21 Feb Tips for Plan Administrators
Administering a benefits plan is an important job that requires time, effort, and education. With a new year underway, we thought it timely to provide a bit of a refresher to help you avoid mishaps and ensure the successful administration of your plan.
Check your Business Liability Insurance policy for Employee Benefits Coverage, or add it to your policy.
What is Employee Benefits Coverage?
According to Elyshia Cheung of CRS Merrill Insurance, Employee Benefits Coverage is designed to protect your business against lawsuits related to the management of your employee benefits program. The coverage provides protection for management of the employee benefits related to: benefits counseling services, the interpretation of benefits, the handling of employee records, and the cancellation, termination, or enrollment of employee benefit plans. It is meant to provide coverage for insurance plans maintained by your business solely for the benefit of your employees such as:
- Group life insurance
- Group Accident or health insurance
- Profit sharing plans
- Pension plans and stock subscription plans
- Employment insurance
- Social security benefits
- Workers’ compensation
- Disability benefits insurance
- Any other similar employee benefits program sponsored by your company
Employee Benefits Coverage must be added on to your existing Business Liability insurance policy and costs will vary based on the number of employees and coverage limits required. The coverage will typically give an allotment per employee, as well as total for all claims made in a policy term and should be something you speak specifically with your insurance provider about to ensure you are fully covered.
CRS Merrill Insurance is a family owned and operated insurance brokerage in Calgary and a trusted resource for commercial, home, and auto insurance. If you would like more information about this type of coverage, Elyshia can be reached at firstname.lastname@example.org or 403-221-9000.
Managing Eligibility, enrollments, and changes: Your benefits contract describes who is eligible under your benefits program. Eligible employees should be enrolled within the waiting period (usually 3 months) and life changes (e.g. marriage, divorce, birth of a child) should be reported to the insurer within 30 days.
What could happen if I don’t report on time: Employees and/or their spouse are considered late applicants if the insurer does not receive their enrollment form within 31 days of their eligibility. Late applicants will be required to provide medical evidence and could be declined for coverage by the insurer based on that evidence. Organizations could become liable for all future claims, including life, accident, disability, health and dental claims if employees are not enrolled on-time.
- Add employees to the benefit program within 31 days of eligibility to avoid late enrolment limitations or declines and benefit reductions.
- Report life changes to the insurer within 31 days (e.g. birth of a child, marriage, divorce, loss of spousal coverage).
- Periodically review employee census to ensure that all eligible employees are on the plan.
- Do not have a plan that allows employees to opt-out fully. All group plans should have mandatory enrolment.
Tax Treatment of Benefits: Plan sponsors should be aware that various benefits included in a plan have different tax treatment. For example, employer paid life, critical illness, AD& D, dependent life premiums are a taxable benefit. Also, to ensure that disability benefits are received tax-free, employees must pay 100% of the premiums.
What could happen if I don’t deduct premiums correctly: Plan sponsors could be liable for the difference between the actual net payout and the expected payout if employee payroll deductions and premiums are not handled correctly.
- Review that your payroll is set up correctly and that premiums are being deducted and/or taxed correctly.
- Please contact us for our Tax Treatment of Benefits summary.
Reporting Salary Changes & Definition of Earnings: Most plans include income-based coverage levels. Long term disability, short term disability, life, and AD & D benefits are often calculated as a percentage or multiple of earnings. If salaries are not up-to-date and a plan member makes a claim, the insurer may only pay benefits based on the reported salary. Your organization could be liable for any shortfall in benefit payments between the current actual salary and the last reported salary.
It is also important that your group insurance contract accurately reflects how your employees are compensated (e.g. base earnings, base plus commission and/or bonus, and dividend income for owners or partners).
- Report salary increases or changes to your insurer within 31 days.
- Review your benefit contract to ensure that the definition of earnings accurately reflects your firm’s compensation structure.
Addressing Non-Evidence Maximums (NEM): The Non-Evidence Maximum (NEM) is the maximum limit of coverage available to employees within a group benefit plan without the need to provide medical evidence of insurability. However, employees may be eligible for excess coverage based on their income.
What could happen if I don’t notify employees: If employees are not advised that they are eligible for additional coverage above the NEM, employers could be liable if they have not been able to demonstrate that they’ve communicated their maximum eligible benefit.
- Let employees know that they can apply for additional coverage under the group’s contract when enrolling employees in the plan. If salaries are increasing, let employees know that they can apply for additional benefits