Benefits – Page 3 – Setnor Byer Insurance & Risk

New Health Insurance Notice Requirements for Employers

Thanks to the Affordable Care Act, the Fair Labor Standards Act (FLSA) is moving beyond its traditional role as the nation’s principal wage and hour law. In addition to establishing minimum wage, overtime pay, recordkeeping and youth employment standards, the FLSA now deals with health insurance.

Under the amended FLSA, employers must notify employees that:

Affordable Insurance Exchanges exist, along with a description of the services provided by Exchanges and how to request assistance from an Exchange
If their employer’s health plan pays less than 60% of allowed costs the employee may be eligible for a premium tax credit and a cost sharing reduction if the employee purchases a qualified health plan through an Exchange
If the employee purchases a qualified health plan through the Exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer

Employers must distribute this notice to every current employee by March 1, 2013. Employees hired after this date must receive their notice upon being hired.

The precise form and content of the notice, as well as acceptable means for providing the notice, are not yet certain. The law states that employers must provide notice “in accordance with regulations promulgated by the Secretary.” Presumably, these regulations will clarify what should be included in the notice and how it can be provided to employees.

Despite the current lack of regulations, it is reasonable to assume that the FLSA’s broad definition of “employer” means that most employers will need to comply with the new notice requirement. Similarly, the FLSA’s broad definition of “employee” means that every employee, regardless of status, will likely be entitled to receive this notice.

Consequently, employers need to be ready to comply with the notice requirement by March 1, 2013, especially since the penalty for violating this requirement is unknown.

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates about health care reform. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

Health Care Reform: What are SHOPs?

To help small businesses provide health insurance to their employees, the Affordable Care Act created Small Business Health Options Programs, or SHOPs. Starting in 2014, SHOPs will be available to eligible businesses with up to 100 employees—although states can limit participation to businesses with up to 50 employees until 2016.

Once up and running, it is anticipated that SHOPs will help small businesses by:

Simplifying Choices. SHOP plans will provide essential health benefits like those covered by a typical employer health plan. These plans will be placed in four “tiers” depending on the coverage provided. SHOPs will provide side-by-side comparisons of available plans, with information about benefits, premiums, and quality. SHOPs will also enroll employees and consolidate billing.
Expanding Options. SHOPs will allow eligible employers to offer a variety of Qualified Health Plans from several insurers. These employees will then be able to choose a plan that best fits their needs and budget.
Preserving Control. Small businesses will be able to decide whether and when to participate in SHOPs, to choose their own level of employee contribution and to make a single monthly payment to the SHOPs rather than to multiple plans.
Lowering Costs. SHOPs will be designed to save money by spreading insurers’ administrative costs across more businesses. Additionally, small businesses using SHOPs may be eligible for tax credits.

Since SHOPs will be a part of the Affordable Insurance Exchanges, states have flexibility in determining how they will be structured. Until decisions are made and Exchanges are implemented, we will not know if these SHOPs will accomplish everything they are designed to do.

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

Affordable Care Act and its Impact on your Bottom Line

All employers, both large and small, are concerned about the rising cost of healthcare. It is the belief of many that the Affordable Care Act will ultimately resolve both the issue of affordability and availability. Yet, there are others who may very well represent the majority of business owners, who suggest that the Affordable Care Act was designed and implemented in haste, providing broader benefits to a greater population of U.S. residents without, first, driving at the triggers to cost in our American healthcare system.

Fortunately or unfortunately, the debate about the Affordable Care Act will not be resolved for quite some time. In the interim, it is probable that health insurance costs will continue to rise. For this reason, every employer needs to work closely with their professionals to monitor the impact of the Affordable Care Act on their health insurance costs, and remain informed about creative options, including High Deductible Plans and Self-Insurance.

For small employers, the new Health Insurance Exchanges set to be operational by 2014, may present yet another option. These Exchanges remain ill-defined and their ability to improve the group benefits shopping experience is questionable given the complexity of the product(s) and the question of who exactly will be engaged or employed by government to help field inquiries. Fortunately, many insurance professionals have built Healthcare Advocacy teams to assist in the navigation of the new Exchanges.

In the next several years, there will be many changes to our healthcare system, including a laser focus on wellness, primary care delivered by nurse practitioners, reductions in costly screenings for low-risk individuals, new challenges to medical treatments, shifting providers, and more. Human Resources and Benefits Coordinators need to be prepared to communicate these changes and manage the ‘emotionally charged’ aftermath.

