Three common mistakes employers make with benefit plans
Mistake #1: Failing to maintain proper benefit plan administration
Having ready access to all the documents for your benefit plan is critical to not only the smooth administration of the plan but also help deal with audits and liabilities.
Employers can find themselves liable if a benefits summary booklet incorrectly describes the terms of the benefit policies or if the employer has misrepresented the nature of benefits in an offer or contract of employment. The employee can have a claim for the benefit coverage stated in the offer or contract regardless of the actual terms of the benefits policy. This issue becomes especially important with employers who simplify or use “plain language” when communicating with plan members. Be sure that the “plain language” version does not misrepresent what is covered.
For example, long term disability benefits are non-taxable if the employees pay the premium, but do you have documentation supporting the 100% employee contribution to the disability plan to show Canada Revenue Agency (CRA) if you are audited?
If you do not have written plan procedures, you should establish and maintain a written set of plan administrative procedures that cover eligibility, claim review procedures, determination of contributions, and the approval process for distributions, such as loans or hardship withdrawals. Any appropriate plan forms should be included in your plan procedures. This documentation can support the actions of the employer and/or the plan administrator in the event of an employee challenge or a CRA audit.
Ensure that all employees sign waivers if they elect not to participate. It’s amazing how some employees who did not want the employee benefits at first, change their mind when their situation or needs change. At that point, they may point the finger at the company and say the company never offered the benefit plan to them.
Keep current is the salary information provided to the insurance company. For example; an employee may be making $40,000 annually but the plan administrator hasn’t updated the figures for several years and according to the insurance company records, they make $32,000 annually. This can be a serious issue in the event of a disability or life claim.
Mistake #2: Maintaining ineligible members on the plan
Helping out ineligible employees by keeping or enrolling them on the company benefits plan may lead to serious liability.
If an employee who is not actually eligible for coverage (not working the required hours, is seasonal or a contractor, etc.) and is enrolled or kept on your benefit plan, the company insuring the plan may refuse to pay for any expenses incurred by the employee or nullify life and disability benefits payable regardless of when the insurance company discovered the employee’s status.
Always check with the insurer before doing such a “favour” for an employee by allowing him or her to participate in your benefits plan. For example, most benefit plans have an “actively-at-work” requirement, as well as minimum hours, worked, in which an individual must be “actively-at-work” on the day the individual would become eligible for benefits and must be working more than the number of minimum hours allowable. Although some exceptions do exist to this rule, a benefit plan can require individuals to begin work, be at work, or work a higher number of hours before coverage under the plan will become effective. Thus, an employee that does not satisfy these eligibility requirements could cause serious problems for you and the plan. If you have employees that desire coverage but are not eligible based on the existing benefit plan’s eligibility rules, then consider requesting an amendment to add a new class of employees with altered eligibility rules or source alternative coverage.
Mistake #3: Continuation of benefits for long term disabled employees
Healthcare inflation is a big issue these days and employers are looking for solutions to maintain benefits coverage for their employees. What about employees that are no longer productive to the firm? What about the employee that has been disabled for 10 years, is not expected back to work and is racking up claims of several thousand dollars per year?
Most programs are set up to allow benefit continuance until an employee has been terminated from the benefits program. Two common questions arise when this happens:
- When can the employer terminate a disabled employee from the benefits program?
- Can they be sued by that employee?
It is one thing to have a sick employee; it is another to have a sick former employee that is devastating the claims history year after year and holds no prospects forever returning to employment.
Develop a formal policy with respect to the continuation of benefits for disabled employees, which precludes individual selection. This policy should be based on the guidelines applicable in the province in which the employee is a resident and should be clearly communicated to all staff members.