Employment Resources

Poor adherence to prescribed medication regimens increases the incidence of hospitalization, especially among individuals with chronic medical conditions, and consequently adds significantly to health care costs. This failure together with less-than-optimal prescribing, drug administration, and diagnoses — creates as much as $290 billion each year in avoidable health care spending, or 13% of total health care expenses. A research brief from the New England Healthcare Institute reports these figures, together with suggested interventions to stem such unnecessary spending. Employers can consider these suggested interventions in designing prescription benefit programs, to help employees improve compliance with their prescription drug regimens.

Poor medication compliance includes behaviors such as failing to pick up or renew a prescription, not taking medications in the prescribed dosage level or at prescribed intervals, stopping a prescription before it has been completed, or abandoning a prescription regimen altogether. The report cites a number of barriers to medication compliance, including cost, side effects, difficulties in managing multiple prescriptions, forgetfulness, and a lack of understanding about the medical condition being treated or the urgency for treatment when a medical condition is asymptomatic.

Individuals with chronic conditions generally demonstrate lower adherence to a prescribed medication course of treatment than those with acute conditions, and adherence drops even lower with the passage of time. And, among chronic patients, those not following a prescribed drug regimen have higher hospitalization rates and higher mortality rates. Higher hospitalization rates lead, of course, to increased medical costs.

Because individuals with chronic conditions seem to do worse following prescription drug treatment regimens, one strategy for employers to use to increase compliance is disease management and condition management programs. These programs target individuals with chronic conditions and actively work with them to help them manage their diseases. Services can include monitoring prescription drug compliance, sending refill reminders and educating members on their chronic condition, thus addressing some of the reasons cited above for prescription noncompliance.

The research brief suggests three broad strategies to improve prescription medication compliance:

1. Reduce the cost barriers to obtaining prescribed medications. Out-of-pocket prescription drug costs can, of course, influence the extent to which a patient follows a prescribed course of treatment, with higher costs leading to lower compliance. A prescription benefit plan’s employee copayment requirements determine an employee’s out-of-pocket costs. Designing the copayment requirement to encourage filling appropriate prescriptions is key. The research brief cites “Value-Based Insurance Design (VBID)” plans with lower employee contributions and out-of-pocket costs for cost-effective medications for chronic conditions, saying this can be linked to improved medication possession ratios.
2. Address the behaviors and preferences of individual patients. Employees will vary across a wide spectrum as to how well they understand their medical condition, how engaged they are in their overall health care management, how willing they are to ask questions of physicians and pharmacists, etc. Reaching employees with a chronic condition on an individual basis — such as can be achieved through the personal contact that is part of a disease or condition management program — can involve them more intimately with their course of treatment and enhance the probability of prescription medication compliance.
3. Design the right medication regimen for the individual patient. According to the research brief, getting the drug regimen right in the first place could reduce prescription medication noncompliance dramatically. Poor prescribing is a particular problem for individuals taking multiple medications. Again, disease and condition management programs can help. The individual contact such programs feature helps to ensure that the patient’s medications are not contra-indicated, that the patient understands the prescribing instructions, and that the patient is, indeed, staying on top of the regimen.

In considering prescription benefit plan strategy and design, keeping these ideas in mind can help to promote appropriate employee use of prescription drugs, and with it, improved health outcomes and better managed health care costs.

Consider that you will need to:

• Review health plan documents (and the documents for any other plans for which the audit is being conducted) to determine the definitions for all possible eligible dependents.
• Determine the documentation you will require for substantiating eligibility. For example, in the case of a spouse, this might be not only a marriage license or certificate, but also a recently filed joint income tax return to show that the marriage continues to the present day.
• Establish a time line for informing employees about the audit and a deadline for submitting the required documentation, and develop communications materials accordingly.
• Determine the process by which employees can submit their documentation, and set up a mechanism to receive materials.
• Review submitted documentation to determine whether they meet the requirements for establishing eligibility, and establish a notification and grace period process for employees who fail to submit materials properly and/or on time. Inform employees of the audit results.
• Since these audits generate a large amount of paper, arrange for secure storage and/or disposal of the materials employees have submitted.
• Since the audit will likely generate questions from employees, a knowledgeable person or persons must be assigned to field employee inquiries.

