Employee Benefits Consulting

Functional Approach to Designing and Evaluating Employee Benefits

An organized system for classifying and analyzing the risks and needs of active employees, their dependents, and various other categories of persons into logical categories of exposures to loss and employee needs.

The Functional Approach — G. Victor Hallman III

IPI applies a systematic method of analysis to an employer's total employee benefits program.

IPI analyzes the employer's program as a coordinated whole in terms of its ability to meet employees' (and others') needs and to manage loss exposures within the employer's overall employee benefit plan design, in evaluating proposals for new or revised benefits, for evaluation of cost-saving proposals, and in effective communication of an employer's total benefits program to its employees.

IPI uses the following methodology in planning, designing, and administering employee benefits for several reasons.

  1. Employee benefits are a very significant element of the total compensation of employees.
  2. Employee benefits represent a large item of labor cots for employers.
  3. Past employee benefits have been adopted by employers in disarray
  4. Regulatory Environment
  5. Integration of Benefit(s) Program(s)

Consistency with an Employer's Total Compensation Philosophy:

Reward Management Components
Type of Org. Working Climate Base Salary (Cash) Short-Term Incentives (Cash) Level (Noncash) Characteristics (Noncash)
Mature Industrial Balanced Medium Medium Medium Balanced
Developing industrial Growth, creativity Medium High Low Short-term oriented
Conservative financial Security Low Low High Long-term, security oriented
Nonprofit Societal impact, personal fulfillment Low None Low to Medium Long-term, security oriented
Sales Growth, freedom to act Low High Low Short-term oriented

Source: US Chamber of Commerce, Employee Benefits 1999 (Washington, D.C., 1999), p.10.

How (IPI) applies a unique approach to planning employee benefits:

  1. Classify employee(s) and dependent(s) needs or objectives in logical functional categories.
  2. Classify the categories of persons the employer may want to protect through its employee benefit plan.
  3. Analyze the benefits presently available under the plan in terms of the functional categories of persons or objectives and in terms of the categories of persons the employer may want to benefit.
  4. Determine any gaps in benefits or overlapping benefits, or both provided from all sources under the employer's employee benefit plan and from other benefit plans in terms of the functional categories of needs and the persons to be protected.
  5. Consider Recommendations for changes in the employer's present employee benefit plan to meet any gaps in benefits and to correct any overlapping benefits, including possible use of the flexible benefits (cafeteria plan) approach.
  6. Estimate the costs or savings from each of the recommendations made in step 5.
  7. Evaluate alternative methods of financing or securing the benefits recommended above, as well as the employee benefit plan's existing benefits.
  8. Consider other cost-saving techniques in connection with the recommended benefits or existing benefits.
  9. Decide upon the appropriate benefits, methods of financing, and sources of benefits as a result of the preceding analysis.
  10. Implement the changes.
  11. Communicate benefit changes to employees.
  12. Periodically reevaluate the employee benefit plan.

IPI considers each of these steps in greater detail. For a more in depth discussion as to how we can help your small to medium size business maximize your employee benefit plan, please register, or log in if you are already a member, and fill out a members contact form.