Benefits and Compensation – Page 3 – Setnor Byer Insurance & Risk

An Employer’s Liability under ERISA for 401(k) and Other Employee Benefit Plans

Employers offering 401(k) plans to their employees assume significant responsibilities under the Employee Retirement Income Security Act. As the federal law designed to protect employee retirement plans, ERISA imposes strict standards of care upon those who establish and administer such plans. Unfortunately, many employers fail to understand the true scope of their obligations, as well as the consequences for failing to live up to them. Since wrongful acts can result in significant liability, employers must understand precisely what the law requires and what the law prohibits.

Employers looking for additional motivation to take their obligations seriously need only consider that ERISA violations may result in personal liability. Specifically, ERISA provides that “any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties…shall be personally liable to make good to such plan, any losses to such plan resulting from each such breach.

In addition to covering 401(k) plans, ERISA’s broad definition of “employee benefit plan” means that many different types of employee plans may be covered by ERISA, including various health plans, short- and long-term disability plans, deferred contribution plans, SIMPLE plans, TOP HAT plans, pension and profit sharing plans, employee stock ownership plans, and flexible benefit plans. Given ERISA’s broad applicability, employers offering various employee benefit plans must confirm ERISA’s applicability to such plans.

It is important to establish ERISA’s applicability, whether to a 401(k) plan or some other covered employee benefit plan, because of the strict standards of care imposed upon those deemed “fiduciaries” of the plan. Although a plan must have at least one named fiduciary, if a person uses discretion in administering and managing the plan, or controlling the plan’s assets, then that person may be deemed a fiduciary of the plan by virtue of taking control of the plan. Indeed, fiduciary status is based on the functions performed for the plan, not just a person’s title with respect to the plan.

The significance of being a fiduciary comes from the responsibilities and standards of conduct associated with the designation. Fiduciaries are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. Under ERISA, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

In the context of serving a plan, a fiduciary’s responsibilities include:

Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
Carrying out their duties prudently;
Following the plan documents (unless inconsistent with ERISA);
Diversifying plan investments; and
Paying only reasonable plan expenses.

Although all of a fiduciary’s responsibilities must be observed, the duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions.

Diversification—another key fiduciary duty—helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, a fiduciary will want to document their evaluation and investment decisions.

In addition to establishing minimum standards of behavior, fiduciary obligations also prohibit specific behavior. For example, fiduciaries are prohibited from engaging in self-dealing and must avoid conflicts of interest that could harm the plan. Moreover, ERISA prohibits specific parties (parties-in-interest) from doing business with the plan, such as employers, unions, plan fiduciaries, and service providers. Some prohibited transactions are:

A sale, exchange, or lease between the plan and a party-in-interest;
Lending money or other extension of credit between the plan and a party-in-interest; and
Furnishing goods, services, or facilities between the plan and a party-in-interest.

As previously mentioned, fiduciaries may face personal liability to restore any losses to the plan, or restore any profits made through improper use of the plan’s assets. So, fiduciaries should limit their liability exposure wherever possible. One way fiduciaries can control liability is by demonstrating that they have carried out their responsibilities properly by documenting the processes used to carry out their fiduciary obligations.

Another way to limit potential liability is by giving plan participants control over the investments in their accounts. Importantly, this option does not eliminate a fiduciary’s duties, it only limits the scope. For participants to have control, they must be given the opportunity to choose from a broad range of investment alternatives. Under the Department of Labor’s regulations, there must be at least three different investment options so that employees can diversify investments within an investment category, such as through a mutual fund, and diversify among the investment alternatives offered. Additionally, participants must be given sufficient information to make informed decisions about the options offered under the plan. Participants also must be allowed to give investment instructions at least once a quarter, and perhaps more often if the investment option is extremely volatile.

If an employer sets up their plan in this manner, a fiduciary’s liability is limited for the investment decisions made by participants. However, a fiduciary retains the responsibility for selecting the providers of the investment options, the options themselves, and monitoring their performance.

A fiduciary can also hire a third-party administrator, or service provider, to handle fiduciary functions, setting up the agreement so that the person or entity then assumes liability for those functions. If an employer appoints an investment manager that is a bank, insurance company, or registered investment advisor, the employer is responsible for the selection of the manager, but is not liable for the individual investment decisions of that manager. However, an employer is required to monitor the manger periodically to assure that it is handling the plan’s investments prudently.

