Why employee performance management needs an HR tech overhaul

Are you still utilizing annual performance reviews at your organization? According to a recent survey by Adobe, 58 percent of people feel that performance reviews are no longer necessary. Read on to learn more.


According to a recent survey conducted by Adobe, 58% of people feel that performance reviews “are a needless HR requirement.” Adobe, in fact, no longer has an annual performance review process and instead has adopted an approach involving ongoing discussions between managers and employees that emphasize talent development and future productivity instead of formal ratings and rankings based on past performance.

Still, the vast majority of companies continue to persist with a backward-looking evaluation process that is time-consuming for managers, demotivating for employees and of negligible benefit to the business as a whole. They do this because, as Adobe’s survey respondents suspected, performance reviews are more about “compliance than customer service.”

Focusing on past performance is an industrial-era hangover from when employees were mainly required to hit targets in easily measurable, repetitive tasks. Although most people’s jobs have evolved to be more complex and creative since then, the process and the tools used to manage their efficacy and performance in those roles have not.

In many respects, HR is still a defensive function whose role is to protect the business from its own employees. This is reflected by HR technology that is built for compliance, rather than helping managers and employees become more productive.

HR’s on-premise or enterprise resource planning systems can track performance reviews to prove a dismissal was not unfair, rank employees to justify compensation distribution and demonstrate effective people management to the board or shareholders. What they can’t do is react positively to the ever-changing demands of the modern business world and help employees and managers meaningfully improve their skills to meet the challenges of tomorrow.

Performance management is changing — but HR tech is not

These days, a company’s and individual employee’s goals can change dramatically in the time between end-of-year reviews. Individual roles are more specialized and require frequent skill updates, while cross-functional teams have long since replaced the siloed departments that were standard just 10 years ago. In this environment, HR’s focus on past compliance is detrimental to future development.

Forward-thinking companies are changing the performance process to focus on development and continuous feedback that makes managers and employees more productive and engaged. The success of these trailblazers will encourage other businesses from a wide range of industries to follow suit.

This new model of performance management needs help from technology, but existing HR tech vendors are not keeping up. Their services are so embedded in the world of compliance, they cannot change to support the development needs of managers and employees. Fortunately, the solution already exists.

Creating a connected system of productivity

One of the key issues with performance reviews is that so much of the process involves looking back to gather the data. For managers, it is a huge time investment. For employees, end-of-year feedback about an issue that occurred months beforehand is too late to be useful.

The process seems doubly inefficient when you realize that real-time, instantly-actionable performance data is already available in productivity systems like JIRA and Salesforce that are used by different teams. The problem is HR’s defensive mindset has made it difficult to integrate existing internal or ERP systems with these tools.

For many employees, benefits enrollment can be tedious—sometimes even scary. They don’t want to make a mistake—and who can blame them?

Dedicated performance management services that connect to both HR systems and the departmental productivity tools can take HR technology out of its silo. This will create a connected system of productivity that uses real-time data alongside transparent and flexible goal-tracking to drive ongoing development conversations between managers and employees.

It’s time for HR to evolve from a defensive function to make a positive contribution to key business goals and become what HR analyst Josh Bersin calls the “chief of productivity.” This demands a shift from a performance review process based on compliance to a human-centered, development-focused experience.

Adopting new performance technology that integrates with widely-used productivity tools is a key step to ensuring everyone from employees to managers to HR can work on what matters most in order to meet today’s goals and tomorrow’s challenges.

SOURCE: Dennerline, D. (15 October 2018) "Why employee performance management needs an HR tech overhaul" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/why-employee-performance-management-needs-an-hr-tech-overhaul?brief=00000152-14a7-d1cc-a5fa-7cffccf00000


3 steps to negotiating a better employee benefit annual renewal

Typically, employee benefits are the second-highest expense for employers, coming in second behind employee payroll. Read this blog post to learn how companies can negotiate for a better employee benefit renewal.


Employee benefits are typically the second-highest expense for employers — right behind payroll. But unlike payroll, benefits are difficult to budget for each year because the upcoming annual renewal rate can feel like a total mystery.

Not knowing what the renewal rate will be until the end of the plan year complicates the balance that employers must strike between offering rich benefits employees appreciate at a cost the finance team can live with. It doesn’t have to be that way.

Knowing how to approach the annual renewal with your health carrier, pharmacy benefits manager and other players can help the savvy employer save some money while maintaining the same level of benefits as before. The ticket is planning for the annual renewal all year long, which removes the mystery and leads to a predictable rate.

Here are three steps to negotiating the annual renewal with your carrier.

