In 2013 we dealt with two companies that had fallen into the trap of letting employees “opt out” of their benefits plan, and simply did not report these new hires to the benefits provider. If something had happened to one of those employees, what do you think would happen to the company’s liability? “I was never told about the benefits plan! Of course I would have taken it!” “My wife never would have turned down the insurance coverage, she must have been convinced by her boss in order to save the company money!” Can you picture what a judge would say when hearing these arguments? Don’t take the chance. Benefits should be mandatory for all employees.
How to Turn a Non-Mandatory Benefits Plan into a Mandatory Planby Barb Feldman, smallbizadvisor.ca
When employers absorb 100% of costs, there is no reason employees shouldn’t participate in a benefits plan. But when costs are shared between an employer and employees, it’s common to see a few employees opt out, given the chance, says Mike McClenahan, CEO of Benefits by Design. He says that can include those who don’t want to pay for benefits coverage, or say they can’t afford it, or can’t foresee ever needing to use it. Plus, non-mandatory benefits plans can present a number of liability risks for small business owners, says McClenahan.
Zoltan Barszo, president of Accurate Design Benefits & Insurance Agencies, agrees. “What if a non-participating employee incurs a claim for $100,000 and asserts that the company was at fault for not enrolling them?” he says. “Technically they haven’t signed anything waiving their rights; technically you have a benefits program that they should be part of, even according to your contract with the insurance company. So who’s responsible for that $100,000 claim? My guess is that it’d be the employer.”
This is made worse by the fact that occasionally brokers aren’t aware that voluntary plans have mandatory participation levels, which are typically 75% to 85%, says Barzso. An insurance company usually won’t know if a business has fallen below the minimum participation rate, he says, “but they’ll know it when you have a huge claim. Then they find out that you’re in violation of the contract. Now what? Would they actually pay that claim?”
Whenever there’s a dispute over liability or “duty of care” issues, developing case law points to the onus being on the employer, adds McClenahan. “I don’t know if exposure is extended to the insurers and potentially also for advisors, he says, “but it’s another reason to make plans mandatory.”
So how can an employer effectively transition from a voluntary to a mandatory benefits plan? Whether the plan was originally voluntary by choice or if an employer has inadvertently violated the contract’s minimum enrolment level and wants to fix it, the first thing to do is open the enrolment, to give everybody the opportunity to join without having to fill out a medical questionnaire, says Zoltan Barszo, president of Accurate Design Benefits & Insurance Agencies. Employees may decide to opt out of various provisions of a flex-plan legitimately, he notes.
If the insurer’s contract acknowledges that a certain number of employees will not be joining the plan, those who want to join later may then be required to provide medical evidence or evidence of insurability.
“And you need proper waivers or forfeitures signed by those who do not want to participate,” he says. Barszo recommends asking employees who opt out to consult their own lawyers as well.
Employers can take a “grandfathered” approach, says Mike McClenahan, CEO of Benefits by Design, stipulating mandatory enrolment only for new hires as a condition of employment. Or they can insist that everybody enroll, “but that has potential risks,” he says. A previously opted-out employee might construe now-mandatory contributions as constructive dismissal or a material change of work environment, observes Barzso. “Benefits consultants can pose the question, but shouldn’t be offering answers,” he says. “Only the employer’s lawyers should do that.”
In all cases, rather than just insisting on enrolment, an employer should help staff, including those who are currently participating, to understand and appreciate the real value of their benefits program. When programs risk being terminated by the insurer because they’re falling below the minimum contractual requirement, peer pressure is sometimes an extremely effective tool, suggests McClenahan. “‘We either all get on board with this program or unfortunately there’s going to be no benefits program for anybody’—often that’s enough to get everybody—grumbling—to all join in.”
Original Article: How to Turn a Non-Mandatory Benefits Plan into a Mandatory Plan on Small Biz Advisor
Photo Credit: “Just To Be Alive” by Bart on Flickr