The Basics of US Employment Law Part IV: Healthcare and Retirement Plans

It is widely known that unlike many countries in Europe, the United States does not have universal healthcare coverage for its citizens. This issue has been at the forefront of many political debates and was even the subject of the 2007 Michael Moore documentary, Sicko. Even with the passage of the Affordable Care Act, most US citizens must still pay to receive healthcare coverage.

Under the current system in the United States, without universal free healthcare, the burden of providing healthcare coverage  falls largely on employers, including many small businesses. Much like the vacation time I discussed in my last blog post, even though healthcare coverage of employees is not mandated, most companies offer their employees some form of healthcare coverage. In fact, it has come to be expected that if you are employed, you (and your family) will have the option of joining your employer’s healthcare plan. However, this does not mean that all employers pay all the costs of covering their employees. Many companies ask that the employees pay all or a percentage of the insurance premiums and other costs for their (and their families’) coverage. There are also a wide range of healthcare plans for employers to chose from of varying degrees of quality and price. One of the benefits employees look for when choosing a job is the type of healthcare plan and coverage an employer offers. Therefore, even though healthcare coverage is not required, many employers, especially larger ones, offer generous healthcare plans in order to attract high quality employees.

Additionally, employers with 20 or more employees who offer healthcare coverage are subject to a federal law known as COBRA, designed to make sure there is no break in healthcare coverage when an individual is between jobs. COBRA requires employers with 20 or more employees to allow former employees to stay on the employer’s healthcare plan for a certain period of time after the employment relationship has ended. COBRA does not normally mandate continuation of any payments the employer may have been making towards the coverage. Accordingly, even if an employer covers 100% of the costs of its employees’ healthcare, it does not have to cover any costs of former employees’ healthcare under COBRA and can require former employees to pay for up to 102% of the costs (the extra 2% being meant to cover the employer’s administrative costs of keeping the former employee on the plan). Many states, including Pennsylvania, have similar laws known as “mini-COBRA” that apply to employers with fewer than 20 employees.

In addition to healthcare plans, many (if not most) larger companies and many smaller companies offer their employees some type of retirement savings plan. The most common type of retirement plan is known as a 401(k) plan, named after the section in the Internal Revenue Code governing the taxation of this type of retirement plan. In addition to offering a 401(k) plan for its employees to contribute money to, employers will sometimes offer a “matching” contribution. For example, an employer might offer to match up to 3%, meaning that if the employee elects to contribute 3% of her salary to her 401(k) plan, the employer will match that contribution with an equal amount of money contributed to the employee’s 401(k) plan. As with healthcare coverage, retirement plans are a benefit employees look for in deciding whether to accept a job offer. Employers seeking to attract and retain top quality employees generally find it necessary to offer their employees a competitive benefits package that includes both a group healthcare plan and a retirement plan.

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