Plan Administrators – Due Diligence

Jul 21, 2014

As a plan administrator, you have certain responsibilities that will not only enhance employee satisfaction but could also prevent you from making errors resulting in employer liability.

Group benefits (life, accidental death & dismemberment, short and/or long term disability, health and dental care) are a valuable part of an employee’s compensation. According to the Sanofi-Aventis Health Survey in 2011, when a group of employees were offered a $10,000 raise vs. keeping their health benefits, 59% voted for the latter. So we know benefits are important to your employees – let’s now make sure you have a best practices approach to your plan’s administration.

First, we encourage you to send out a memo to each employee once a year with a snapshot of their benefits, along with a list of their dependents and beneficiaries on record. Life events, such as marriage/divorce, birth of a child/adoption, can happen during the course of the year and you may not beware of those changes and plan members might not understand the implications some of those changes have on their coverage.

For example, if Jane got married last year, did she update her beneficiary to her new spouse? It could still be her mom, or sister – maybe a friend. Should Jane unexpectedly die during her employment without updating her beneficiary, the group life insurance benefit would go to someone other than the new spouse and that might not be Jane’s intention.

You might be wondering, “Why Should I have to do this? Isn’t it up to each employee to look after this?” The answer is yes and no. There are more than just a few legal precedents finding the plan administrator, the employer and the insurance company jointly and severally responsible and liable for damages under similar circumstances.

Second, we recommend that you hold an employee information meeting once every year or two and have your benefits consultant or insurer provide employees with an update and other important information on your benefits plan. This interaction with your service providers will result in an informed employee and a high degree of engagement.

By keeping your employees informed, you can better mitigate exposure to potential liability issues. In Card Estate v. John A. Robertson Mechanical Contractors (1985) Ltd. (1989), 26 CCEL 294, (Ont. H.C.), an employee was terminated without being told that his life insurance was terminated and that he had 31 days to convert the group policy to an individual policy. The court found the employer was liable to the employee’s estate when he died during the notice period.

In summary, a great plan administrator upholds all the above mentioned responsibilities. Not only will your due diligence prove to be crucial for the employee’s intended beneficiaries during catastrophic events, it will also safeguard you from any potential litigation.

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