1. Create a good carrier relationship. A great way to gain control of what happens at the end of the benefit plan year is to set the tone from the beginning. This means outlining expectations before signing a contract and communicating wants and needs throughout the plan period. If you’ve developed a good relationship with your carrier, you should have an easier time coming to an agreement on the annual renewal rate.

Building good carrier relationships extends beyond the carrier you’re currently working with to others in the market. One way to maintain a good relationship is to avoid marketing to all carriers for the best rate before each renewal period. Carriers spend time and money responding to requests for proposal (RFPs); if they respond year after year without winning the business, they may lose interest when you are ready to move your benefits plan.

2. Get plan renewals early. Left unchecked, most carriers hold the benefit plan renewal rate as long as possible (60-75 days before the end of a contract). But receiving your carrier’s initial renewal rate earlier gives you more time to evaluate the renewal and negotiate the rate. (Yes, it’s true — you don’t have to accept the first number the carrier offers.) The best way to ensure your request for an early renewal rate is heard and followed is to discuss it before signing a contract.

By receiving your renewal rate approximately 120 days before the end of your contract, you have enough time to evaluate the rate together with your health and welfare benefits broker and underwriting team and then respond with another offer. And if you feel that another carrier can offer better rates, you can also market your benefits plan and still have time to switch carriers before the contract ends.

3. Offer a fair and reasonable rate. After you receive your annual renewal rate, work with your internal team and your benefits broker to begin negotiations. Importantly, this doesn’t mean countering with a number so low that the carrier finds it untenable and unreasonable. In that case, the insurer may not meet your demand and you’ll be forced to turn to other carrier options without having planned for that possibility.

Instead, respond with a fair and reasonable rate increase backed by data. The goal is to counter offer with a number that creates stability and predictability for renewals in the future.

Learning your renewal rate for each plan year can be stressful, but it doesn’t have to be. Getting information early, negotiating a fair rate and maintaining good carrier relationships can help you create a better annual renewal with better predictability and improved budgeting year after year.

SOURCE: Strain, M (24 October 2018) "3 steps to negotiating a better employee benefit annual renewal" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/opinion/3-steps-to-negotiating-a-better-employee-benefit-annual-renewal?brief=00000152-1443-d1cc-a5fa-7cfba3c60000


Shrinking Talent Pools Mean Shifting Hiring Strategies

Are you shifting your hiring strategies to accommodate shrinking talent pools? With a tight labor market, HR departments need to be prepared to win potential workers from company competitors. Read this blog post from UBA to learn more.


The labor market is tighter than ever, so people in hiring capacities need to be ready to win potential workers from competitors.

According to Fast Company, companies focused on hiring recent grads should be prepared to answer questions about flexibility, collaboration, professional development, how success is measured, and opportunities for giving back. A mindset shift from the challenges the tight market creates to the opportunities it provides to attract just the right talent may just help companies make needed innovations to their hiring practices and even company culture.

With full employment, staffing agencies have to get creative as the pool of qualified talent is limited. Add in changing visa and immigration laws and the pool is even smaller. Companies seeking talent are frustrated, and staffing agencies are working harder to appeal to the remaining talent. Workforce magazine traces one solution: investing in training programs. Helping candidates upskill can mean helping fill hard-to-fill roles with the same pool. Called a “build-your-own-talent” approach, staffing agencies report focusing training on skills proving harder to source with a promise of commitment to work for a company for a set amount of time.

This all helps explain why recruiting is now a major focus for the C-suite, according to HR Dive. For HR, this means ensuring everything from a positive, proactive hiring experience to showcasing a company as an employer of choice in recruitment, and also shifting strategies toward “total talent acquisition,” which means considering full-time employees as well as flexible, contingent, and project-based workers.

Shifting hiring and recruiting strategies will be hallmarks of this tight labor market, so finding ways to win, train, or retain talent will be what makes the difference for some employers.

Fast Company
These are the most common questions that college grads ask employers.

Workforce
Sector Report: Staffing Providers Opt For ‘Create Your Own Talent’

HR Dive
Study: Shrinking talent pool has recruiters shifting strategies

SOURCE: Olson, B. (16 October 2018) "Shrinking Talent Pools Mean Shifting Hiring Strategies" (Web Blog Post). Retrieved from https://blog.ubabenefits.com/shrinking-talent-pools-mean-shifting-hiring-strategies


5 ways employers can leverage tech during open enrollment

How are you leveraging technology advancements during 2019 open enrollment? Technology is constantly changing the way employers select and offer benefits to their employees. Read this blog post to learn more.


