9 Ways to Keep Your Benefit Plans Healthy
It takes time to regularly review your benefits, but the payoff can be big. Most important, periodic checkups help your company remain compliant. But a recurrent review might also uncover ways to reduce costs without eliminating benefits. Here are nine measures you can and should take to keep your benefit plans healthy:
1. Put a written plan in place and make sure it’s compliant with the Employee Retirement Income Security Act (ERISA). Every plan sponsor is required to maintain a governing written plan in accordance with ERISA. Maintenance includes updating your plan at least once a year. The new guidance comes out regularly from the IRS, the Department of Labor and the Department of Health and Human Services. Your plans comply with whatever changes are mandated in the guidance. At a minimum, revise these documents before the open enrollment period each year and whenever you make any material alterations to your benefit plans.
2. Ensure all summary plan descriptions (SPDs) are updated. ERISA requires all employers to provide workers with an SPD for each plan the company sponsors. Your benefits specialist may have written materials that can help you supplement your compliance efforts. However, every company is different when it comes to the content of the SPDs, and the ultimate responsibility to make sure they’re updated rests with the employer and the plan sponsor.
3. Reconcile SPDs with your governing plan documents to eliminate conflicts. Your ERISA-compliant written plan acts as your governing document when it comes to employee benefits. In the event the governing plan and the SPDs are in conflict, the governing document will be determinative. Tip: When you write your SPDs, incorporate the provisions in your master plan by reference, rather than spelling everything out in each description.
4. Look over plan eligibility requirements. Many times a benefits audit will reveal that the company is still paying for benefits for workers or dependents who are no longer eligible for them. For example, spouses may obtain coverage elsewhere, withdraw following a divorce or pass away. Also, dependent children can grow up and “age out” of benefits. In addition, some workers will probably qualify for Medicare at age 65 and you may no longer need to pay premiums for them. Check for ineligibility at least once a year.
5. Fully document any changes to the plan. If you have made any adjustments to your benefits, you may well have to revise both your SPDs and your master plan. However, regulators know this process takes time. Until you’re able to complete revisions to your SPDs and governing master plan documents, you can prepare a simpler document called a Summary of Material Modifications.
6. Audit contributions. Human resource professionals should periodically conduct a detailed inspection of all the contributions the company makes to employee benefit plans. Match each dollar to an employee and check the accuracy of the calculations.
One area that’s a common problem when calculating contributions is the definition of “compensation” within the plan. You should generally include commission payments and bonuses in compensation calculations, as well as a base salary. Some businesses make the mistake of counting only base salary when figuring contribution levels. An audit can provide the confidence that you’re making the correct contribution to retirement and profit-sharing plans.
7. Make certain your 401(k) contributions are deposited quickly. If you’re contributing to 401(k) plans on your workers’ behalf, the deposits to the plan trust must be made on a timely basis. Failure to do so will result in severe sanctions from the Department of Labor.
8. Ensure pretax payments are made within a Section 125 plan. If employees may pay premiums or other payments for benefits on a pretax basis (that is, through salary deferral), make sure you do so under the auspices of a Section 125 cafeteria plan. You must still do this even if your plan only includes health, vision and dental plans and flexible spending accounts.
9. Audit your COBRA plans. Check to see that all qualified employees receive the required notices. Include information on flexible spending accounts, dental plans, and vision plans, as well as major medical plans.
Once benefit plans are in place it’s easy to relax and assume they’re working as intended. But a periodic checkup is advisable to verify that your plan is compliant — and possibly even to save your company money. If you do not have a good resource to help your business with benefits, contact us, we can refer you to the right company for your business.