Some companies choose to outsource dependent eligibility audits instead of conducting them in-house. Audit service providers cite the potential cost savings that can be achieved and the amount of work involved in a thorough, well-designed audit to argue that contracting for such services delivers a good return on investment. If you decide to use an outside resource, you’ll likely have a choice of vendors. With more and more employers conducting dependent eligibility audits, an industry specializing in this particular employee benefit plan service has developed.

Other design considerations can impact the workload an audit generates. For example, in order to make the process more manageable, some companies audit only a particular dependent group, or a single company division or location at a time, instead of requiring all employees enrolling dependents to submit dependent documentation. If you’re considering homing in on particular dependent groups, data from HRAdvance’s client audit shows the distribution of ineligible dependents to be 43% children under age 19, 29% children over age 19, and 28% spouses. Another consideration that can impact the manageability of the audit is whether to conduct it retrospectively (and try to recover claims that shouldn’t have been paid) or on a forward-looking basis only. Many employers also choose to precede the audit with an amnesty period during which employees can voluntarily remove dependents from the plan with no penalty.

Since most companies traditionally have run on an honor system when covering dependents — basically taking an employee’s word for it that those dependents enrolled for coverage indeed meet a definition of eligible dependent — advance communications to alert employees of the audit, and the reasons for it, are critical to employee cooperation and, ultimately, how successful the audit will be. Use all available media, and stress that removing individuals who are not eligible for coverage will benefit not only the company, but all employees who are paying to have themselves, and family members, covered by the plan.

Discussions of consumer-directed health plans frequently focus on high-deductible health plans coupled with Health Savings Accounts (HSAs). Sometimes overlooked are Health Reimbursement Arrangements (HRAs), employer-funded accounts that can be a solid first step in transitioning to a consumer-directed approach to health care.

In some ways, HRAs work like other kinds of account-type health care plans. Employees can use an HRA to pay for their qualified medical expenses, together with those of a spouse and children. Such expenses could include deductibles, copayment and coinsurance amounts, and any type of expenses that fall under the Internal Revenue Code definition of a qualified medical expense. Funds withdrawn to pay for qualified medical expenses are not taxable to the employee.

From an employer’s perspective, one of the great advantages of HRAs is that they have tremendous design flexibility. Unlike HSAs, they do not need to be tied to a high-deductible health plan. Their design, however, can complement the company health care plan. For example, if you have had to make changes to your company health plan to make it more affordable — such as increasing deductible or copayment amounts — you can offset the impact of such changes on employees by setting up HRAs and letting employees know that they have access to HRA funds to pay for these increased costs. The employer can also, by plan design, limit the expenses that can be paid for through the HRA (such as only for those increased deductibles or copayments); change or enlarge the scope of reimbursable expenses year to year; and change the contribution it makes to the plan each year.

For employers unable to sponsor a comprehensive type of medical plan, an HRA can be a way to provide some health care benefit to employees. The cost of the plan would be predictable — whatever amount the employer chooses to contribute to employees’ accounts — and could vary year to year. Employees could use their HRA funds to pay for medical expenses, or apply them toward the premium of a health plan they purchase on their own.

As noted above, HRAs are employer-funded accounts; no employee contributions are permitted. However, as with any type of health plan contributions, the contributions an employer makes to an HRA are deductible. Though funding HRAs entails some expense for employers, strategic implementation can sometimes be used to offset these costs to some degree. For example, if the HRA is implemented together with health plan design changes that help control plan costs — such as an increase in deductibles or copayments — the employer can use any premium cost savings to help fund the HRA.

HRAs also have the advantage of helping employees develop more awareness of the cost of health care. Just as when withdrawing funds from any type of savings account, each time employees contemplate using the HRA to pay for a medical expense they’re faced with considering whether they’re meeting the medical expense in the most cost-effective way possible. Such thinking is an incentive to take the steps necessary to make informed, cost-conscious health care spending decisions. And, since HRA funds carry over year to year (and are not forfeited, such as are unused amounts left in Health Care Flexible Spending Accounts), employees have additional reasons to be careful about how they spend HRA money. By design, however, an employer can limit the carry-over feature of the HRA and decide whether to make unused funds available for retirees to use.