Technology continues to reshape how employers select and offer healthcare benefits to employees, putting access to information at our fingertips and creating a more seamless and interactive healthcare experience. At the same time, these advances may help employees become savvier users of healthcare, helping simplify and personalize their journey toward health and, in the process, help curb costs for employers.

The revolution can be important to remember during open enrollment, which occurs during the fall when millions of Americans select or switch their health benefits for 2019. With that in mind, here are five tips employers should be aware of during open enrollment and year-round.

Make sense of big data

Big data is a buzzword, but the applications are only meaningful if employers can make sense of that information. To help with that, employers are gaining access to online resources to help enable them to more easily analyze and make sense of health data, taking into account aggregate medical and prescription claims, demographics, and clinical and well-being information. This can provide an analytics-driven roadmap to help employers implement tailored clinical management and employee engagement programs, which may help improve health outcomes, mitigate expenses and help employees take charge of their health.

Help people understand their options

More than three-quarters (77%) of employees say they are prepared for open enrollment, yet most people struggle to understand basic health insurance terms, according to a recent healthcare benefits company's survey. In fact, only 6% of survey respondents could successfully define all four basic health insurance concepts: plan premium, deductible, co-insurance and out-of-pocket maximum. To support employees during open enrollment, employers can adopt online platforms designed to personalize and simplify the experience to help people select a health plan based on their personal health and financial preferences while encouraging them to select a primary care physician and enroll in programs such as smoking cessation or weight loss.

Encourage your people to move more

An estimated 35% of employers now integrate wearable devices into their wellbeing programs, helping employees more accurately understand their daily activity levels. As these programs become more common, there may be opportunities for cost savings for companies and their workforces. For instance, some wearable device wellness programs may enable people to earn more than $1,000 per year by meeting certain daily walking goals, while employers can achieve premium renewal discounts based on the aggregate walking results of their employees.

Offer incentives to employees who comparison shop for care

More than one-third (36%) of Americans say they have used the internet or mobile apps during the last year to comparison shop for healthcare, up from 14% in 2012, according to a healthcare benefits company's survey. To encourage employees to participate in this trend, some employers are offering financial incentives — such as $25 or $50 gift cards — to employees for using healthcare transparency resources. Healthcare quality and cost varies widely within a city or neighborhood, so encouraging the use of online and mobile transparency resources may yield savings for employers and employees.

Integrate medical and ancillary benefits

Open enrollment is also the time for people to select important ancillary benefits, such as vision and dental coverage. While some people may overlook these plans, offering this coverage as part of an employee’s menu of benefits options may maximize the effectiveness of a company’s healthcare dollars, provide families with added peace of mind and help build a culture of health. Combining medical and ancillary benefits under a single health plan may enable for the integrated analysis of a wide range of data that can facilitate proactive outreach and clinical support for employees, including for people with chronic conditions such as diabetes or to help prevent the development of such conditions.
SOURCE: Madsen, R. (12 October 2018) "5 ways employers can leverage tech during open enrollment" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/list/5-ways-employers-can-leverage-tech-during-open-enrollment

What employers can do to combat risks of workplace opioid abuse

Workplace opioid abuse is posing a unique challenge for employers. Even appropriate use of prescription opioids can pose grave risks and dangers for companies and their employees. Continue reading to learn more.


The opioid epidemic presents a unique challenge for employers. While opioids can be beneficial for employees suffering from pain, they also pose grave risks and dangers for companies as even appropriate use of the drugs can cause impairment and lead to accidents.

For example, if an employee had an accident and suffers an injury, you may see the physical signs of the injury. However, it’s not as obvious if the employee was prescribed opioids for the pain associated with that injury. If the employee doesn’t disclose the prescription, they could resume their everyday duties, like operating machinery, when they should be restricted while using the drug.

Due to the increasing prevalence of opioid use, employers are likely now challenged with addressing misuse in the workplace. Often, companies may not know the best approach to supporting employees dealing with an opioid addiction. When speaking with employers, it’s important to stress the need for organizations to be well-versed in opioid misuse and ways to proactively identify and address it.

Employers can work to combat opioid use in their organization by providing accommodations and updating their policies, procedures and employee communications. Here are a few ways they can get started.

Short-term accommodations

If an employee is taking prescribed opioids for an injury and has specific limitations or restrictions, an employer can work with a disability carrier to determine potential short-term accommodations that can be made to meet the employee’s needs. Short-term accommodations can help keep an employee comfortable and productive at work during his or her recovery.