It is important to specifically address an employer’s potential liability as a fiduciary when a third-party administrator is retained to handle an employer’s plan. Many employers believe that retaining a third-party administrator absolves the employer of any fiduciary obligations. This is wrong. Although retaining a third-party administrator may limit the scope of an employer’s fiduciary obligations, it does not eliminate them.

Hiring a third-party administrator is in and of itself a fiduciary function, so an employer must exercise appropriate care in its selection. A reasonable number of candidates must be interviewed and the entire process must be documented. At a minimum, the following information should be requested from each potential third-party plan administrator:

Information about the firm itself, including the financial condition and experience with retirement plans of similar size and complexity;
Information about the quality of the firm’s services, including the identity, experience, and qualifications of professionals who will be handling the plan’s account, any recent litigation or enforcement action that has been taken against the firm, and the firm’s experience and performance records;
Information about business practices, including how the plan’s assets will be invested and how participant investment directions will be handled, the proposed fee structure, and whether the firm has fiduciary liability insurance.

An employer’s fiduciary responsibilities extend beyond the selection of a third-party administrator, and include the duty to monitor the performance of a third-party administrator. This scenario provides yet another example in which an employer can face a breach of its fiduciary responsibilities even though a third-party administrator was retained.

Compliance with the duty to monitor a third-party administrator requires, at a minimum, formal reviews at reasonable intervals to decide whether to retain the third-party administrator or look for a replacement. Monitoring efforts should include:

Reviewing the third-party administrator’s performance;
Reading any reports they provide;
Checking actual fees charged;
Asking about policies and practices (such as trading, investment turnover, and proxy voting); and
Following up on participant complaints.

In addition to complying with all fiduciary obligations, a plan is required to obtain a fidelity bond to protect the plan’s assets. A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. Such bonds do not typically protect the fiduciary from personal liability; rather, it only protects the assets of the plan.

Those seeking to protect against the personal liability of fiduciaries may obtain fiduciary liability insurance. Fiduciary liability insurance generally covers the discretionary decisions made by fiduciaries which may be the source of litigation. Since retirement plans are often targets for litigation, fidelity liability insurance is a necessity in today’s environment, especially considering that the frequency and costs of such claims are increasing at a staggering pace.

Given the importance of 401(k) and other employee benefit plans in today’s workplace, it is unlikely that employers will stop making such plans available to their workforce. As a result, employers will continue having to deal with ERISA’s obligations and liabilities. This means that the risks associated with being a fiduciary must be considered and controlled. Otherwise, significant personal liability could result.

Setnor Byer Insurance & Risk’s 401(k) Division is available for a complimentary ERISA compliance assessment. If you would like to take advantage of this benefit, please contact Katie Grimmer.

The average premium for a mid-sized fiduciary liability bond is $1,000. Download anERISA Fiduciary Bond application.

Counting Employees for COBRA

If an employer has 13 full-time employees, each of whom works 40 hours per week, and 10 part-time employees, each of whom works 20 hours per week, can this employer qualify as a “small-employer plan” under the Consolidated Omnibus Budget Reconciliation Act (COBRA)?

Yes. After a qualifying event, COBRA gives certain former employees the right to elect temporary continuation of health care coverage at the employer’s group rates. COBRA’s continuation of coverage requirement does not apply to a small-employer plan, which is a group health plan maintained by an employer who normally has employed fewer than 20 employees during the preceding calendar year. Although all full-time and part-time employees are taken into account when determining whether an employer had fewer than 20 employees, each group of employees is counted differently. A full-time employee counts as one employee. However, each part-time employee counts as a fraction of an employee, with the numerator (the top number) of the fraction equal to the number of hours worked by the part-time employee, and the denominator (the bottom number) equal to the number of hours that must be worked on a typical business day to be considered a full-time employee.

Though this formula may sound complicated, it’s fairly easy to apply. In the situation at hand, the employer’s 10 part-time employees work 20 hours per week out of the 40 hours per week ordinarily worked by full-time employees, thus producing a fraction of 20/40, or ½. Therefore, each part-time employee is counted as ½ of an employee. Ten employees counted as “half” an employee equals 5 “whole” employees, which, when added to the number of full-time employees, 13, total 18 employees. Since this number is fewer than 20, this employer may qualify as a small-employer plan.