HRAs offer the opportunity to provide a cost-defined, tax-advantaged health benefit that can help employees become more informed, savvy health care consumers. Of the many options employers have to choose from in providing health benefits to employees, HRAs are an attractive one to consider. Call our office today to find out in HRAs make sense for your organization.

The Family and Medical Leave Act (FMLA) allows employees to take job-protected unpaid leave for certain specified reasons: To care for their own or a family member’s serious health condition; to care for a newborn or newly adopted child; or in connection with military family leave, in the event of a qualifying exigency or a serious injury or illness of a covered military member.

Since its inception, one of the most vexing aspects of FMLA administration for employers has been intermittent leave — those FMLA provisions that allow employees to take leave in separate blocks of time, or on a reduced schedule, due to a single qualifying reason. Intermittent/reduced schedule leave can be taken when medically necessary (either the employee’s own or a family member’s serious health condition) or in connection with military family leave. However, if the reason for the leave request is to care for a newborn or newly adopted child, intermittent/reduced schedule FMLA leave is allowed only if the employer consents to it. An example of this would be if the employer agrees to a part-time work schedule after a child’s birth/adoption.

For intermittent leave triggered by a serious health condition, circumstances must be such that the medical need can best be accommodated through an intermittent or reduced schedule. This includes situations where the seriously ill individual requires treatment by a health care provider periodically, rather than for one continuous period of time. Examples include leave taken on an occasional basis for medical appointments; leave taken for several days at a time over a period of months for chemotherapy; and leave taken by a pregnant employee for prenatal exams or for severe morning sickness. An employee recovering from a serious illness who is not yet strong enough to work full time would be an example of a situation appropriate for a reduced schedule FMLA leave.

Regulations state that employees needing leave on an intermittent or reduced schedule basis for planned medical treatment must make a reasonable effort to schedule the treatment so as not to disrupt the employer’s operations unduly. Employees must give 30-days notice for intermittent leave that is foreseeable at least that amount of time in advance, and as much notice as possible for leave that is not so foreseeable. Employers are to account for intermittent or reduced schedule leave using a time increment no greater than the shortest period of time it uses to account for other forms of leave, provided this is not greater than one hour and further provided that this increment cannot be greater than the amount of leave actually taken. However, if an employee on intermittent/reduced schedule FMLA leave cannot, due to the nature of the job, begin work mid-shift — such as an employee who works aboard a train or airplane during scheduled runs — the entire period that the employee is forced to be absent counts against the employee’s FMLA entitlement.

Also to ease the potential disruptive nature of intermittent FMLA leave, an employer can choose to transfer an employee taking intermittent/reduced schedule leave to a position with equivalent pay and benefits if the need for FMLA leave is foreseeable, the employee is qualified for the transferred-to position, and the position accommodates the recurring leave periods better than the employee’s ongoing position. Transfers made for this reason are to be temporary.

Employers that suspect the FMLA intermittent leave allowance is being abused have some tools in the regulations that they can use in an attempt to manage this. For example, employers can require a medical certification for any type of FMLA leave, and also a recertification, to make sure that the leave request is justified. The right to request recertification can be particularly helpful in the case of intermittent leave, which can span a long period of time. If the employer observes a pattern of intermittent leave taking that appears suspicious — such as scheduling the leave increments adjacent to weekends or holidays — requiring recertification can help to establish whether such a leave schedule is necessary.

Other provisions in the regulations can be used to minimize the disruptive potential of intermittent leave. For example, holding leave-requesting employees to the full extent of permitted notice requirements can aid in work schedule planning. Also, as noted above, an employer can transfer an employee temporarily to a position that would be less disrupted by the employee’s intermittent absences. Though this might not result in less leave being taken, it can help operations to run more smoothly.

As employers search for ways to contain employee benefit plan costs, many are undertaking dependent eligibility audits. The logic and potential cost savings is compelling. Why pay for something — in this case, coverage for someone not entitled to it under the terms of a benefit plan — when you don’t have to?