Policies and procedures

If an employer hasn’t done so already, it should consider putting a comprehensive drug policy in place to help it address issues that may arise if an employee misuses prescription drugs. The policy should include a description of available assistance options for employees who are struggling with substance abuse and clearly state consequences for employees who violate the policy, empowering supervisors to take appropriate action in response to employee issues.

Destigmatizing use

It’s easier to help someone if they come forward, but right now, stigma surrounding opioids can cause employees to keep their prescription use to themselves. Encouraging open lines of communication can help companies destigmatize prescription drug use so their employees feel comfortable disclosing the medications they’re taking that could limit them at work.

Fostering transparency, combined with short-term accommodations and clear policies, can help employees feel more comfortable coming forward with their condition. Remind employers that their disability carrier can be a great resource to help with education, recommend proactive ways to address misuse at their organization and create accommodation plans for employees in need. With these steps, employers can help support their employees and, ultimately, make the workplace a safer place for all.

SOURCE: Jolivet, D (16 October 2018) "What employers can do to combat risks of workplace opioid abuse" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/what-employers-can-do-to-combat-workplace-opioid-abuse-risk


4 best practices for implementing a gamification-based compliance training system

Are you considering implementing compliance-based training at your organization? With just a third of workers in America reporting that they feel engaged at work, implementing a gamification-based compliance training system can help boost engagement. Continue reading to learn more.


For most employees, compliance training is the Brussels sprouts on the kid’s plate of working life. Everyone knows it’s good for you — one mistake could lead to violations, accidents, reputation issues and maybe a not-so-friendly visit from regulatory body officials — but most workers turn up their noses and disengage when it’s time to dig in.

Considering that merely a third of American workers report feeling engaged at work as it stands, anything that makes matters worse is dangerous. Why risk inflaming indifference — not to mention spending money for on-site instructors — with dull-as-dry-toast workshops?

A far better bet is to embrace technology and go virtual. Of course, online-based compliance training won’t guarantee heightened participation or enthusiasm unless they have one specific aspect: gamification.

Gaming elements can turn any virtual compliance training learning management system (LMS) into an immersive experience. ELearning compliance training participants can enjoy customization and flexibility while getting up to speed on the latest rules, guidelines and protocols. With LMS gamification, HR managers and chief learning officers can cultivate and retain top talent. Best of all, it’s far easier to get buy-in for a robust LMS system with badges, bells and whistles than it is to make a pile of Brussels sprouts disappear from a toddler’s tray.

What exactly is so exciting about game-based learning? In essence, the process prompts active and immediate participation because of extra motivation in the form of rewards. Whether it’s badges or points, these features make eLearning interesting and enjoyable.

In one study, workers who enjoyed themselves retained concepts 40% better than those who weren’t having fun. As you might guess, this is what game-based learning is all about. Engaged employees who rapidly earn rewards are less likely to make errors, so they naturally increase a company’s bottom line and lower the likelihood of compliance fees and penalties. Plus, according to research from TalentLMS, 87% of employees report that gamification makes them more productive.

Merging gamification with training makes plenty of sense. It’s also easy to build a gamification-based compliance training LMS by following a straightforward LMS implementation checklist.

1. Identify your training goals and gaps. Before you can find the best LMS for your needs and move forward with an implementation project plan, you need to spot the inefficiencies of your existing compliance training program. For example, your strategy might not facilitate real-world applications. Knowing this, you would want a compliance training LMS that bridges gaps and imparts practical experience.

2. Discover what motivates and drives employees. Employee gamification only works when employees are properly incentivized, so find out what motivates your team based on their backgrounds and experience levels. Whether a task is challenging or boring, people respond better when they are internally driven to succeed.

Do you need an intuitive LMS with a personalized dashboard? Are the introverts on your team more driven by badges and points than by a sense of competition? Conduct surveys to gauge expectations, and try to follow a 70:20:10 model of training amplified by gaming to foster experimentation and collaboration.

3. Choose the right rewards for desired outcomes. With the plethora of LMS choices on the market, you can select from rewards and mechanics that lead to the exact behaviors and criteria you desire. Want employees to achieve safety online training certifications? Reward “graduates” with points after they have displayed their proficiency. Reinforce favorable behaviors without punishing workers who lag behind. Carrots are far more effective than sticks.

4. Invest in a feature-rich, gamification-supported LMS. Your LMS should not only be user-friendly, but it should also be a portal to game-based learning support and an online asset library. Ideally, your gamified learning platform should include themes and templates that allow you to design visually appealing rewards without reinventing the wheel. Just make sure you have game-based reporting on your side, which makes it simple to track employee performance, completion rates, and other LMS metrics.

