits plan.
B. State whether the current DB plan is currently “Qualified.” If it’s not, explain why not.
C. Identify which employees, if any, are “Highly Compensated Employees.”
D. If all salaries grow at 3 percent per year, what will the TOTAL SALARY be in the LAST year?
E. If all salaries grow at 5 percent per year, what will the TOTAL SALARY be in the LAST year?
F. What percent is each employee currently vested?
G. Based on each employee’s final salary (at 3 percent growth), what will each employee’s DB plan
benefit be, when the firm shuts down?
H. When Enola retires and everyone stops working at FMI, make a Table that show’s everyone’s future
DB plan retirement benefit, along with the future single premium cost of each person’s retirement
benefit, based on each individual’s age. For each year that a person starts receiving retirement income
before (after) age 65, increase (decrease) the cost of the lifetime income (annuity) by 2 percent.
I. When Enola retires, what is the single premium that an insurer would charge for FMI’s entire DB
pension risk, based on our discussion in class about the cost of retirement (annuity) income?
J. To accumulate the future single premium you calculated above, how much should FMI contribute each
year to the DB plan? Assume that FMI has not set aside any money yet for the DB plan. You should
assume two different interest rates (3% and 6%) and provide two answers to this part. Explain any
other assumptions that you make in your calculation. Assume that all current full-time employees will
participate in the DB plan (once they are eligible).
K. What is the Present Value (@ a 3% discount rate) of the retirement benefits from the DB plan,
assuming all employees will receive the DB pension income for exactly 15 years?
L. Then, what is the Present Value (@ a discount rate of 4%) of an Employee Benefit that provides a 3%
annual COLA on the Defined Benefit plan, again assuming that all employees receive DB pension
income for exactly 15 years?
M. For the TOTAL of the Employee Benefits the firm offers, identify this year’s TOTAL annual cost.
N. For each of the Employee Benefits the firm offers, make a Pie Chart that shows the share of each
Benefit’s cost.
O. For Mr. Tovi’s UL policy, what will the policy’s CashValue equal when he is 59 years old? (Be sure
to include your spreadsheets in an Appendix.)
P. For Mr. Tovi’s UL policy, what will the policy’s CashValue equal when he is 59 years old, if the policy
is based on Option A instead of Option B?
Q. Based on Table 1 costs, how much tax, if any, does each employee owe this year, based on the term
life insurance provided by FMI?
R. Which employees, if any, are limited in the amount that they can contribute to the 401(k) plan?
S. Assuming that each employee has earned an average of 5 percent on their 401(k) accounts, calculate
the current balance in each employee’s 401(k) account (as of the end of last year, 2019).
a. Explain and justify all of your recommendations for changes in the overall employee benefits plan,
being specific and detailed in all of your recommendations
b. Provide clear justification for each recommendation. All of your key recommendations for each
Employee Benefit should be justified (e.g., benefit amount, eligibility, probationary period,
employee/employer contribution requirement, cost implications, impact on employees, legal
exposures/implications, etc.)
c. State the overall budget for Employee Benefits that you recommend for the firm
d. Identify this year’s annual cost for each of the employee benefits that you recommend, as well as the
total annual cost for the overall benefits package
e. Make a Pie Chart that shows your proposed share of each benefit’s cost
f. For ONE of the Employee Benefits you recommend (e.g., a wellness program, etc.), design a brochure
to explain the program and that would entice employees to join. Be sure to print the brochure and
include a copy with your project that you turn in
g. Identify the Employee Benefits that FMI does not currently offer that you recommend adding.
h. Provide details of your overall recommendations for the DB plan
i. For employee Bella Brooklyn, at a 4 percent discount rate, what is the Present Value of her and FMI’s
future contributions (combined) to the Social Security program over the course of her career with FMI.
Assume that her salary grows 3 percent each year, that tax rates remain constant, and that the wage
base grows 3 percent per year.
j. For a typical 30-year-old US worker, what is the approximate value of their Social Security coverage?
That is, if Social Security were listed as an asset on your balance sheet, how much should it be listed
for, at age 30?
k. Should the Social Security Trust Funds be invested in Stocks? Provide a couple paragraphs on this
l. FMI would like some perspective on inflation and on interest rates over the past 50 years for the US.
