When Benefits Go from Perks to Problems
We often talk about benefits from a perk perspective, but any human resources professional knows that behind the scenes, managing the complexities of benefits is hard work. Regularly I meet with companies who have insufficient benefit plan practices in place. Most of the time they aren’t even aware of the risks associated with weak practices. And almost all the time, they assume that their benefit broker is keeping them on track and compliant.
Benefits are Serious Business
One thing you can count on with benefit management is that change is constant. Staying on top of benefit requirements can feel like a full-time job. Smaller companies (those with less than 50 full-time equivalent employees) are relieved of the requirements associated with the Affordable Care Act; however, the game changes for companies in growth mode that achieve the 50 full-time equivalent (FTE) employees.
When should a company implement new practices in anticipation of adhering to the ACA guidelines?
Who is the best person to help a company establish proper internal practices?
These are common questions that clients ask me, and through an HR Assessment, I uncover the weaknesses that create low to high levels of risk surrounding non-compliance issues. It’s often a matter of not knowing what you don’t know.
The Hidden Risks
Throughout the year, companies are required to provide employees and/or benefit plan participants specific notices. Some of these notices are annual, while others are by trigger events (new hire, termination, etc.). Most individuals responsible for benefit plan management are not fully aware of the comprehensive list of benefit required notices and distribution frequency. Failure to distribute notices may not seem like a big deal, but the consequences can be significant including fines and penalties. Additionally, if you don’t inform employees properly your company becomes vulnerable should there be court claims in the future.
Depending on the types of plans that a company chooses to offer, you may require a WRAP document. Never heard of a WRAP? Don’t worry, neither have most HR professionals. ERISA requires that companies have a plan document in place for each health and welfare (medical, dental, life insurance, and long-term disability) benefit plan. A WRAP document is a way to ensure compliance with this regulation and ease administrative burden (by pulling all plans together into one document). Due to its complexity, this is not something I encourage you to research and try to develop on your own.
Another benefit area frequently out of compliance is with a pre-tax cost benefit. Commonly, employers and employees will share in the cost of benefits. Employers often provide employees with the ability to contribute on a pre-tax basis, reducing the individual’s tax liability. This is a great value-add for employers to provide; however, many companies don’t have the right documents in place to ensure compliance. Section 125 refers to the IRS tax code that requires companies to have a Cafeteria Plan or POP document, in place. Failure to have the proper type of plan in place could forfeit your company’s ability to allow employees to reduce their taxable wages by his/her share of benefit contributions.
It’s critical that HR professionals understand the legal obligations of providing benefits, and that he/she can lead the Benefit and Compensation discussion with confidence, especially during open enrollment. HR professionals don’t need to be benefit experts; however, they should be able to advise the Executive team when and/or if the company is not receiving adequate service by benefit providers.