Every business owner we’ve spoken to agrees that their biggest problem is a lack of continuity with their employees. Turnover is disruptive, and business suffers. Finding the right person is expensive, distracting, and time-consuming.
So, while continuity planning may not be a term you would associate with your Employee Benefit Plan (EBP), as a business owner, chances are you wish to contribute to good continuity within your business. Having a solid EBP is a great way to do that.
Poor Continuity Planning Can Be Costly for Business Owners
In the spectrum of planning with employee benefits, on the one side is the employer who has a benefit plan in place just because they have to—likely unaware of how potentially damaging this is to their firm.
Over on that same side is the employer who doesn’t take Employee Benefit Plan administration seriously, despite the potential of a mistake costing the business thousands of dollars. Additionally, there are many areas where poor administration could cause the employer to look bad in the eyes of the employees.
For example, the employer who is not paying attention might completely ignore the contractual policy wording of the Long-Term Disability (LTD) coverage, leaving employees “insured” with LTD that won’t pay. If an employee becomes disabled, and the disability insurance doesn’t pay because the contract wording is poor, it will reflect negatively on the employer and create unrest with co-workers.
Sometimes employers ask their employees to vote on different benefit plan options. We do not recommend this strategy because it’s a rare workplace that can agree on one plan for everyone, and there is no one-size-fits-all for benefit plans. Consider a single parent struggling to pay their children’s dental bills versus an employee with no dependents (and great teeth). If you “put the plan to a vote,” you’ll likely just pit employees against one another. The only continuity there is continuous conflict. Instead, an employer should consult with their benefit plan broker and pick a plan for the firm. Depending on the work environment, an employer could also have an informal discussion with some hand-picked employees to receive feedback in a controlled manner, before deciding on the plan.
Some employers want their employees to pay a large part (at least half) of the cost of the benefits. For various and complicated reasons, this will backfire for the employer as premiums inevitably rise over time. It’s better to bite the bullet and suffer a little short-term expense pain, for some long-term gain.
On the other side of the spectrum, the thorough continuity planner will know that employees show up to work expecting their employer will take care of them. It’s arguable whether this is “right” or “fair,” but the fact is that most employees put their family’s financial security, especially regarding Long-Term Disability insurance, in the hands of the employer (who, remember, is picking the benefit plan). Employees shouldn’t have blind naiveté about the relationship, but ask any employee about certain aspects of insurance and they’ll likely say, “I have it at work.”
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Questions That Will Guide Your Employee Benefit Plan
The thorough continuity planner will know the answers to these questions about their Employee Benefit Plan (for a printable version of these questions, please click here)
- Does the benefit plan compare favourably to what the competition offers, so that employees feel fairly treated?
- Is the benefit plan with the correct insurer for both cost and service?
- Are the employees happy with the ease of use of the plan?
- Do the employees have problems with claims that need to be corrected with the insurance company?
On the administrative side, the thorough Employee Benefit Plan continuity planner will take steps to reduce potential costly administrative errors by answering these questions:
- Has the HR person advised all employees of the 31-day life change rule? (The 31-day rule essentially states that if an employee has a life change—e.g., new baby, spouse loses their benefit plan, employee gets married—the change must be recorded with the insurance company within 31 days or the new person or situation might be declined coverage by the insurer.)
- Is there a process to regularly advise employees of same?
- Has the firm advised each employee what “life change” means?
- Does the HR person understand the serious implications of being a “late applicant”?
- Is the firm enrolling all employees onto the benefit plan? (Some plans allow for 90% participation, but we recommend you aim for 100% participation rate.)
- Is there a clear distinction between full-time and part-time personnel and their eligibility/requirement to be on the benefit plan?
- Has the firm offered the “top-up” group life or LTD to each employee?
- If the employee has declined the top-up LTD or group life coverage, does the firm have a “sign-off” that the employee has declined the coverage?
- Does the insurance company’s definition of “income” mesh with the way that the employer pays income? (“Salary” is not the same as “dividends” or “commissions.”)
- If the firm’s personnel consists of incorporated professionals, does the insurance company acknowledge the different ways that person may receive income?
- When an employee’s income changes, is the insurance company advised immediately?
- Is there a corporate policy for continuation of benefits for an employee who becomes disabled?
- Is there a process for filing an LTD claim promptly?
- Does the plan include any non-eligible employees? If so, you may be paying premiums for somebody who is not really insured, come claim time. You also may unwittingly be committing fraud and the insurance company won’t pay any claim, even for legitimate employees.
- Is the firm clearly documenting who paid for the Long-Term Disability? (There is different tax treatment at claim time, depending on who paid the premium.)
- If you change the plan or terms of the plan, are the employees clearly advised of any reduced benefits?
Under the heading of general comments, the employer who is a thorough continuity planner should know the following:
- Does the employer understand the definitions and contractual clauses in the Long-Term Disability section of the Employee Benefit Plan policy and how it compares to other insurance companies?
- Does the employer know not to hire employees with the promise of “benefits” or “benefits the same as you have now”? For a variety of reasons, this offer might not be possible, and it may put the employer at risk of a lawsuit.
- Does the employer know not to pay medical/dental bills on an ad-hoc basis? The CRA might not allow the expense as a deduction to the firm, privacy concerns are raised, and unsustainable and undesirable precedents might be set.
- Is there a process to continue benefits to a terminated employee during the severance period, as per Employment Law?
- Has any employee who is filing a disability insurance claim been given a copy of the Long-Term Disability contractual wording, so they can properly understand their rights and obligations under the policy?
PLEASE NOTE: Any references to policy wording are in our words. The actual terms and provisions will be found in the Employee Benefit Plan Insurance Contract.
Employee Benefit Plan Checklist