Family & Medical Leave Act – Armed Forces

In light of recent military-related amendments to the Family and Medical Leave Act (FMLA), should I update the FMLA notice currently posted in my employees’ break room?

Yes. The Family and Medical Leave Act (FMLA), which generally applies to employers with 50 or more employees, was enacted to balance the demands of the workplace with the needs of families by allowing covered employees to take reasonable leave for medical, health, or family reasons. On January 28, 2008, President Bush signed into law the National Defense Authorization Act (NDAA), which includes a provision that allows eligible employees to take up to 26 workweeks of leave during a 12-month period to provide needed care for a family member who suffers a serious illness or injury while on active duty in the Armed Forces. The NDAA also provides that eligible employees are entitled to a total of 12 workweeks of leave “because of any qualifying exigency (as the Secretary shall, by regulation, determine)” arising out of a family member’s active duty in the Armed Forces.

The regulations interpreting the FMLA, as originally enacted, require that every covered employer “post and keep posted on its premises, in conspicuous places where employees are employed…a notice explaining” the FMLA’s provisions and providing information concerning the procedures for filing complaints of violations of the FMLA. Even though the Department of Labor (DOL) has yet to address the NDAA in its regulations, the DOL did create the “FMLA Poster Insert for Military Leave Amendments,” which generally describes the recent military-related amendments to the FMLA. Until the DOL amends the general FMLA Poster to include the NDAA amendments, covered employers would be wise to post both the original poster and the insert in a conspicuous place on their premises.

Exception to the Going and Coming Rule: Workers’ Compensation

Pursuant to Florida’s workers’ compensation laws, an employer is generally required to pay compensation or furnish benefits to an employee who is injured on the job. To be considered compensable, an employee’s injury must arise out of and in the course of his or her employment. This requirement prevents the workers’ compensation system from becoming an insurance policy of general applicability. And, it is this requirement that generally operates to prevent the recovery of workers’ compensation benefits by employees injured while commuting to and from work.

Specifically, the relevant Florida statute provides that “an injury suffered while going to or coming from work is not an injury arising out of and in the course of employment….” This provision, known as the “going or coming” rule, reflects the principle that an employee’s commute to and from work is not considered to be in the course and scope of employment.

Regardless of whether one considers such an assumption to be arbitrary, since an employee cannot get to work without actually travelling to work, a line had to be drawn somewhere along the continuum of an employee’s efforts in preparing for and getting to work . And, Florida’s “going and coming” rule operates to draw that line at an employee’s arrival at the workplace. However, there are instances in which an employee injured during his or her commute may be entitled to workers’ compensation benefits.

One such exception to the “going and coming” rule, often referred to as the dual purpose doctrine, provides that “an injury which occurs as the result of a trip, a concurrent cause of which was a business purpose, is within the course and scope of employment, even if the trip also served a personal purpose, such as going to or coming from work.” Such a situation could arise, for example, in a case where an employer asks an employee to run an errand for the employer during the employee’s commute.

The basis for this exception is found in the same statute which codified the “going and coming” rule, and it provides that the “going and coming” rule applies, “unless the employee was engaged in a special errand or mission for the employer.” If an employee is found to have been engaged in a special errand or mission for the employer, then an injury occurring during such efforts by the employee may ultimately be considered within the course and scope of employment, thereby making such injury compensable.

While the dual purpose exception to the “going and coming” rule may appear simplistic in its description, it is anything but simple in its applicability. The extent and importance of the errand or mission will face significant scrutiny before the issue of compensability is resolved. The analysis is fact intensive and generalized rules of broad applicability should be treated with caution.

While the precise applicability of the “going and coming” rule’s dual purpose exception may not necessarily be predicted accurately or consistently without the assistance of professional guidance, it is important that employers understand the possible consequences of sending employees on work-related errands or missions on their way to or from work. By understanding all of the risks involved in a specific course of action, employers are in a better position to not only make informed decisions, but to control those risks which may significantly harm an organization.

To learn more about how Florida’s workers’ compensation laws affect your business, contact us.

Remember the HIRE Act!