Implementing a gamification-based compliance training strategy requires careful budgeting, planning, and analysis. Once you find an LMS platform that delivers the features you need within your price range, you’ll be on your way to mitigating risks and retaining superstar employees. And thanks to gamification, everyone can have a little fun along the way.

SOURCE: Pappas, C. (10 October 2018) "4 best practices for implementing a gamification-based compliance training system" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/4-best-practices-for-implementing-a-gamification-based-compliance-training-system?brief=00000152-14a5-d1cc-a5fa-7cff48fe0001


4 FAQs about 2019 Medicare rates

Medicare Part B premiums are expected to be held to roughly a 1.1 percent increase for most enrollees in 2019, according to Medicare managers. Continue reading for answers to the four most frequently asked questions about the 2019 Medicare rates.


Medicare managers announced last week that they will hold increases in Medicare Part B premiums to about 1.1 percent for most enrollees in 2019. For some high-income enrollees, however, premiums will rise 7.4 percent.

Medicare Part B is the component of the traditional Medicare program that covers physician services and hospital outpatient care.

Here’s a look at how the monthly Part B premiums will change, by annual income level:

  • Individuals earning less than $85,000, and couples earning less than $170,000:$135.50 in 2019, from $134 this year.
  • Individuals earnings $160,000 to $500,000, and couples earning $320,000 to $750,000: $433.40 in 2019, from $428.60 this year.
  • Individuals earning $500,000 or more, and couples earning $750,000 or more: $460.50 in 2019, from $428.60 this year.

The annual Medicare Part B deductible will increase by 1.1 percent, to $185.

Another component of the traditional Medicare program, Medicare Part A, covers inpatient hospital bills.

Medicare managers use payroll taxes to cover most of the cost of running the Medicare Part A program. Few Medicare Part A enrollees pay premiums for that coverage. But, for the enrollees who do have to pay premiums for Medicare Part A coverage, the full premium will increase 3.6 percent, to $437 per month.

The Medicare Part A deductible for inpatient hospital care will increase 1.8 percent, to $1,340.

Why are high earners paying so much more for Medicare Part B?

Congress has been increasing the share of Medicare costs that high earners pay in recent years.

For 2018, the top annual income category for Medicare Part B rate-setting purposes was for $160,000 and over for individuals, and for $320,000 and over for couples. Premiums from those Medicare Part B enrollees are supposed to cover 80 percent of their Part B claims.

In the Balanced Budget Act of 2018, Congress added a new annual income category: for individuals earning $500,000 or more and couples earning $750,000 or more. Premiums from Part B enrollees in that income category are supposed to cover 85 percent of those enrollees’ Part B claims.

Who do these rate increases actually affect?

Medicare now has about 60 million enrollees of all kinds, according to the CMS Medicare Enrollment Dashboard.

About 21 million are in Medicare Advantage plans and other plans with separate premium-setting processes.

About 38 million are in the traditional Medicare Part A, the Medicare Part B program, or both the Medicare Part A and the Medicare Part B programs. CMS refers to the traditional Medicare Part A-Medicare Part B program as Original Medicare. The rate increases have a direct effect on the Original Medicare enrollees’ costs.

How do the Medicare increases compare with the Social Security cost-of-living adjustment (COLA)?

The Social Security Administration recently announced that the 2019 Social Security COLA will be 2.8 percent.

That means the size of the COLA will be greater than the increase in Medicare premiums for all Medicare enrollees other than the highest-income Medicare Part B enrollees and the enrollees who pay the full cost of the Medicare Part A premiums.

Why should financial professionals care about Original Medicare premiums?

For consumers who already have traditional Medicare coverage, the Part A and Part B premiums may affect how much they have to spend on other insurance products and related products, such as Medicare supplement insurance coverage.

For retirement income planning clients, Medicare costs are something to factor into income needs calculations.

Because access to Medicare coverage is critical to all but the very wealthiest retirees, knowledge about how to get and keep eligibility for Medicare coverage on the most favorable possible terms is of keen interest to many consumers ages 50 and older. Some consumers may like to get information about that topic from their insurance agents, financial planners and other advisors.

Resources

Officials at the Centers for Medicare and Medicaid Services, the agency that runs Medicare, are preparing to publish the official 2019 Medicare rate notices in the Federal Register on Wednesday. A preview copy of the Part A notice is available here, and a preview copy of the Part B notice is available here.