Provide a nice table and/or graph.
m. The CEOs would like you to invent / create an employee benefit that doesn’t really exist yet, as a way
to help attract employees to her firm. Describe your new employee benefit.
n. For Employee Benefits services, identify 3 global providers
o. For health insurance, identify three recommended insurers
p. If an employee contributes $6,000 per year to a 401(k) plan (with no fees), and they earn an average
rate of return of 5% per year, how much will this employee have (pre-tax) in their account at the end
of 40 years?
q. Further, how much less will the employee have in their account if they pay annual fees that reduce
their annual rate of return by 1 percentage point (i.e., from 5 percent per year to 4 percent per year).
Show these amounts for the end of 40 years.
r. The CEOs would like you to identify a Ted Talk (or other short online video) that relates to Employee
Benefits that will help inform them. Provide a brief description and the URL / link.
s. The CEOs would like some information about pros/cons of allowing employees to bring pets to work
as a possible Employee Benefit.
t. If Don Ron expects to live only 7 years after starting to collect Social Security retirement benefits at
age 67, would he be better off applying for reduced retirement benefits at age 62? Show how much
better / worse off he would be if he applied for early retirement income.
Be sure to clearly explain key provisions of all recommended Employee Benefits (assume the CEOs earned
their degrees in Communication and that they have little knowledge of Employee Benefit plan provisions).
Make your report as clear, organized, and understandable as possible. Provide headings and subheadings where
appropriate. Use graphs and charts to help illustrate your analysis and recommendations.
Project Grades
Each group member initially will receive the same grade on the entire project, but individual grades (assigned
by me) may be reduced based on feedback from group members. Your group’s grade will be based on the
overall quality of your work, including the reasonableness and quality of your recommendations, including:
• Does the current employee benefits plan pass key tests for being Qualified?
• Do all of your recommended changes pass key tests for being Qualified (explain the
participation rates/etc. that would be necessary in order for your recommended changes to pass
the necessary tests for qualified plans)?
• Are your recommended changes legal?
• Do your recommendations make sense?
• Do your recommendations conform to the stated goals of the firm?
• Is your report written in a professional manner?
• Is the overall budget in line with normal measures of what firms typically spend on benefits?
In preparing your Group Project, keep in mind the importance of avoiding grammatical and typographical
errors that detract from the professionalism of any business document.
Important Date
• Before or on Friday, December 4 @ 4:00 p.m., turn in:
o a PDF of your Group Project to ELC
o A PDF of your Answer Sheet (provided to you separately in ELC)
o You may also submit in ELC (but it’s not required) your spreadsheets that help to show your
group’s analysis
Helpful Hints

  • There is no “correct” length for the project, but most good projects will tend to be approximately 20+ (doublespaced) pages. Include Tables &/or Charts that enhance the information. The key is quality, not a particular
    quantity. The maximum number of pages of the main report should not exceed 30.
  • The page limit does not include the cover page, the cover letter, title page, or the Table of Contents.
    That is, with the cover page, a title page, a cover letter, and a Table of Contents, then you could have
    about 35+ pages in total. In addition, you may include as many pages as you want in the Appendix
    to your report.
  • Number the pages beginning with the Introduction (do not number the cover page, cover letter, Title
    Page, or Table of Contents).
  • The project should be double-spaced, printed on one side only (not double-sided), with one-inch
    margins with 12-point Times New Roman font.
  • The name of your firm will be your last names, followed by ‘Employee Benefits Consulting, Inc.’ (example,
    AlmondBarrCaymanEvergladeGalakowicz Employee Benefits Consulting, Inc.).
  • Be sure to provide good/sound analysis and justifications for all of your key recommendations. Otherwise, it
    looks like you just designed the plan randomly. The key is not that you come up with all of the “right”
    recommendations. The key is that you analyze the current plan and then provide compelling justifications for
    your recommendations.
  • Late projects (after the deadline above) will receive a 5-point deduction if turned in within the next 24 hours,
    an additional 5-point deduction if turned in within the following 24 hours, and so on.
  • One final point—Do not “borrow” material from someone else’s project (current or past). First of all, the
    details of the project change from semester to semester. More importantly, “borrowing” is a serious breach of
    academic integrity and will be dealt with through appropriate channels.
  • Feel free to ask questions about the project—I am happy to answer any questions that you have. Dr. Carson

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