According to the results of client dependent eligibility audits conducted by HRAdvance, a third-party provider of audit services, the percentage of ineligible dependents detected in such audits ranges from 7% to 19%. And, with each employee dependent covered under a health plan running about $3,400 annually (with this amount varying considerably company to company, according to figures from Aon Consulting), the potential cost savings can be dramatic, even for a small company. Aon cites the potential return on investment from dependent eligibility audits as high as 40 to 1. Savings should be considerable, when you consider that each removed ineligible dependent represents dollars saved year after year.

Though the cost savings are compelling, they’re not the only reason to conduct a dependent eligibility audit. ERISA mandates that benefit plans be maintained for the “exclusive benefit” of employees, and employers as plan fiduciaries are required to operate plans accordingly. Arguably, covering ineligible individuals, which can create additional plan costs for all employees, runs afoul of these requirements.

The purpose of a dependent eligibility audit is to verify that individuals listed by employees as eligible for coverage under the plan (primarily spouses and dependent children) indeed meet the plan requirements for eligibility. A simple employee certification or affidavit of dependent eligibility does not provide proof of this, and therefore an audit requires employees to submit documents that substantiate eligibility. An audit will be a significant undertaking.

Consider that you will need to:

• Review health plan documents (and the documents for any other plans for which the audit is being conducted) to determine the definitions for all possible eligible dependents.
• Determine the documentation you will require for substantiating eligibility. For example, in the case of a spouse, this might be not only a marriage license or certificate, but also a recently filed joint income tax return to show that the marriage continues to the present day.
• Establish a time line for informing employees about the audit and a deadline for submitting the required documentation, and develop communications materials accordingly.
• Determine the process by which employees can submit their documentation, and set up a mechanism to receive materials.
• Review submitted documentation to determine whether they meet the requirements for establishing eligibility, and establish a notification and grace period process for employees who fail to submit materials properly and/or on time. Inform employees of the audit results.
• Since these audits generate a large amount of paper, arrange for secure storage and/or disposal of the materials employees have submitted.
• Since the audit will likely generate questions from employees, a knowledgeable person or persons must be assigned to field employee inquiries.

Some companies choose to outsource dependent eligibility audits instead of conducting them in-house. Audit service providers cite the potential cost savings that can be achieved and the amount of work involved in a thorough, well-designed audit to argue that contracting for such services delivers a good return on investment. If you decide to use an outside resource, you’ll likely have a choice of vendors. With more and more employers conducting dependent eligibility audits, an industry specializing in this particular employee benefit plan service has developed.

Other design considerations can impact the workload an audit generates. For example, in order to make the process more manageable, some companies audit only a particular dependent group, or a single company division or location at a time, instead of requiring all employees enrolling dependents to submit dependent documentation. If you’re considering homing in on particular dependent groups, data from HRAdvance’s client audit shows the distribution of ineligible dependents to be 43% children under age 19, 29% children over age 19, and 28% spouses. Another consideration that can impact the manageability of the audit is whether to conduct it retrospectively (and try to recover claims that shouldn’t have been paid) or on a forward-looking basis only. Many employers also choose to precede the audit with an amnesty period during which employees can voluntarily remove dependents from the plan with no penalty.

Since most companies traditionally have run on an honor system when covering dependents — basically taking an employee’s word for it that those dependents enrolled for coverage indeed meet a definition of eligible dependent — advance communications to alert employees of the audit, and the reasons for it, are critical to employee cooperation and, ultimately, how successful the audit will be. Use all available media, and stress that removing individuals who are not eligible for coverage will benefit not only the company, but all employees who are paying to have themselves, and family members, covered by the plan.

Implementing cost-sharing increases or cutting benefits in an effort to bring health plan costs under control can be unpleasant for employers, with concerns about how the news will impact employee productivity and morale. The better employees understand the reasons such plan changes are necessary, however, the greater the chance that the changes will have a positive impact. According to the 2009 UBA Employer Benefit Perspectives survey from United Benefit Advisors, more than 80% of employers felt employees are at least aware of the health care crisis and the reasons for increased cost sharing or benefit reductions; a little less than 20% of employees themselves said they were upset about the benefit reductions or cost increases that their employers implemented. Since communications can play an important role in bringing employees on board with health plan changes, what steps can employers take to make implementation as smooth as possible?