With all the changes anticipated, some good, and some bad, the following are particularly noteworthy:

Through 2013, businesses with fewer than 25 full-time equivalent employees, which pay average annual wages below $50,000 and provide health insurance, may qualify for a small business tax credit of up to 35% (up to 25% for non-profits) to offset the cost of insurance.
Starting in 2014, the small business tax credit goes up to 50% (up to 35% for non-profits) for qualifying businesses.
Under the Act, employer-based plans that provide health insurance to retirees ages 55-64 can get financial help through the Early Retiree Reinsurance Program, which is designed to lower the cost of premiums for all employees and reduce employer health costs.
In 2014, small businesses with generally fewer than 100 employees can shop in an Affordable Insurance Exchange. These Exchanges are designed to create a new marketplace where individuals and small businesses are guaranteed health plans regardless of medical history. Health benefit plans must meet certain benefits and cost standards to be available through an Exchange.
Employers with fewer than 50 employees are exempt from the Act’s employer responsibility provisions, which assess a penalty on larger businesses that fail to insure their employees in certain circumstances.
In 2014, businesses with 50 or more full-time employees will generally be required to offer adequate health insurance or pay a penalty assessment.
Businesses with more than 200 full-time employees will have to automatically enroll new employees in their health insurance plan and provide an opportunity to opt out of coverage.

At Setnor Byer Insurance & Risk, we are committed to guiding you through the next several years of change. Check back with us often for updates on the American Healthcare System and the Affordable Care Act by calling us directly at 1-888-253-8498 or by emailing specific questions to HealthAgents@setnorbyer.com

Clearing a High Health Insurance Hurdle: the Pre-Existing Condition Insurance Plan (PCIP) Program

There is a new option for those who are uninsured because of a pre-existing condition—the Pre-Existing Condition Insurance Plan (PCIP) program. Created by the Patient Protection and Affordable Care Act (the health reform law), the PCIP is designed to make health coverage available to those with pre-existing conditions. Importantly, the PCIP does not cost enrollees more just because of their medical condition.

The U.S. Department of Health and Human Services runs the PCIP program in twenty-three states and is contracting with a national insurance plan to administer the program. These states are: Arizona, Alabama, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, Nevada, Nebraska, North Dakota, South Carolina, Tennessee, Texas, Vermont, Virginia, West Virginia, Wyoming, as well as the District of Columbia.

The remaining states are running their own pre-existing condition insurance plan programs. As a result, application procedures, costs and benefits for these state-run programs may differ not only from the federally-run PCIP, but also from other states.

Under the federally-run PCIP program, a broad range of health benefits are covered, including primary and specialty care, hospital care and prescription drugs. Benefits provided by these PCIPs are available even if they are used to treat a pre-existing condition.

To qualify for coverage under the PCIP program, a person:

Must be a United States citizen or legal resident;
Must have been without health coverage for at least the previous six months; and
Must have a pre-existing condition or have been denied coverage because of health a condition.

The PCIP program offers three plan options:

The Standard Plan;
The Extended Plan; and
The HSA Plan.

Each plan has its own premiums, calendar year deductibles, prescription deductibles, and co-payment requirements. However, all three plans pay for preventive care at 100%, with no deductible when a preventive diagnosis is indicated by an in-network doctor. Preventive care includes annual physicals, flu shots, routine mammograms, and cancer screenings. For non-preventive care, insureds staying in-network will pay 20% of their medical costs after satisfying the deductible.

Despite being a federally-run program, PCIP premiums may vary by state. For example, premiums are higher in Texas than they are in Florida.

In Florida, the monthly premiums for people 18 years old or younger are $118 for the Standard Option, $158 for the Extended Option, and $122 for the HSA Option. In Texas, the premiums are $133 for the Standard Option, $179 for the Extended Option, and $138 for the HSA Option. Similarly, those living in Florida ages 35 to 44 years old will pay $211 for the Standard Option, $284 for the Extended Option, and $220 for the HSA Option. In Texas, the monthly premiums are $239 for the Standard Option, $323 for the Extended Option, and $248 for the HSA Option.

Under this program, the first premium payment is due within 30 calendar days from the date an approval letter is received; otherwise the application will be cancelled. The effective date of coverage depends on the date the application and all supporting documents are received by the PCIP. If the documentation is received on or before the 15th of the month, coverage will be effective on the first day of the next month. If documentation is received after the 15th of the month, coverage will be effective on the first day of the second month.