Despite the passage of the Hiring Incentives to Restore Employment Act, or HIRE Act, some employers are not taking advantage of the benefits afforded by the law. Since these benefits currently only apply to qualified individuals hired before January 1, 2011, employers should make every effort to avail themselves of the incentives available under the Act.

Under the HIRE Act, employers who hire unemployed workers before January 1, 2011 may qualify for a 6.2% payroll tax incentive, which will effectively exempt employers from their share of Social Security taxes on wages paid to such workers through the end of the year. Additionally, for each worker retained for at least a year, employers may claim an additional general business tax credit of up to $1,000 per worker when they file their 2011 income tax returns.

The HIRE Act’s incentives are available to any employer “other than the United States, any State, or any political subdivision thereof, or any instrumentality of the foregoing.” Additionally, the Act’s incentives only apply to wages paid to “qualified individuals.” Under the Act, a qualified individual means any individual who:

Begins employment with a qualified employer after February 3, 2010, and before January 1, 2011;
Certifies by signed affidavit, under penalties of perjury, that such individual has not been employed for more than 40 hours during the 60-day period ending on the date such individual begins such employment;
Is not hired by the qualified employer to replace another employee unless such other employee separated from employment voluntarily or for cause; AND
Is not “related” to the employer, which means the individual is not a child or descendent of the child, a sibling or stepsibling, a parent or ancestor of a parent, a stepparent, niece or nephew, aunt or uncle, or in-law. An employee is also considered related if he or she is related to anyone who owns more than 50% of the outstanding stock or capital and profits interest of the employer, or is a dependent of anyone who owns more than 50% of the outstanding stock or capital and profits interest.

Under the HIRE Act, businesses, agricultural employers, tax-exempt organizations, and public colleges and universities qualify to claim the payroll tax benefit for such newly-hired qualified individuals. However, household employers cannot claim the benefit.

The Internal Revenue Service created Form W-11, “Hiring Incentives to Restore Employment Act Employee Affidavit” for the purpose of allowing an individual to swear to his or her status as a qualified individual. Although an employee is not required to use this form to state, under penalty of perjury, that he or she is a qualified individual, it is recommended. Upon receiving a completed Form W-11, employers must retain it with other payroll and income tax records.

Employers can claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS, and they will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010.

Although it is not yet clear precisely how the IRS will go about ensuring the proper use of the HIRE Act’s incentives, it is fair to say that those caught abusing the system by fraudulently taking the credits will be dealt with harshly. Accordingly, it would be wise for employers to proceed cautiously in this regard and make every effort to ensure compliance with the Act’s provisions.

According to the commissioner of the IRS, “these tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead.” Although these incentives will not operate to generate unnecessary hires, an employer whose business needs demand the hiring of a qualified individual would be wise to accept the incentives offered by the HIRE Act while they can.

If you would like more information, please contact us.

Independent Contractor or Employee? Answering Incorrectly Can Prove Costly

Determining whether a new worker should be classified as an employee or an independent contractor has always been an important decision. The choice is not always an easy one, and the absence of a clear-cut rule of universal application often leads to inadvertent misclassifications. Moreover, the lack of a clear rule, coupled with the potential organizational benefits resulting from classifications of convenience, also open the door for manipulation and abuse.

Classifying a worker as an independent contractor rather than an employee may benefit an organization in various, often significant, ways. For example, an employer must generally withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes on wages paid to an employee. Since these obligations do not generally carry over to independent contractors, a business can experience significant cost reductions by classifying individuals as independent contractors rather than employees. Additionally, since amounts paid to independent contractors are not typically included in payroll calculations, a business can effectively reduce its workers’ compensation insurance premiums by classifying employees as independent contractors. Thus, the decision to classify an employee as an independent contractor can result in significant financial benefits.

The deliberate misclassification of employees as independent contractors in order to reap these benefits is tantamount to theft in the form of unpaid taxes. Since the amount of lost revenue is significant, the federal government is undertaking aggressive initiatives designed to catch those organizations participating in employee misclassification.

One report suggests that the federal budget assumes the government will collect approximately $7 billion over the next ten years through a federal crackdown on employee misclassification. The budget also allocates approximately $12 million and 90 new investigators for the express purpose of catching violators. Additionally, the Internal Revenue Service announced that it is planning to randomly audit thousands of employers to prevent misclassifications and, more importantly, collect unpaid taxes, fines, and penalties.