Here are a few ideas, both for plan-change-targeted and ongoing health plan communications:

• Make sure employees are aware of the reality of health care costs. Research and publicize to employees national health care cost data and cost trends. Be specific: For example, contrast the average cost of a hospital stay or doctor’s office visit today with that of five or 10 years ago. Do the same for the average cost of coverage under various types of health plans.
• Share specific cost data from your company’s health plans. Employees frequently think of the cost of the health plan only in terms of what they pay in premiums, and overlook the employer’s contribution. This narrow view hides the true cost of health care coverage, as well as what the employer pays toward the cost of coverage (which, ideally, employees should see as part of their total compensation package).
• Use concrete examples to illustrate how health plan spending can cut into the ability of the company to make outlays in other areas. For example, determine the approximate dollar amount increase in the company’s health plan contribution one year to the next, and compare it to some other company expense. Is the amount of the increase equal to an employee salary? Stated differently, has health plan spending growth prevented a needed hiring? Use this process to show how health plan cost increases can eliminate raises and bonuses, result in the cancellation of company events, delay the purchase of new equipment, and the like.
• Help employees see that when they use their health benefits astutely, they not only save themselves money, but also keep plan costs down as well. For example, when employees use preferred providers, they receive the highest plan benefit, and the plan pays the lower, negotiated preferred provider rate. When employees understand how health plan spending can impact salary increases, staffing, and other investments, this can motivate them to use the plan more wisely.
• Use statistical data to show employees how, generally, unhealthy people use more health care, resulting in higher plan costs. If employees accept this, they’re more likely to try to follow recommended preventive care schedules, attempt to change unhealthy behaviors, and aim to become more physically fit overall.

Employers want employees to be active participants in controlling rising health care costs. To-the-point communications can bring employees on board in this effort, resulting in more manageable costs for employer and employee alike.

Despite their proven reliability in safely reducing health care costs, many consumers continue to have doubts about the use of generic drugs. Communications programs that increase employees’ knowledge about generics and their comfort level in speaking with prescribers about generic medications can help to overcome these doubts, increase use of generics in a health plan and, ultimately, result in substantial cost savings.

Data on consumers’ limited knowledge of generic drugs comes from a survey from Prescription Solutions, a UnitedHealth Group company. Among the surveyed adults, 31% did not know or did not believe that generics have the same active ingredients and same effectiveness as brand-name drugs. Furthermore, two-thirds did not understand the actual cost difference between generic drugs and brand-name drugs. On average, a brand-name drug costs 50%-70% more than its generic counterpart. A separate analysis from the Food and Drug Administration (FDA) indicates that drug costs per day can fall by 14% to 16% if an individual uses generics instead of brand-name drugs, depending on the individual’s medical needs. Individuals who can fully satisfy their medical needs with generic drugs can see as much as a 52% reduction in their daily medication costs, according to the FDA analysis.

Consumers’ reluctance to try generics is especially surprising, given that a majority of the Prescription Solutions survey respondents: 71%-remain concerned about prescription drug costs, and 27% have either delayed filling, not filled, or not taken a prescription as prescribed in an effort to save money.

The survey also found that doctors and pharmacists are the key influencers in encouraging the use of generics. Of those surveyed who take generic drugs on a weekly basis, 64% said their doctor recommended the generic and 43% said a pharmacist recommended the generic. Of those surveyed who do not take generic drugs on a weekly basis, 58% said they would if a pharmacist brought a generic to their attention as a less expensive yet identical substitute, and 52% said they would do this if their doctor made the recommendation.

As noted at the beginning of this article, communications programs that increase employees’ knowledge about generics and their comfort level in speaking with prescribers about generic medications can address misconceptions and concerns about generic drug use. A study published in the March 2009 issue of the journal Medical Care found that generic drug use was most closely associated with communications with providers about generics, and with an individuals’ comfort level with generic substitution, leading to the conclusion that educational campaigns that focus on these two areas might be most effective in influencing generic drug use.

To increase individuals’ comfort level with generic substitution, an educational campaign should stress the key facts about generics:

• Although generics might differ in appearance from their brand-name counterparts, they have the same active ingredients and adhere to the same FDA standards.
• Generic medications cost less, not because they are of a lesser quality, but because the manufacturer of the generic has no research and development costs to recover, and also spends no money on promoting the product to physicians and consumers.
• Plan design, too, can encourage generic use. Plan designs that require a higher member copayment for a brand-name drug than for the generic substitute can lead to higher generic use, as can completely waiving the copayment for generics (or for certain classes of generics). Generic use also can be increased through mail-order programs.

