Business Owners: An Important Guide to Employee Benefit Plans
Business owners need to be aware of the vital parts of an employee benefit plan. Whether you manage the plan yourself or you have someone else within your business that acts as a benefits administrator, you need to be aware of some key elements that can reduce long term cost, create greater cost certainty, promote employee retention and plan sustainability:
Here are 8 essential considerations that need to be addressed by you, the business owner, and use this as a guide to employee benefit plans and what you need to be aware of:
- Funding Model Options: This is important to understand as many benefit providers will push you towards an insured plan. Investigate insured, Administrative Services Only (ASO), Retention Accounting, Health Spending Accounts or a hybrid solution. It’s important to understand the differences in fees, risk and flexibility.
- Understand the Costs of Changing Carriers: By changing benefit providers you could be walking away from reserves that have been paid on your former plan by moving carriers, you may need to start building up reserves with your new carrier. Understand what your IBNR reserve is at with your existing plan before you make a move.
- Fee and Commission Disclosure: Understanding that it may be initially attractive to move carriers initially, but you want to ensure that all compensation that the broker receives is disclosed in the contract. If in an insured plan, your Target Loss Ratio percentage (TLR) can be a primary indicator of how much your broker is getting paid on your case. If they’re not willing to disclose this, then you can probably guess why.
- Business Owners Set Up as a Separate Class: Most plans have exclusions of benefits, co-pays or deductibles. These are usually incorporated as a measure to ensure that employees have some skin in the game. Everyone would love to have an all-encompassing plan and cover everything, but for most businesses, this would be unsustainable. As a business owner, you are entitled to put all your health and dental expenses through as a business expense versus paying in after-tax dollars. This can be done by incorporating a Health Spending Account for the owner.
- Group LTD or Personal LTD Policy for Business Owners: Depending upon if you take a salary and dividend or bonus to yourself, a group LTD plan may not work for you as a business owner. Group LTD plans work great for employees but not as well for business owners. Depending upon how you pay yourself, you may want to look at a personal LTD policy instead. I would check with your group plan provider to ensure you are eligible. We’ve seen many business owners who are on a group plan, pay into the group LTD plan and are deemed ineligible.
- Employee Education: One of the primary elements in providing a sustainable benefits plan for your company is understanding how a group plan works. Ensure that your benefits provider does education information sessions on how a benefit plan works and the expectation of the employee in doing their part to contribute to the sustainability of the plan. Coaching them on how to scrutinize their health and dental invoices, and being better overall keepers of the plan will ensure costs are kept in check and benefits won’t need to be cut due to the unintentional abuse of the plan.
- Ensure Employee Copays versus Sharing the Cost of the Plan: By having the employees contribute when they use the plan, whether it’s paying a small deductible, dispensing fee or copay when they use the plan, keeps them from using the plan for the sake of using the plan whether that’s using all your eligible massage therapy in the last month or getting that extra pair of glasses to add up and will greatly impact your renewal costs. Every time an employee needs to dip into his or her pocket, it acts as a deterrent for unnecessary expenses to the plan. For those companies that share the cost of the plan with their employees, there is a different mentality as an employee. Every pay stub is a reminder they are contributing the overall cost of the plan, and a rationale of having to get their money’s worth is more evident.
- Financial Wellness Strategies: Another vital and growing trend is the employees’ expectation for their employer to provide educational sessions on Financial Wellness. This should be provided free of charge or for a nominal fee by your benefit, group pension/RRSP provider. Talking about how to effectively save for your retirement, paying for your kids’ post-secondary education, dealing with ageing parents, consequences of not having an up-to-date will and estate plan are all items that keep your employees up at night. By helping to provide peace of mind for your employees will make your employees more productive, lower absenteeism, promote better morale and higher retention. An employer that has a “we care” mindset and environment not only creates employee loyalty but also makes good business sense.
We’re not suggesting that as a business owner you need to manage the group benefits plan but only be aware that there can be some dire financial, operational and human resources consequences if you don’t ensure some fundamental questions are asked before the implementation phase.
Chris Coulter is the Founder and President of The Finish Line Group. He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies and allow them to create a strategy to exit their businesses on their terms.
Chris’ passion for what he does evolve from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth. Chris found out the difficult way and now educates business owners on how to avoid many of his former oversites and ultimately control where their finish line ends.