Given this increased scrutiny, it has never been more important for businesses to properly classify their workforce. Unfortunately, a simple rule or standard does not exist for making this determination. Rather, the nature of the relationship must be considered on a case-by-case basis by looking at all the facts of a particular situation.

The first step is to know the difference between an employee and an independent contractor. According to the IRS, anyone who performs services for a business is an employee if the employer can control what will be done and how it will be done. This is true even if the employee has freedom of action. What matters is that the employer has the right to control the details of how the services are performed. By contrast, a person is an independent contractor if the business for which the services are performed has the right to control and direct only the result of the work and not the means and methods of accomplishing the result.

Thus, the degree of control and independence are the critical factors for determining the nature of the relationship. According to the IRS, evidence of the degree of control and independence fall into three categories.

Behavioral. Does the company control or have the right to control what the worker does and how the worker does his or her job? One element to this category involves examining the type and degree of instructions that the business gives to the worker. Employees are generally subject to instructions about when, where, and how to work. Instructions may detail when and where to do the work, what tools or equipment must be used, where to purchase supplies/services, and what order the work must be done. Employees may be trained to do the job, whereas independent contractors ordinarily use their own methods. The key consideration is whether the business has retained the right to control the details of a worker’s performance or instead has given up that right.
Financial. Are the business aspects of the worker’s job controlled by the payer? Facts that show whether the business has a right to control the business aspects of the worker’s job include: the extent to which the worker has unreimbursed business expenses (independent contractors are more likely to have unreimbursed expenses); the extent of the worker’s investment (independent contractors often have a significant investment); the extent to which the worker makes his services available to others (independent contractors often work for others and advertise); how the business pays the worker (employees generally get a guaranteed wage whereas independent contractors usually get a flat fee); and the extent to which the worker can realize a profit or loss (an independent contractor can make a profit or a loss on a job).
Type of Relationship. Are there written contracts or employee type benefits? Additionally, relevant facts include the permanency of the relationship and whether the services performed by the worker are a key aspect of the regular business of the organization.

Businesses must weight all these factors when determining whether a worker is an employee or independent contractor. While some factors may indicate an employment relationship, others may suggest that the worker is an independent contractor. Unfortunately, there is no magic combination or set number of factors that make a worker one or the other. Since it is the entirety of the circumstances that must be considered, no one factor stands alone. Moreover, since each situation is specific, factors which may be relevant in one case may not be relevant in another.

This analysis must be undertaken for each individual worker or category of worker. Since different circumstances can affect the relevancy of any specific fact, it is very difficult to develop a one-size-fits-all approach to making this determination. The key is to look at the entire relationship, including any specific or unique facts, and consider the degree or extent of the right to direct and control.

Given the severity of the consequences for improperly classifying a worker, it may be necessary to seek the assistance of a licensed professional. Alternatively, a business or a worker may request a determination by the IRS by submitting Form SS-8 to the IRS; however, it can take up to six months to get a response. In any event, guessing at the right answer, or even worse, deliberately misclassifying workers can result in severe consequences. And, given the government’s renewed focus on finding violators, the chances of proceeding undetected have significantly decreased.

If you would like more information, please contact us.

Converting a Safe Workplace into Lower Workers’ Compensation Insurance Premiums

In many states, including Florida, workers’ compensation insurance rates are set by the state, which means that regardless of which insurance company ultimately provides the insurance, the rates remain the same. Therefore, unlike with other types of insurance, consumers are limited in their ability to go bargain shopping for workers’ compensation insurance. However, this lack of bargaining power does not necessarily mean that employers are powerless to reduce their premiums. There is one way employers can lower the cost of their workers’ compensation insurance: maintain a safe working environment.

Workers’ compensation insurance provides indemnity and medical benefits to employees who are injured on the job. Each time an employee files a workers’ compensation claim, the insurance company must make a payment on the claim. Needless to say, insurance companies prefer insuring safe, or safer, workplaces because there are presumably fewer claims to pay, thereby increasing the company’s profits.