Overcoming ignorance or unawareness of the true nature of generics can reap savings for an employer, making the money spent on communications and education a worthwhile investment.

From the beginning, the United States has been a multi-cultural nation. As immigrants streamed into the U.S. through the gates of Ellis Island, they brought their culture and languages along with them, earning America the nickname, The Melting Pot. This demographic reality has continued to the present day, as people of different cultures, religions, races, and languages live in our multi-ethnic, multi-linguistic society.

Recent statistics reflect the linguistic diversity of this country. For example, according to a 2007 U.S. Census Bureau American Community Survey, 19.5% of the U.S. population over the age of five speaks a foreign language. Of those speaking a language other than English, more than 60% speak Spanish/Creole; 19% Indo-European; 15% Asian Languages; and 1% other. Nearly 68% of foreign language speakers in the U.S. are between the ages of 18 and 64, and many of these individuals are part of the American workforce. Language diversity among employees can present a variety of challenges related to (among other things) the communication of employee benefits.

Employers with non-English speaking workers must ensure that these employees truly comprehend their benefits programs. Employers need to examine two areas of communications: What is required, and what is good workplace communications practice. The basic required communication piece of an employee benefit package is the summary plan description (SPD). The federal law that governs employee benefit plans, ERISA, does not require that employers provide SPDs in languages other than English. On the other hand, ERISA regulations do require that, in certain situations, an employer must provide within the English-language SPD a notice in another language offering speakers of that language help in understanding their benefits.

In order for an employer to comply with ERISA regulations, the offered assistance does not need to involve written materials, but must be “calculated to provide [the non-English speakers] with a reasonable opportunity to become informed as to their rights and obligations under the plan.” Furthermore, the employer needs to explain the procedures that employees must follow to obtain such assistance. For example, the notice in the other language could include the name, office hours, and phone number of the plan administrator.

In what situations are employers required to provide this notice? If the plan covers less than 100 plan participants, and 25% or more of the plan participants are literate in only the same non-English language, the employer has to provide the notice. For larger plans, the notice is required if either 500 or more participants or at least 10% of the participants are literate in only the same non-English language. Therefore, if only a very small number of workers are non-English speakers, the notice is not required. Conversely, an employer may need to provide notices in more than one non-English language (for example, in Spanish and Korean) if the requisite number of workers are literate in only those languages. Many employers with non-English-speaking workers choose to go beyond the SPD requirements to make certain that all workers understand their benefit programs. Steps to consider include:

• Requesting employees who are fluent in both English and the foreign language to assist those who have difficulty with English. This can be especially valuable at benefits meetings, where the rapid flow of a presentation can be overwhelming and hard to follow.
• Translating some written materials into a foreign language. These might include enrollment forms, highlights of the benefit programs as well as comparison charts. Companies that specialize in translation services for business needs could be contacted for this service.
• Opening benefits meetings, including enrollment meetings, to family members. In particular, younger family members are more likely to be fluent in English.
• Having bi-lingual or separate meetings in another language is also an option, but this option could require more time as well as create more expense.

Employers make a large investment in their benefits programs, and employees cannot appreciate these benefits if they don’t understand them. Additionally, complex employee benefits programs can be confusing, even for native English-speakers. Therefore, taking actions to ensure that all employees have an equal opportunity to understand their benefits is an investment that helps employer and employees, alike.

In the U.S. today, employee benefits constitute a significant portion of an employee’s total compensation. Although past studies revealed that many employees did not fully understand the value of their benefits packages, a 2008 MetLife Employee Benefits Survey showed that more workers are paying extra attention to the value of benefits. The study revealed an increased appetite among employees to receive benefits advice at the workplace. Furthermore, when asked about the significance of benefits in generating workplace loyalty and retention, employees ranked health benefits as the No. 2 factor, only trailing behind the importance of salary/wages. Advancement opportunities and retirement benefits tied for the third most critical factor in retention and loyalty.