SOURCE: Bell, A. (16 October 2018) "4 FAQs about 2019 Medicare rates" (Web Blog Post). Retrieved from https://www.benefitspro.com/2018/10/16/medicare-posts-2019-rates-pinches-high-earners-412/


IRS Releases Draft Forms and Instructions for 2018 ACA Reporting

The IRS recently released instructions and draft forms for ACA reporting for 2018. Continue reading to learn about the form and instructions changes.


The IRS recently released draft instructions for both the 1094-B and 1095-B and the 1094-C and 1095-C and the draft forms for 1094-B1095-B1094-C, and 1095-CThere are no substantive changes in the forms or instructions between 2017 and 2018, beyond the further removal of now-expired forms of transition relief. There is a minor formatting change to draft Form 1095-C for 2018. There are dividers for the entry of an individual’s first name, middle name, and last name.

In past years, the IRS provided relief to employers who made a good faith effort to comply with the information reporting requirements and determined that they would not be subject to penalties for failure to correctly or completely file. This did not apply to employers that failed to timely file or furnish a statement.

For 2018, the IRS has stated that it does not anticipate extending the “good faith compliance efforts” relief relating to reporting requirements. Employers should be ready to fully meet the reporting requirements in early 2019 with a high degree of accuracy. There is, however, relief for de minimis errors on Line 15 of the 1095-C.

The IRS confirmed there is no code for Form 1095-C, Line 16 to indicate an individual waived an offer of coverage. The IRS also kept the “plan start month” box as an optional item for 2018 reporting.

Employers must remember to provide all printed forms in landscape format, not portrait.

SOURCE: Hsu, K. (27 September 2018) "IRS Releases Draft Forms and Instructions for 2018 ACA Reporting" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/irs-releases-draft-forms-and-instructions-for-2018-aca-reporting


Severance plans: How savvy employers can stay ERISA compliant

There are significant benefits associated with severance arrangements that are also ERISA plans. Read this blog post to find out how you can stay ERISA compliant with your severance plans.


An employer’s promise to provide severance benefits may be written or oral, formal or informal, and individual or group. Determining whether an ERISA plan already exists, or whether an employer wants its severance arrangement to be subject to ERISA, is an important consideration in determining an employer’s obligation and liabilities associated with a severance arrangement.

There are significant advantages associated with a severance arrangement that is an ERISA plan as discussed in detail below. An employer, however, cannot unilaterally decide that the severance arrangement is an ERISA plan. Instead, an employer, when designing and administering a severance arrangement, can take definitive steps to ensure that the arrangement is treated as an ERISA plan.

Employers may assume that the first step to ensure the existence of an ERISA plan is to have a written plan document, which is required by ERISA. Surprisingly, this is not necessarily determinative as to whether an ERISA plan exists. Courts have held that ERISA plans can exist without a written plan document and vice versa.

Case law has provided the broad outlines of the nature of an ERISA-governed severance plan. An essential characteristic of ERISA severance plans is that, by their nature, they necessitate “an ongoing administrative scheme.” Courts have looked at the following indicators when determining what constitutes an ongoing administrative scheme:

  • The employer’s discretion in determining (1) eligibility for benefits or (2) available plan benefits
  • The form of payment such as lump sums versus periodic payments
  • Any ongoing demand on the employer’s assets such that there is an ongoing scheme to coordinate and control the distribution of benefits
  • Calculations based on certain factors such as job performance, length of service, reemployment prospects, and so forth.

Severance plans or arrangements that normally do not require an ongoing administrative scheme, and therefore, do not implicate ERISA, are plans that have lump-sum payments that are calculated under a formula and are mechanically triggered by a single event (such as termination). Where severance payments are made over time (through payroll, for example) and/or additional benefits (such as continuation of benefits or outplacement services) are provided, the severance arrangement is likely subject to ERISA.

As a practical matter, whether severance arrangements are ad hoc or recognized in a formal plan document, they may end up providing ERISA-covered benefits. In a dispute, an employer generally prefers that ERISA applies because of ERISA’s preemption of state laws. Preemption protects employers from state laws that may favor employees and generally limits the dispute to an ERISA claim for benefits, thereby avoiding the potential exposure to punitive, extra-contractual or special damages under state laws. In addition, ERISA’s claim procedure, which provides a pre-litigation administrative process for dispute resolution, will apply if proper plan language is provided. If employees with a severance claim fail to faithfully follow the ERISA claims procedure, their lawsuits may be dismissed for failure to exhaust administrative remedies.