Thus, in an effort to encourage employers to maintain a safe working environment and to reward those that successfully do so, experience modification ratings are used to adjust an employer’s workers’ compensation premiums. Those employers who experience fewer or no claims are rewarded with a credit toward their premiums, while those employers who experience a higher number of claims may face increased premiums.

Determining an employer’s experience modification rating, or experience mod, involves fairly detailed and complex calculations which are designed to tailor the final premium cost to the employer’s actual claims experience. In short, the experience mod compares an employer’s actual workers’ compensation claims experience, typically over a three year period, with that of other employers operating in the same type of business with a similar number of employees.

If an employer’s claims experience is consistent with the industry average, then the experience mod is 1.0, which when multiplied by the base premium, will not serve to increase or decrease the premium. However, if an employer’s claims experience is 25% better than the industry average, then the experience mod will be .75, which when multiplied by the base premium, will decrease the premium by 25%. Alternatively, if an employer’s experience is 25% worse than the industry average, then the experience mod will be 1.25, which will operate to increase the premium by 25%. Therefore, by maintaining a safe workplace, employers can significantly reduce their workers’ compensation premiums.

In addition to having this basic understanding of the experience modification rating process, it is helpful to know some of the features of the rating process so an employer can tailor its safety and loss control procedures to maximize the benefits afforded by the experience mod.

For example, since the cost of a specific workplace injury is statistically less predictable than the likelihood of an occurrence of an injury, the experience mod places greater weight to accident frequency than it does to accident severity. In other words, an employer having one loss totaling $100,000 compared to an employer having 10 losses totaling $100,000 will have a better experience mod. This is because the employer suffering one loss is seen as the more stable risk. And, given the unpredictability of the total cost of an injury, the experience mod calculation takes into consideration the possibility that any single injury could have astronomical costs, thereby making a higher frequency of claims a greater risk than a single, expensive claim. Since a workplace with a higher frequency of claims involves a greater risk, the experience mod will operate to make the premiums higher.

Employers should also know that medical-only claims do not have as much of an impact on the experience modification as do indemnity claims. Since the calculation reduces the value of medical-only claims by 70%, employers are not necessarily penalized when they occur. Moreover, the existence of open claims, or claims that have not yet been resolved, can negatively impact the experience mod, so employers benefit from getting claims resolved and closed.

In addition to adjusting an employer’s experience mod, some insurance companies may reward employers by offering payments, typically called dividends, to insureds that eliminate or otherwise limit the number of claims filed by their employees. These dividends, which are generally reserved for the most attractive risks, are usually based on a sliding scale wherein the amount of the dividend decreases as the number of claims increases. However, it is important not to get too caught up in the most generous dividend percentage. For example, if an employer has a history of at least four workplace injuries per year, then it is unrealistic to focus on the dividend percentage that is available only to those insureds experiencing no injuries. The best approach is to compare dividend percentages that comport with an employer’s specific claims history.

Understanding all the aspects of the workers’ compensation experience modification rating system, including the manner in which it can be addressed to achieve the maximum benefit, can be overwhelming. That is why it is important to utilize the services of an insurance agent who is familiar with not only the ins-and-outs of the experience mod rating system, and available dividend plans, but who can also provide information regarding loss control and workplace safety.

Despite the lack of competitive premiums in some states, maintaining a safe work environment remains the best way to reduce the cost of workers’ compensation insurance. By understanding the nature of the workplace, including procedures which may be incorporated to reduce the number of claims, the right insurance agent can work with the insurance company to ensure claims are treated appropriately in order to take advantage of the benefits afforded by the experience modification rating system.

If you would like more information about obtaining workers’ compensation insurance for your organization, contact us.

Did You Know That an Employer Can be Liable for Employee Injuries Sustained at Company-Sponsored Events?

It’s settled law that workers’ compensation insurance covers employees when their injuries “arise out of and in the course and scope of employment.” But it’s possible that employees who are injured while participating in company-sponsored recreational activities may also qualify for workers’ compensation. This determination of coverage is both state- and fact-specific, with each state applying its own interpretation of whether injuries “arise out of and in the course of employment” when they occur as a result of employer-sponsored activities.

Florida, California, Texas, New York, Michigan, Oregon, and Colorado are among the states with strict statutory provisions specifying that employee injuries arising out of voluntary recreational activities are not compensable – unless the employer directly or indirectly requires participation and stands to gain substantially from the activity. Other states apply more lenient standards when making their determinations.