According to the most recent (2008) Kaiser Family and Health Research and Education Trust study of employee benefits, the average annual premiums for employer-sponsored Health insurance was $12,680 for family coverage, and $4,704 for individual coverage. Although these numbers represent a 5% increase over 2007, in a 10-year period the cost increase of family coverage represents a whopping 119%!

As benefits become more expensive to employers, and more valuable to employees, effective communication regarding benefits is critical. Too often, employee benefits discussions are limited to the annual enrollment period. During this period, many employees’ focus will be on what their benefits are costing them, and not on what their employer contributes to the total benefits package. Communications regarding benefits need to continue on a year-round basis, and should reinforce regularly the value of the entire benefits package.

Beyond the heavy contribution most companies make toward Health insurance, there are other items, such as employer contributions to a pension plan or profit sharing plan or matches to a 401(k) plan, that need to be emphasized. As the work force ages, companies need to address the wishes of employees who are nearing retirement. The MetLife study points out that in 2007 63% of employers that offered retirement benefits expected the amount of the benefits to increase in the next five years. But in the 2008 study, 73% of employers said they expected this portion of benefits to increase, highlighting the importance employees are placing on retirement related benefits.

Other benefits that employers should highlight are: Employer premium contributions toward other health and welfare benefits (e.g., Life, Disability, Dental insurance); savings employees realize through purchasing any voluntary benefits at a group rate; the salary-in dollars-represented by paid vacation days; and employer contributions to mandatory benefits, such as Social Security and Medicare. Many employees are unaware of the dollar value of these extra benefits. Helping them understand the worth of such benefits increases employee satisfaction, and hence, retention.

Besides the annual enrollment information meeting, benefits communications should use a multi-media approach throughout the year to explain the value of the benefits package. Options might include: Did-you-know e-mails, colorful placards and posters, printed newsletters, as well as an annual total compensation statement that shows the employer’s actual outlay — in salary and benefits — for the employee. All communications should discuss benefits and their value in easy to understand terminology.

Although there is a cost to employers in continually reinforcing the monetary worth of benefits, it is an investment that will pay off in the long run. Employees will feel valued as they gain an understanding of the true worth of their total compensation, thus increasing goodwill between parties. And the carefully communicated value of benefits will help in both recruitment and retention of key personnel.

Employee benefit plan compliance is a top concern for employer plan sponsors. Failure to follow statutory rules and regulatory guidance for health and welfare and pension plans can lead to penalties, adverse tax consequences and plan disqualification.

The Internal Revenue Service (IRS) — one of the federal agencies responsible for aspects of employee benefit plan oversight — has issued a listing of the trends it sees recurring in plan audits and voluntary case submissions. Although the observations are based on experiences with large plans, plan sponsors of all sizes can benefit from knowing the issues that are causing common compliance problems.

The top failure across all plan types involved failure to amend the plan document to bring it in line with tax law changes, within the time period required by law. According to the IRS, failure to amend plan documents to comport with legal changes in a timely manner can cause problems in plan operation (is the plan following the law or the un-amended plan document?), and can result in plan disqualification upon audit. To avoid missing plan amendment deadlines, the IRS suggests:

• Reviewing the annual Cumulative Lists of necessary plan amendments maintained on the IRS Web site.
• Maintaining a calendar or ticker file of when amendments must be completed.
• Ensuring the plan document and summary plan description (SPD) match.
• Maintaining contact with the attorney, actuary, or company that services the plan, on at least an annual basis, to keep abreast of impending amendment deadlines and receive any amendments that the vendor provides.

The second most common failure found across all plan types was the failure to follow the plan’s definition of compensation in determining contributions. The IRS states that plans may be drafted to define compensation differently for contribution purposes and testing purposes, and that “it is extremely important that the payroll department follow the plan’s definition of compensation for contribution purposes.”

Failure to do so may result in participants receiving allocations that are either greater than or less than what they should be. To avoid compensation mistakes, the IRS suggests performing annual reviews of plan operations; making sure amended definitions are communicated to every individual involved with plan operations; ensuring the person in charge of determining compensation has been properly trained to understand the plan; and, if possible, simplifying the definition of compensation and using this simplified definition for all purposes.