Typically, the plan document gives the employer, in its capacity as plan administrator, the discretionary authority to interpret the plan’s language and make decisions about the plan. If the employee follows the claim procedures and the claim is denied, the decision-making process of the employer (or its designee) if done properly, is given deferential treatment by a reviewing court. Moreover, in many cases, judicial review is limited to only those matters addressed in the administrative record of the claim. In other words, many federal courts would decline to consider factual matters that were not raised by the employee in the claim procedure process.

Another consideration for the savvy employer is that severance benefits are almost always considered to be “welfare” benefits. Welfare benefits, as opposed to pension benefits, are afforded an extremely low level of protection under ERISA. Essentially, the employer’s exposure as to promised severance benefits is only as broad as its express contractual commitment to them. By appropriately documenting the benefits with “best practices” language (such as specifying that the amendment or termination of benefits may be done with or without advance notice), employers can take advantage of the opportunity afforded by the relatively thin protections provided by ERISA. On the other hand, poor or no documentation of a severance arrangement may leave an employer with difficult-to-prove assertions as to what severance commitments were actually made.

In summary, an ERISA-governed plan provides an employer with significant advantages in litigation. In addition, a severance arrangement subject to ERISA will enjoy the powerful benefits of ERISA preemption and the ERISA claims procedures.

SOURCE: Rothman, J.; Ninneman, S. (3 October 2018) "Severance plans, Part 1: How savvy employers can stay ERISA compliant" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/opinion/how-employers-can-stay-erisa-compliant-with-severance-plans


Compliance Recap - September 2018

September was a relatively busy month in the employee benefits world.

The Internal Revenue Service (IRS) released draft 2018 instructions for Forms 1094-B, 1095-B, 1094-C, and 1095-C. The IRS also issued an information letter regarding health flexible spending accounts and guidance on the employer credit for paid family and medical leave. The Congressional Research Service published its updated Federal Requirements for Private Health Insurance Plans.

UBA Updates

UBA released one new advisor: IRS Releases Draft Forms and Instructions for 2018 ACA Reporting

UBA updated existing guidance:

IRS Issues Draft 2018 Instructions for Forms 1094-B, 1095-B, 1094-C, and 1095-C

The Internal Revenue Service (IRS) recently released draft instructions for both the 1094-B and 1095-B and the 1094-C and 1095-C and the draft forms for 1094-B, 1095-B, 1094-C, and 1095-C. There are no substantive changes in the forms or instructions between 2017 and 2018, beyond the further removal of now-expired forms of transition relief. There is a minor formatting change to draft Forms 1095-B and 1095-C for 2018. There are dividers for the entry of an individual’s first name, middle name, and last name.

In past years, the IRS provided relief to employers who made a good faith effort to comply with the information reporting requirements and determined that they would not be subject to penalties for failure to correctly or completely file. This did not apply to employers that failed to timely file or furnish a statement.

For 2018, the IRS has stated that it does not anticipate extending the “good faith compliance efforts” relief relating to reporting requirements. Employers should be ready to fully meet the reporting requirements in early 2019 with a high degree of accuracy. There is however relief for de minimis errors on Line 15 of the 1095-C.

Read more about the draft ACA reporting forms and instructions.

IRS Issues Information Letter Regarding Health FSAs

The Internal Revenue Service (IRS) issued Information Letter 2018-0012 to reiterate that employers can include a provision in a heath flexible spending arrangement (FSA) that allows up to $500 in unused amounts at the end of the plan year to be carried over to the next plan year. However, any carryover amount cannot be accumulated in the health FSA over several years.

The IRS also indicates that a health savings account (HSA) would allow unused amounts to be accumulated and used in any later year. Further, the IRS indicates that a heath reimbursement arrangement (HRA) can be structured to allow for unused amounts to be accumulated and used for medical expenses in later years.

IRS Issues Guidance on Employer Credit for Paid Family and Medical Leave

The Internal Revenue Service (IRS) released Notice 2018-71 (Notice) that provides Q&A guidance on the Internal Revenue Code Section 45S employer credit for paid family and medical leave (FML). The IRS clarified several items in its guidance, including:

  • An employer does not need to be subject to Title I of the Family and Medical Leave Act of 1993 (FMLA) to be eligible for the employer credit for FML
  • A description of what the employer’s written policy must contain, including sample “non-interference” language
  • Under Section 45S, paid leave is considered FML only if the leave is specifically designated for one or more FMLA purposes, may not be used for any other reason, and is not paid by a state or local government or required by state or local law
  • An employee does not need to work a minimum number of hours per year to be a qualifying employee
  • Each member of a controlled group generally makes a separate election of whether to claim the credit
  • An employer must file IRS Form 8994, Employer Credit for Paid Family and Medical Leave, and IRS Form 3800, General Business Credit, with its tax return to claim the credit

Read more about the IRS’ Q&A guidance.