Thus, compensation decisions often hinge on whether the activity is deemed truly voluntary. If an employee feels that he or she has been forced into participating or is worried that not participating will result in a penalty of some sort, then the employee’s decision may be deemed involuntary, and any injuries he or she suffers, as a result, will be covered. Ultimately, the trigger for workers’ compensation coverage is the particular set of facts in an individual case.

It should also be noted that the employer need not actually “host” the event for liability to be imposed. For example, if an employer directs its employees to attend an event sponsored by a customer, workers’ compensation liability may nonetheless exist because in this instance, the employer has required the employee to attend and will benefit from the goodwill generated by the staff toward the customer.

Generally, employer-sponsored picnics, sports events, recreational leagues, and company retreats are meant to foster team building, inspire loyalty, and boost employee morale. Such events are usually well-received by employees and may serve as a reward for hard work. However, employers would be wise to consider the potential risks involved when planning these events. To minimize exposure, employers should:

Make clear to employees that attendance and participation are not mandatory; and
When possible, plan events away from the company premises and on weekends to support the argument that the events are social and not work-related.

When these and other appropriate risk-management measures are taken, the likelihood increases that employer-sponsored recreational events will not only be great successes but won’t result in workers’ compensation claims.

For further guidance on this topic, please contact our Risk Management Team.

Alternative Group Benefits: Another Option for Employers Coping with Rising Healthcare Costs

Every American is painfully aware of the impact of skyrocketing health insurance costs. Rising premiums, higher deductibles, larger co-pays, reduced benefits – both employers and employees are feeling the pinch as they look for plans that are affordable for everyone.

That’s why HRAs – Health Reimbursement Arrangements – are a welcome addition to the range of options that employers can offer their workforce. HRAs allow employers to give tax-free dollars to their employees, who then can use the money to purchase their own health insurance as well as pay for other eligible medical expenses. While HRA plans may not be the panacea for all the “ills” of the health insurance dilemma, they represent significant progress from the point where we were even just a few years ago when I first began to tackle this problem.

Then, in January 2002, fresh out of college, I was hired to administer a group health plan for my parents’ company. Though I knew little about health insurance, I learned quickly that the premiums we were paying were too expensive for both the company and our employees. After doing extensive research and reading numerous Internal Revenue Service (IRS) publications relating to health care, I uncovered one solution for the family business: a High Deductible Health Care (HDHC) plan. The high deductible encourages employees to make healthier lifestyle choices and spend their medical dollars more prudently while also allowing them to save for future medical expenses in their Health Savings Account (HSA), funds that they can take with them if they change jobs. The HDHC is good for employers also: Under the plan, our premiums were reduced by about half.

Not stopping there, we also began to offer HRAs as an alternative to our HDHC Group plan. Our hybrid benefits package gave employees a choice: Those who felt more comfortable remaining on the traditional HDHC group plan did so, while employees who wanted greater economy, portability, and freedom of choice opted for the HRA. We structured the packages so that employees choosing either plan received the same amount in benefits. The plans’ common denominator is that both increase employees’ awareness of how they spend their health dollars, thus encouraging them to live a healthier lifestyle because, quite simply, it saves them money to do so.

In 2007 The Wall Street Journal took note of our success and wrote a cover story on our creative benefits packages. Increasingly, employers asked me to assist them in designing an HRA or a hybrid plan for their businesses, even though I was not then an insurance agent. But after years of administering (and participating in) an HRA/Group Plan hybrid, I decided to change my career path and obtained a health insurance license, allowing me to use what I had learned to assist other small businesses.

However, finding an agency that provided both group and individual health insurance and that was sufficiently forward-thinking to consider these newer options was more difficult than I had anticipated. Surprisingly, I found that many agents in the mainstream insurance industry know little about HRAs, particularly those plans in which employees can access a broad range of products from different providers.

After pitching dozens of insurance agencies on employer-based hybrid health care plans, I finally found an agency willing and able to offer these cutting-edge health insurance solutions: Setnor Byer Insurance & Risk, which recognized the advantages of hybrid plans and was excited about offering their clients and prospects an even fuller range of cost-saving options.

