November 18, 2009

The Advantages of Offering More Voluntary Benefits

It doesn’t seem that long ago that the extent of voluntary benefits plans for employees was limited to “buying up” extra insurance on the company’s group plan, or increasing short-term (STD) or long-term disability (LTD) benefit coverage from 50 to 66 percent. In 2009, it seems like every organization is looking for ways to reduce benefits costs and voluntary benefits plans are, often, the only way to expand offerings for employees.The easy conclusion to be made of this situation is that employers are simply unwilling to add any additional costs to their budgets. While this is certainly true, it does not make this deal automatically negative for employees.

How can this be? Well, do you feel busier than ever? I know I do. Do you feel, for example, that you need long-term care insurance or additional life insurance coverage but have not done anything about it? This is where a happy outcome can happen as a result of the trend towards voluntary benefit plans. There are companies who have contracted with local dry cleaners, for example, where employees just drop clothes in a box and one of life’s tasks is conveniently taken care of. This convenience is no different from a choice for STD, LTD, Accidental Death and Dismemberment (AD&D), life insurance, long-term care insurance, or other benefits.

The Employer Must Choose Wisely What Voluntary Benefits to Offer

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At the same time, this win-win scenario places an onus on HR practitioners to be diligent in selecting benefits providers who are worthy of exclusive access to employee dollars. In other words, it is tremendously convenient, as an employee, to have a simple payroll deduction take care of an identified protection need. The employee, however, expects the company to select only high-quality providers.

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What should you look for in a benefits provider? I would advise referrals from other organizations, company credit ratings, and to look for ease of administration. Is the provider, or provider representative, willing and able to help present the benefit to employees? I found at a previous employer that the 401(k) provider would promise to come visit and help with employee meetings, up until the moment when the meetings were actually scheduled. At that point, they were much more excited to send over a PowerPoint presentation.

What Voluntary Benefits Do Employers Offer?

What kind of voluntary benefits do employers offer that you could offer to employees at your company? Among the more popular are the following:

Short-Term Disability. This insurance covers pay losses due to extended time away from work, typically up to three or six months. The elimination (or waiting) period for a claim to pay is usually seven to 14 days. Normally, this covers 50 to 60 percent of pay and the timing of the maximum leave usually aligns with the beginning of long-term disability coverage. A key point: pay close attention to the different definitions of “disability” given by different carriers. The difference in the definitions will tell you how good the benefit is for employees. Remember, if employees have a hard time with claims from the insurance company, those in HR will hear all about how bad the insurance is and will be blamed for the struggles.

Long-Term Disability. This insurance is somewhat more common than short-term disability and, arguably, more important. If someone falls off a ladder at home and breaks their back, the person may be affected for years and the coverage will mostly come from LTD. As with short-term disability, it is important to know the different definitions of disability.

Long-Term Care Insurance. Many Americans think their care as they age will be provided by Medicare or Medicaid, but it normally isn’t. Long-term care insurance covers the care people need when they have lost the ability to perform at least two “activities of daily living.” In addition to this, if someone has cognitive impairment (dementia, Alzheimer’s disease, etc.), the person is immediately qualified for a claim. Some companies offer this benefit in a group package where employees have only the choice to sign up for the offering or not. Other offerings are a series of individually customized plans that are also paid through payroll deductions. These plans normally allow employees to also buy the benefit plan for other family members, including parents and grandparents.

Life Insurance. Have you ever wondered why companies often offer $50,000 as a flat life-insurance benefit? This number allows the employer to deduct the full amount of the insurance premium and it is an untaxed benefit to the employee. That having been said, most adults find that they need more than this amount of protection. Many group life insurance plans allow for an employee to buy up an amount that is a multiple of their annual (or annualized, if hourly) pay for a very reasonable price. These benefit plans are always term insurance plans and may or may not be portable when the employee leaves the company.

Some companies allow payroll deductions of individual, whole life (permanent) policies that are then portable and owned by the individual employee for the rest of their life. One suggestion, if your company offers group life insurance that is not portable, you may want to advise your employees to consider purchasing individual insurance outside the company benefit plan. The reason for this is the concept of insurability. If an employee is treated for cancer, for example, and then leaves the company a couple of years after (even successful) treatment, they will not be able to purchase life insurance outside of a new employer’s group life insurance plan. This amount may not be sufficient for their family’s needs.

Accidental Death & Dismemberment (AD&D). This is an amazingly inexpensive policy that usually covers a relatively small amount of coverage (under $100,000) for employees if they die in an accident or if they lose a limb and/or the sight in one or both eyes. This coverage is often through the same insurance carrier as the group life plan. Losing a limb during work hours is such a rarity that it makes the policy inexpensive.

Group Legal Plans. An increasing number of vendors offer subscription legal plans as a voluntary benefit. The concept, in my opinion, is an intriguing one and it appears to be growing in popularity. My advice is to research the vendors thoroughly, as it is a relatively new type of benefit and, as stated above, you don’t want to clean up the mess of a sub-par provider. As an aside, I understand that a certain software company based in Redmond, Washington, is implementing this benefit for 2010.

This is just a sampling of the more popular voluntary benefit offerings for you to consider. There is nothing wrong with employers placing the financial burden for a growing variety of benefits on their employees. The lower pricing through group plans and the sheer convenience of simply selecting a payroll deduction is a big benefit to employees. Just make sure the quality of the benefit is of the caliber that you are willing to back up since employees will still see this as a product provided by you.

Regards,

Andrew Shelton

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