CRS Publishes Updated Federal Requirements on Private Health Insurance Plans

The Congressional Research Service (CRS) published its updated Federal Requirements on Private Health Insurance Plans which summarizes federal requirements that apply to the private health insurance market, including a table that indicates whether a particular federal requirement applies to a fully-insured large group plan, fully-insured small group plan, self-funded plan, or individual coverage.

Question of the Month

Q. We recently received a medical loss ratio (MLR) rebate. How should the money be distributed?

A. If the plan document states how a rebate should be used, then the plan administrator should follow the plan document’s terms.

If the plan document is silent on how the rebate should be distributed, then the following general principles apply.

How should the rebate be divided?

Assuming both the employer and employees contribute to the cost of coverage, the rebate should be divided between the employer and the employees, based on the employer’s and employees’ relative share. Employers may divide the rebate in any reasonable manner – for example, the rebate could be divided evenly among the employees who receive it, or it may be divided based on the employee’s contribution for the level of coverage elected.

Employers are not required to precisely determine each employee’s share of the rebate, and so do not need to perform special calculations for employees who only participated for part of the year, moved between tiers, etc.

Using the example that the rebates are based on premiums paid to the carrier for calendar year 2017, the employer may pay the rebate only to employees who participated in the plan in 2017 and are still participating, only to current participants (even though the rebate relates to 2017), or to those who participated in 2017, regardless whether they are currently participating.

Insurers must send a notice to all employees who participated in the plan in 2017 stating that a rebate has been issued to the employer, so employers who choose to limit rebate payments to those who are currently participating should be prepared to explain why the rebate is only being paid to current participants. This might include the fact that since the rebate would be taxable income, the amount involved does not justify the administrative cost to locate former participants and issue a check.

Are former plan participants entitled to a share of the rebate?

Whether former participants should be included in any rebate allocations depends on the type of plan involved. For ERISA plans, there is no requirement that former participants be included or excluded. However, the Department of Labor’s (DOL) Technical Release, in discussing fiduciary decisions regarding distribution of rebates, states that if a fiduciary determines that the cost of including former participants in a rebate distribution approximates the amount of the rebate, the fiduciary may properly decide to allocate the rebate only to current participants. This means that plan fiduciaries should consider whether to include former participants and should make a prudent decision based on all of the facts and circumstances.

For non-federal governmental plans, the interim final regulations specifically require any portion of a rebate that is based on former participants’ contributions to be aggregated and used for the benefit of current participants.

For nongovernmental, non-ERISA plans, the interim final regulations provide that if the rebate is paid to the policyholder (which is only permissible if the policyholder has given the insurer written assurance that meets the requirements of the regulations), the policyholder must allocate the rebate to current participants only, in the same way as a non-federal governmental plan. If the rebate is paid directly to participants by the insurer (because the policyholder has declined to provide a written assurance), the insurer must distribute the rebate equally among those who were participants during the MLR reporting year on which the rebate is based.

How may the employer use the rebate?

The employer may pay the rebate in cash, use it for a premium holiday, or use it for benefit enhancements. The rebate must be applied or distributed within 90 days after it is received.

A cash rebate is taxable income to the employee if it was paid with pre-tax dollars.

A premium holiday should be completed within 90 days after the rebate is received (or the rebate needs to be deposited into a trust).

Benefit enhancements include reduced copays or deductibles (which may not be practical due to the timing requirements) or wellness-type benefits that the employer would not have offered without the rebate, such as free flu shots, a health fair, a lunch and learn on nutrition or stress reduction, or a nurse line.

How should the rebate be provided?

The employer should consider the practical aspects of providing a rebate in a particular form.

Generally, the larger the amount that would be due to an individual, the more effort the employer should make to directly benefit the person (either through a cash rebate or premium holiday). While benefit enhancements are permissible, a large rebate should be used to provide a direct benefit enhancement, such as a reduced co-pay, and not for a general benefit, such as flu shots.

The agencies have not provided any details as to what amount is so small that it does not need to be returned to the employee. (Insurers are not required to issue a rebate check to individuals if the amount is less than $5.00.) A cash rebate is taxable income if the premium was paid with pre-tax dollars, so issuing a check that is very small after taxes should not be necessary. If an employer knows it costs $2.00 to issue a check, issuing a rebate check for $1.00 should not be necessary. However, an employer cannot simply keep the rebate if it determines that cash refunds are not practical – it will need to use the employee share of the rebate to provide a benefit enhancement or premium reduction.

*This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.