Setnor Byer, with almost 30 years of experience in the insurance industry, can help employers expand their benefits offerings, promote wellness in their workforce, and reduce health insurance costs for both the company and its employees. With dozens of plan structures available, Setnor Byer’s insurance professionals will help you choose the right one so that your employees – and your business – remain healthy.

Here’s to wellness.

For more information about these and other types of healthcare insurance policies, contact the professionals at Setnor Byer Insurance & Risk or visit the Employee Benefits page.

Safety in Numbers: Monitoring Your Health

The numbers don’t lie: According to PricewaterhouseCoopers’ Health Research Institute, medical costs for 2009 will increase by almost 10 percent, significantly outpacing the current rate of inflation. In response to these skyrocketing costs, the Institute also reports on the increasing popularity of workplace wellness programs, which not only lower insurance costs but boost productivity and improve morale. Here is some vital information that you and your employees need to know about staying healthy and keeping healthcare expenses down.

More and more, we have come to accept the fact that good health is largely a matter of individual responsibility. An important step toward fulfilling that responsibility is to monitor those numbers that are essential for maintaining good health. With that in mind, do you know the significance of the following numbers to your health:

120/80?
30?
2400?
8?
40 and 35?

Knowing what these figures mean and taking the necessary steps to get those numbers within a healthy range are essential for reducing the risk of cardiovascular disease, a leading cause of death.

Perhaps the most important numbers of all are those that make up the ratio 120/80; according to the American Heart Association, the optimal blood pressure for adults should be below 120/80. Blood pressure, the measure of the force of the blood through the artery walls when the heart is pumping and relaxing, may be thought of as a water balloon. The water in the balloon creates pressure inside the balloon walls. At a certain point, the water compromises the integrity of the wall, and the balloon bursts. Sustained high blood pressure, known as hypertension, is a known risk factor for heart attack and stroke. That’s why individuals should monitor their blood pressure and make sure it stays under the 120/80 limit.

“30” is the minimum number of minutes of daily exercise that experts recommend for maintaining cardiovascular health, with more recent studies suggesting that 60 minutes of brisk exercise on most days of the week is optimal. Remember, though, that some exercise is always better than no exercise, so don’t get discouraged if you find that you can’t reach the 60-minute threshold. And if you have difficulty squeezing in a 30-minute block of exercise into your busy schedule, get your exercise in 3 10-minute sessions, making sure to work at a brisk pace each time.

Because salt intake is a risk factor for high blood pressure, medical professionals recommend that an individual’s daily salt intake not exceed 2400 milligrams. “Salt” goes by many different names, so be sure to read carefully the lists of ingredients on the foods you eat (particularly processed foods) to check for salt’s many “aliases”: sodium chloride; sodium caseinate; halite; monosodium glutamate; trisodium phosphate; sodium ascorbate; sodium bicarbonate; sodium stearoyl lactylate; and other sodium-containing ingredients. Try to stay below that figure of 2400 milligrams per day.

Are you getting 8 hours of sleep every night, the number that has long been considered optimal for the body to sufficiently rest? The right amount of sleep each night allows the body to repair and rebuild muscle, including the body’s most important muscle – the heart. Tips for getting a good night’s sleep include the following:

Avoid caffeine three hours prior to bedtime.
Keep your room at a comfortable temperature.
Use room-darkening shades that keep out excess light.
Stick to a ritual of going to bed at the same time each night.
Avoid alcohol.
Keep a pencil and paper at your bedside to make lists of those “busy” items that can run through your head at night and keep you awake.
Choose healthy foods, such as milk, apples, and peanut butter, as bedtime snacks.

A simple tape measure is not just an essential tool for tailors and dressmakers; men and women should keep one handy to measure their waist lines. Recent studies suggest that the circumference of a man’s waist should be below 40 inches, a woman’s below 35 inches, to lower the risk of high blood pressure, diabetes, and heart disease. To accurately determine your waist size, place the tape measure directly over your belly button – and don’t pull it too tightly to get a lower number!

Keeping track of these numbers that are essential for good health should be on every individual’s “to do” list. To the extent that good choices can make a difference in improving health, doing what we can to keep our numbers within the normal range may increase the quality of our lives and spare us the physical, emotional, and financial costs of getting sick.

® 2008, Summit Health. Reprinted with permission.