If an application for coverage under the PCIP is denied, the applicant will receive a letter explaining the reasons for such denial. These applicants have 45 days to file an appeal of their denial, if they so desire. Otherwise, they are free to re-apply for PCIP coverage upon meeting the eligibility requirements.

The PCIP program is only available until 2014. This is because in 2014, insurance companies will be prohibited from refusing to sell coverage or renew policies because of a person’s pre-existing condition. Additionally, in 2014, individuals whose employers don’t offer them insurance will be able to buy insurance directly in a health insurance exchange.

For those who have been unable to get health insurance due to a pre-existing condition, the PCIP program may be the solution they have been looking for. However, given the disagreement and uncertainty surrounding health care reform, even after the Supreme Court upheld nearly every provision of the law, only time and experience will tell if the PCIP program is in fact what it was designed to be.

At Setnor Byer Insurance & Risk, we are committed to guiding you through the rapidly changing health care landscape. Be sure to check back with us periodically for future informational updates. In the meantime, if you have specific questions about health care reform or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

Healthcare Reform Prompts Many to Explore Alternatives to Health Benefit Programs

The passage and continued implementation of Healthcare Reform, as well as its uncertain political future, have placed employers in a precarious position with their health benefit programs. Nevertheless, employers continue to do their best to balance the need to attract smart and sophisticated employees by offering well-rounded health benefit programs with the costs of providing such programs.

It is important that employers succeed in their balancing act because health benefit programs remain pivotal in attracting and retaining top-notch employees. According to a study performed by MetLife, employees make the financial security and protection of their families a top priority, and many believe that this requires sound health benefit programs. According to the study, employees who are satisfied with their health benefit programs are more likely to remain satisfied with their jobs from year to year.

Research done by the Personal Group revealed that 40% of employers plan to review their health benefit programs, and that employers are beginning to explore the various options that will (or may) be available to their employees under Healthcare Reform. According to a Towers Watson’s 2012 HealthCare Trend Survey, in 2014, when healthcare exchanges are scheduled to become available, employers will begin to reconsider and redefine their role in providing healthcare benefit programs in light of the new options. Since healthcare exchanges will give employers an alternative to the traditional sponsoring of health benefit programs, many employees are beginning to view individual health care plans as a viable option.

At Setnor Byer Insurance & Risk, we have been successful in finding attractive solutions for those of our clients exploring new options. We would be pleased to have the opportunity to assist you in effectively navigating this transitional period, as well. Please visit our website at http://www.setnorbyer.com to view and compare our various health plan options.

Why Your ERISA Fidelity Bond is NOT Enough: The Case for Fiduciary Liability Insurance

A surprising number of employers offering employee benefit plans to their employees, including 401(k) plans, are refusing to purchase fiduciary liability insurance. Despite the dubious wisdom of refusing the insurance, the decision must be accepted if it was made with a complete and accurate understanding of all the facts. However, a significant number of employers may be deciding to forego fiduciary liability insurance because they believe their ERISA fidelity bond provides all the protection they need. Unfortunately, such a belief is wrong.

By virtue of offering an employee benefit plan, employers find themselves within the purview of the Employee Retirement Income Security Act (ERISA), thereby exposing their organization to significant risk. Although many of these risks can be covered by a fiduciary liability insurance policy, confusion and misunderstanding may prevent the employer from making an informed decision about whether to purchase the insurance. As a result, the employer rejects insurance that would otherwise have been accepted if the correct information was known and considered.

Given the significance of refusing such insurance, it is helpful to debunk some of the myths surrounding the meaning, need, and purpose of ERISA fidelity bonds and fiduciary liability insurance, so that those who may be in need of one or both of them, may make an informed decision.

Myth: There is little difference between a fidelity bond under ERISA and a fiduciary liability insurance policy. Fact: Although both may ultimately operate to replace a plan’s assets that were lost due to a wrongful act, any perceived similarities between the two are mostly superficial. The actual differences between the two, in terms of the purpose of the coverage, who is covered, what is covered, and coverage triggers, may render fidelity bonds and fiduciary liability insurance mutually exclusive in some cases.

Myth: Under ERISA, the fiduciary of a 401(k) plan has the option of purchasing a fidelity bond.