Failure to follow the plan document’s eligibility provisions accounted for the third most common failure. The most significant trend in this category involved the improper exclusion of employees who are later determined to have been eligible for the plan, most frequently part-time employees who become eligible for the plan, incorrect continued eligibility of employees following a merger, and misclassification of independent contractors.

Rounding out the list of Top 10 plan failures were these:

• Failure to satisfy plan loan provisions.
• Impermissible in-service withdrawals.
• Failure to satisfy the 401(a)(9) minimum distribution rules.
• Employer eligibility failure (an employer adopts a plan it is not legally permitted to adopt, such as a government entity adopting a 401(k) plan).
• Failure to pass the ADP/ACP tests for 401(k) plan deferrals and matching contributions.
• Failure to provide the minimum contribution or benefit to non-key employees in a top-heavy plan.
• Failure to satisfy the contribution limitations of IRC Sec. 415.

In the listings, the IRS breaks out, in more detail, the most commonly seen mistakes made in 401(k) plans, defined benefit plans, 403(b) tax-sheltered annuities and 457 government plans.

The IRS notes, “The earlier a plan mistake is detected and corrected, the cheaper it is to fix. This also precludes the mistake from affecting other areas of the plan. For example, improperly excluding an employee from the plan for many years could lead to a mistake affecting not only the plan participant, but overall nondiscrimination testing, and other plan operations.” The release, “Employee Plans Team Audit (EPTA) Program-EPTA Compliance Trends & Tips,” can be found on the IRS Web site.

Whether you’re a business bringing a new, exciting product to market or a 20-year-old firm selling the latest version of a successful product line, you face certain risks. Users of the product might suffer injuries or damage to their property. These accidents could stem from inappropriate use of the product, such as using a lawn mower to trim hedges. However, some products can be dangerous under normal use by untrained or inexperienced operators. Furthermore, vendors or contractors who sell or install a product might modify it or otherwise affect its performance. These changes can increase the chances that the product will cause injury or damage, and that can land the manufacturer in a courtroom. However, there are steps the firm can take to transfer the risks of financial loss from these incidents.

First, the manufacturer should require, as part of its contracts with contractors, that those parties name it as an additional insured on their Liability insurance policies. If the contractor is at least 1% liable for the accident, the endorsement gives the manufacturer rights to coverage under the policy for amounts necessary to settle a lawsuit. Perhaps more importantly, it covers the cost of defending the firm against the suit. These costs are often substantially higher than the cost of the settlement. The contracts should require the other party to give the manufacturer certificates of insurance showing that the Liability policies include this coverage.

Assume, however, that either the other party neglected to have the manufacturer added as an additional insured or for some reason the insurance company denied coverage under the endorsement. If the company pays for the settlement on behalf of its insured (the contractor), it has a legal right to try to recover its payment (subrogate) from the manufacturer or its insurance company. To prevent that from happening, the contract between the manufacturer and the other party should require the contractor to waive subrogation rights. The waiver of subrogation will bind the insurance company, preventing it from going after the manufacturer. The ISO Liability insurance policy implies that the insured can waive subrogation rights at any time before a loss occurs. However, if the manufacturer wants no doubt as to whether a waiver applies, it should require the other party to add a specific endorsement to its policy, waiving the insurance company’s subrogation rights.

One commonly used technique for transferring liability is requiring a contract to include an indemnity agreement, also known as a hold harmless agreement. Such an agreement will require the contractor to indemnify the manufacturer for the costs of any suits resulting from that party’s work for the manufacturer. For example, assume Contractor A installs a turbine made by Manufacturer B in a power plant and the turbine malfunctions, injuring several employees. Under this agreement, A would indemnify B for the costs of the ensuing lawsuits. Contractor A’s Liability insurance should provide coverage for this if it does not contain an absolute contractual liability exclusion. An experienced contract attorney can help develop the appropriate language for this agreement.

Because some of these techniques involve modification of insurance coverage, the manufacturer should consult our insurance agents. Some insurance companies might require the manufacturer to have these techniques in place before they will offer coverage, while others might accept the account without them but offer reduced premiums if they are in place.

Contractual arrangements are no substitute for providing a safe, quality product. However, since accidents are possible no matter how many precautions are taken, manufacturers are well advised to use these techniques to decrease the chance of financial loss.