Review Questions #1

[Rip Verkerke <ripv@virginia.edu>]

A student asked:

1. Under ERISA, how do non-discriminatory requirements reduce the tax
benefits of pension plans?
2. Under utilization review, we discussed that a possible solution to the
concerns we have would be to have an employee pick from a menu of plans, but
the danger is that the employee won't know all of the benefits available to
them.  Could you explain what you meant by this?
3. Is there an explicit inside sales exemption to the overtime provisions of
FLSA? If so, where does it fit into the 4 white collar exemptions we
discussed?
4.  In our discussion of the employment relationship, you listed growth and
security as a characteristic of a mandatory rule.  Please explain what this
means.

Rip responded:

(1) ERISA nondiscrimination requirements force employers to offer benefits
to employees who receive comparatively less tax advantages from receiving
non-cash compensation.  These employees may sometimes prefer cash rather
than the offered benefits.  As a result the employer's only choices will be
to make the benefit more generous (and thus more costly), or to stop
offering the benefit to anyone.  In general, employers could maximize the
attractiveness of some benefits by offering them only to the classes of
employees who most value them.  Nondiscrimination rules prevent this
strategy.

(2) I think you are referring to the idea that employees should be able to
choose from among various types of health plans (e.g., Yugo, Honda Accord,
Mercedes) based on their preferences.  I suppose that there might be a
problem for employees trying to evaluate these various options.  However,
the more serious concern probably would be about how choice affects group
composition.  The benefit of group health insurance is that employers bring
all of their employees to the insurer with little fear of adverse selection.
Offering a range of options would tend to undermine this feature of group
coverage as high-risk individuals would tend to choose the most
comprehensive plan and low-risk individuals would tend to choose bare bones
coverage (presumably in exchange for higher pay).

(3) The inside sales exemption that we discussed is for retail and service
workers who receive at least 50% of their pay in the form of commissions.
This exemption supplements the more general exemptions for executive,
administrative and professional employees and the outside sales exemption.

(4) I don't think I was talking about the characteristics of just any
mandatory rule.  Instead, we were developing arguments in favor of imposing
a mandatory rule of just cause protection.  One student suggested that just
cause protection might give employees a greater sense of job security and
thus contribute to economic growth (presumably by encouraging them to invest
more heavily in firm-specific training).  Of course, the competing
consideration is that just cause protection forces employers to provide
reasons for discharge that a third-party decision maker can verify.  If this
proof requirement prevents (or makes it more costly) to discharge employees
who are unproductive, then just cause protection might inhibit growth by
undermining productivity.

Warm regards,

Rip