Fact: Fidelity bonds are mandatory. ERISA provides that “every fiduciary of an employee benefit plan and every person who handles funds or other property of such plan…shall be bonded.” ERISA generally requires the bond to be in an amount equal to at least 10 percent of the plan’s assets, as determined at the start of each fiscal year. However, the amount of the bond is subject to ERISA’s minimum of $1,000 and maximum of $500,000. [Note: Though not discussed in this article, ERISA does have defined exemptions to the bonding requirement.]

Myth: Every person involved with a plan must be bonded.

Fact: ERISA’s bonding requirement only applies to those described in the statute. If a person does not qualify as a fiduciary of an employee benefit plan or a person who handles funds or other property of the plan, then a bond is not required such person.

Myth: Fiduciary liability insurance is required by ERISA.

Fact: Although ERISA does not prevent a plan, a fiduciary, or an employer from purchasing fiduciary liability insurance, obtaining such insurance is not required by ERISA.

Myth: A fidelity bond protects a plan’s fiduciaries against liability.

Fact: Under ERISA, a fidelity bond must protect “the plan against loss,” not the fiduciaries. Although a fiduciary’s actions may serve as the trigger for coverage under the fidelity bond, the plan itself is the named insured.

Myth: A fidelity bond protects a plan against all losses, regardless of the cause.

Fact: A fidelity bond under ERISA protects the plan against losses caused only by “acts of fraud or dishonesty” on the part of a plan’s fiduciaries. If the cause of a loss is anything other than fraud or dishonesty, it will not be covered by the fidelity bond.

Myth: A fidelity bond protects plan fiduciaries from personal liability.

Fact: Under ERISA, a fidelity bond is limited to protecting only the plan against a loss, not the fiduciaries. This limitation is problematic for plan fiduciaries, since 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.”

Myth: I am not listed as a plan fiduciary, so I do not need to worry about fiduciary liability.

Fact: Under ERISA, a person may be deemed a fiduciary if that person uses discretion in administering and managing the plan, or controlling the plan’s assets. Indeed, fiduciary status is based on the functions performed for the plan, not just a person’s title with respect to the plan. Those who rely on their title to determine their own status may discover that, for purposes of ERISA liability, they are in fact a fiduciary.

Myth: It is unlikely that the fiduciary of a plan will ever breach the standards of conduct required by ERISA, so a fiduciary liability insurance policy is not necessary.

Fact: Since the responsibilities and loyalties of a fiduciary are strict and demanding, the chances of experiencing a breach cannot be fairly categorized as unlikely. The nature of the relationship requires that a fiduciary 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. For more information about the nature of a fiduciary’s obligations, read An Employer’s Liability under ERISA for 401(k) and Other Employee Benefit Plans.

Myth: Since the greatest risks to a plan’s assets always involve fraud or dishonesty, a fidelity bond is usually all that is needed to cover any losses.

Fact: While fraud and dishonesty pose a real threat to a plan’s assets, they are by no means the only threats. Breaches of the fiduciary duty can come in many forms which do not involve fraud or dishonesty, including: negligent errors and omissions; improper disclosures to plan participants; remiss investment advice; imprudent choice of outside service provider (OSP); faulty advice of counsel; and improper amendments to plan documents. None of these examples would be covered by a plan’s fidelity bond.

In addition to clearing up any confusion caused by the foregoing myths, these facts reveal that fiduciary liability insurance is necessary to maximize the level protection enjoyed by the plan’s fiduciaries, as well as the plan’s assets. The frequency of ERISA litigation involving employee benefit plans continues to increase as the economy remains sour. Expenses associated with defending these lawsuits, regardless of whether the plan breached its duties, can deplete critical assets. Moreover, in the event of litigation, plans electing to observe the statutory cap for fidelity bonds may discover the unfortunate fact that $500,000 is not nearly enough to protect the plan’s assets.

While the benefits associated with a fidelity bond should not be minimized, they should also not be exaggerated to justify a risk management profile that relies solely on the fidelity bond. In today’s financial climate, it is likely that a plan’s investments will decrease experience a decrease in value, with the predictable result being litigation. By combining a fiduciary liability insurance policy with any required ERISA fidelity bonds, two of the most significant vulnerabilities to the plan, fraud/dishonesty and a breach of fiduciary duty, have been addressed, so the plan’s fiduciaries are free to focus on increasing the value of the assets.

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.

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.