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Tag Archives: Employee Benefit Plans

Three Points to Consider Before Altering Your Employee Benefits Plan

Posted on August 3, 2011 by in From our Newsletter

Three Points to Consider Before Altering Your Employee Benefits Plan

Just like most employees, most businesses start to look at ways they can cut their expenses during difficult economic times. One common focal point of such is employee benefits programs, especially in the area of health benefits. Considering that health benefits are frequently the most expensive aspect of a company’s benefits program, this may seem like a reasonable, logical place for an employer to take cost-cutting measures. However, employers should carefully consider what the consequences will be from making cuts to their employee benefits programs; whether or not there are any alternative cost-cutting options available; and, if benefits cuts are a must, how they can lessen the impact.

The Consequences

Let’s say you, as an employer, decide to target your employee benefits program and make some significant cost shifts toward your employees with the idea you’ll cut costs and save money. If the cost shift involves higher deductibles and/or co-pays for employees, then they may procrastinate seeing a physician when they’re suffering symptoms of illness or injury, forgo or delay filling vital prescription medications, and do without wellness care. If the cost shift involves premium increases, then many employees, especially young and relatively healthy ones, might decide to drop coverage altogether. The exodus could leave your plan with a larger and more undesirable risk pool.

These types of cost shifts can very well cost the health plan more money over the long run. Furthermore, it can negatively impact your company’s financial bottom line when it comes to employee morale, productivity, disability costs, and absenteeism.

What’s The Alternative?

An alternative to cost shifts would be to focus your benefit dollars on the measures that will enhance employee well-being and overall health. Some ideas would include:

* Using incentives to motivate employees to participate in wellness activities, such as weight loss and fitness programs, tobacco cessation classes, and nutrition education and counseling.

* Using incentives to motivate employees to participate in activities that can screen and detect serious medical conditions, such as glucose level testing, blood pressure screenings, cholesterol testing, and completion of health risk assessments.

* Providing extensive preventive care coverage.

* Having an employee assistance program (EAP) available to your employees can be especially helpful during poor economic conditions since it can provide resources and/or referrals for things like financial counseling, crisis intervention, and stress management.

If You Must…

Despite the negative consequences, you might feel that cost-shifting is your only feasible option. If so, make sure that you do everything possible to soften the blow to your employees. Here are some ideas:

* Offer voluntary benefits to your employees. This will cost you little, if any, money. While the employee will be responsible for most to all of the cost, they’ll benefit from group rates, convenient payroll deductions for the premiums, and the ability to personalize their coverage selections to meet their own unique needs.

* Offer flexible spending accounts (FSAs), which will let employees pay for health care expenses with pre-tax dollars and get the most of their health care dollars.

* Offer employees consumer-directed health plans (CDHPs). These plans can be combined with reimbursement plans such as HRAs and HSAs for an overall savings.

All of the above options have a commonality in that they each require an employee to get more personally involved in their own health and the management of their health-related benefits. Whether the change makes the employee more vigilant in scheduling preventive care visits, participating in wellness activities, or budgeting future health care expenses, the employee is assuming more responsibility for their health care and its management. Individual responsibility on the part of the employee can be one of the best long-term cost-management tools available to an employer.

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Avoid Costly and Common Mistakes with an Annual Review of Plan Administration Basics

Posted on February 15, 2011 by in From our Newsletter


Once annual enrollment has come and gone, it’s a good time to brush up on some basic benefit plan requirements, to avoid some of the common mistakes made in employee benefit plan administration. The following list of potential errors is by no means exhaustive, but represents a sampling of issues to steer clear of:

–Keep your plan documents up to date and reference them in related plan communications. ERISA requires that all employee benefit plans be maintained pursuant to a written plan document. As the governing document for the plan, it should be reviewed on a regular basis, and amended if necessary, to keep up with new laws and regulations (such as health care reform). Since this will be the most detailed document regarding any given plan, it should be referenced in disclaimer materials included in less formal plan communications (such as annual enrollment materials) as the document that will control in the event of discrepancies, or errors or omissions in these other ancillary communications.

–Keep SPDs up to date and distribute them to employees. ERISA requires that employees receive a summary plan description (SPD) covering each benefit plan, and specifies the information that must be included in the SPD. Plan vendors may supply booklets or other communications materials to distribute to employees that describe the plan, but these are unlikely to meet the requirements for an SPD. When plan changes result in an SPD needing modification, an employer may distribute a summary of material modifications in the interim before preparing an updated SPD.

–Include only eligible employees (and dependents) in your plans, as to do otherwise will run contrary to plan documents and represent unnecessary coverage costs for your company. Improperly covering ineligible individuals-contractors, leased employees, former employees, etc.-can be a costly proposition. Similarly, maintaining formerly eligible dependents who, for example, have aged out of the plan, unnecessarily adds to plan costs. Eligibility audits can help to mitigate this problem.

–Follow plan terms in administrative practices. The plan document governs, and both internal staff and outside administrators must follow the terms of the plan when making eligibility and claims decisions, issuing plan notices, handling appeals, etc.

–Make sure plan contributions are properly calculated. This includes taking into account the definition of compensation that is in the plan (which may include bonuses, commissions, etc.) and correctly calculating matching and profit sharing contributions.

–If you allow employees to pay for any benefits on a pretax basis, a cafeteria plan is required. While the term “cafeteria plan” may conjure up images of employees selecting from a menu of benefit choices, a cafeteria plan is, at its most basic level, a premium only plan, and is required to be adopted before employees can pay their health (or dental, vision, etc.) plan premiums with before-tax dollars, or to make before-tax contributions to a health care or dependent care flexible spending account.

–If employees make salary deferrals to a 401(k) plan, these deferrals must be deposited into the plan trust on a timely basis, as by DOL regulation they become plan assets as soon as they can be reasonably segregated from the employer’s general assets.

–Review your COBRA administrative practices to make sure all individuals qualified to elect COBRA coverage receive the proper notices, for all plans subject to COBRA (the health plan, but also the dental and vision plan, and the health care flexible spending account).

Administrative errors can result in fines and penalties, lawsuits, and employee discontent. An annual plan self-review can avoid these potential costly consequences of common mistakes.

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