Things we need to make sure we communicate to plan members.
By: Bill Zolis
It’s not easy being a benefits administrator. The benefits are about providing employees with a safety net of protection and it’s a big part of the benefits administrator’s job to make sure that the net is in place.
I’m often asked about the gaps, the pitfalls, the things that can go wrong. There are a lot of them, and I’ve written about them in this blog before. Most of the things that go wrong can be traced back to a lack of communication – the plan member didn’t understand something, didn’t tell us something we needed to know and, as a result, benefits coverage was held up or even denied. Here are some of the things that seem to come up over and over again.
Life events – Plan members generally don’t think about their benefits plans unless and until they need a given benefit. Even then, they often assume that the benefits automatically take care of themselves. Which is why they often don’t think to inform their Human Resources department, or their benefits administrator of life changes that occur. Such as marriage or the transition of a dating relationship into a common-law marriage. Or the birth of a child. Or a separation, a divorce or a change in a partner’s benefits status.
Still, of course, the insurance carrier needs to be notified within 31 days of such life changes or coverage may be impacted.
What I stress to benefits administrators is that they have to do everything reasonable in the circumstances to inform plan members of the need to report life events, make sure they understand the reasons why and then continually remind them as part of any regular benefits communications.
Beneficiaries – When a newly-hired employee is filling out the paperwork for a new job, the last thing he or she is thinking about is the seriousness of designating a beneficiary for their life insurance benefit. But if the unthinkable happens and the employee passes away, that name written onto the benefits form is suddenly a legal contract potentially worth many thousands of dollars.
That’s why it’s important to stress to plan members that they need to think it through before designating a beneficiary – a spouse, a sibling, a parent, a legal guardian of underage children, for example.
It is also important to make sure that plan members understand that once they designate a beneficiary, that person remains the beneficiary unless and until they make a change. People may assume, for example, that that if they divorce and remarry, their new spouse automatically becomes their beneficiary. Not so, of course.
Plan members who designate an underage child or children as their beneficiaries also need to understand that doing so could result in their life insurance being paid into a trust and held until the child or children reach the age of majority – 18 years of age. If they want to avoid this possibility, they need to designate and instruct a trustee as beneficiary.
Opt-outs – Some new hires will occasionally want to opt out of certain benefits – particularly benefits such as short- and long-term disability, where employees have the premiums deducted from their pay. This is always a tricky situation. You offer those benefits for a reason, and you want your employees to have the full benefit of them.
I normally suggest to plan sponsors that they start by making an effort to educate the employee as to the true costs and benefits of the coverage, stressing two points in particular. First, the cost they are asked to pay for short- and long-term disability offered as part of a group plan through the employer is really a fraction of what they would have to pay if they sought their own coverage privately – it’s a very good deal! Second, they are asked to pay the premium for their own advantage – if they ever have to rely on disability payments, those payments will be tax free. If the employer pays for the coverage, the employee would be taxes on any payments.
Second, there is always a possibility that an employee who opts out of coverage – or a surviving spouse in the event of death – will feel that he or she was not properly informed of the consequences of opting out and might take the case to court to try to secure the benefits anyway. These cases are successful more often than one might expect.
Many employers solve this problem by making the benefits mandatory from the time of hiring. Quite frankly, I think this is the best solution. Still, if employers have to allow an opt-out, they need to make sure that, first, the implications of that decision are thoroughly explained to the employee; second, that the employee sign a waiver of benefits; and, third, that this whole process be documented in the file. (I’ve heard of employers who, in this situation, also require a signed waiver from the employee’s spouse, if applicable.)
Spouses and benefits – There are a number of issues with spouses and benefits that seem to come up pretty regularly. First of all, a great many people believe, or assume, that their spouse is automatically covered by their benefits and even that their spouse is automatically their beneficiary.
Neither is true, of course. So it’s very important to educate plan members that they need to tell their benefits administrator about any changes – life changes, as discussed above – in their marital status, and then to make the appropriate changes in their designation of beneficiaries.
This gets trickier when we’re dealing with common-law spouses. When does a relationship become a common-law marriage? According to the law, one year after they start living together. When does it end? Again, according to the law, at the point where at least one party decides to end it.
Spousal coverage waiver – This is another one of those areas where communications sometimes fall through the cracks. Basically, when a new employee is signed up for benefits, we ask whether they already have coverage for some things through their spouse’s benefits. But problems can arise when that spouse’s benefits cease or change in some way, due to a change in jobs or retirement, for example. Our plan member does not automatically get signed up for benefits to replace those of the spouse – unless they let us know.
So, what I suggest to plan sponsors is that they still collect all the details about the spouse and other dependents even if the employee reports pre-existing spousal coverage. That way, the transition will be quicker and smoother if it becomes necessary down the road.
Finally, despite our best efforts, things will sometimes still fall through the cracks. That’s why I think it’s important to make sure you have Plan Benefits Administrator liability coverage. This is available as a rider to your general business liability policy from your property and casualty/general /business Insurance broker.
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I really appreciate comments, ideas, suggestions or just observations about the blog or any other topics in benefits management. I always look forward to hearing from readers. If there’s anything you want to share, please email me at bill@penmorebenefits.com.
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