Some of the more important aspects of the plan administrator’s job include the enrolment of new employees into the benefits plan and the removal of employees who are leaving the plan. Periodically, ASSOCIUM Benefits will present a webinar for plan administrators outlining these risks and how to avoid them. In the past, we’ve discussed the various liabilities and risks related to plan administration. What follows is a discussion of the risks involved if timely employee enrolment to or termination from benefits plans are not respected.
Timeliness is an important theme when discussing administrative responsibilities. Employers make contractual promises to employees regarding their employee benefits plan that must be adhered to. Timelines and deadlines are a part of the employer/employee contract and a part of the employer/insurer contract. Missing deadlines can result in declined claims or a requirement for an employee to submit evidence of good health (which could then be declined).
The standard waiting period before an employee can qualify to join a benefits plan is usually 90 days, which is intended to coincide with common probationary periods. Some employers have longer waiting periods, while others will waive those periods for senior hires. Regardless of the waiting period an employer offers, it is the responsibility of the plan administrator to ensure that the new employee’s application is complete and submitted well in advance of the effective date. Employees can be added retroactively, indeed, there is even a 31 day grace period. However, if there is a death or disability claim, particularly if the enrolment has passed the grace period, these claims can be declined leaving the employer open to a very expensive law suit.
At the other end, we have the timely termination. Notwithstanding, the need to ensure that benefits are coordinated with statutory, severance and salary continuance terms for laid off or fired employees, timeliness is important when meeting these obligations. So is it important to remove an employee from the plan on the exact day they are no longer eligible.
Not long ago, we received a complaint from a client that they had terminated an employee retroactively to the previous month but we charged them for the month anyway. By checking with the carrier, we could confirm that the employee and her family continued to claim after the last eligible date and had claimed over $2,000 by the time the plan administrator informed us of the termination. The worst we’ve seen is an employee terminated a year after they actually left. Even one small claim requires us to maintain the employee on the plan for that month.
Administrative errors or omissions can cost employers a few hundred dollars or, in the case of a late applicant, the amount of a death or disability claim. Vigilance is always important. It is also wise to purchase a benefits administration E&O rider on your property and liability insurance, just in case.
For more information on administrator liability, please contact ASSOCIUM Benefits.
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ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.