hr and bene ts updateayallc.com/documents/2012_ hr_benefits_ updates.pdf · page 3 of 4 hr and bene...

Key Elements for a Successful ProgramMany employers have launched employee wellness programs in recent years with different degrees of success…or failure. What are the factors that differentiate between a successful program and one that never seems to gain traction among employees?

Employee wellness programs have typically been implemented by large employers who have resources to dedicate to a wellness program, but in recent years mid-size and smaller employers have aggressively been implementing wellness programs.

Why Wellness?The number one reason most companies implement wellness programs is to control healthcare costs, but it’s not the only reason. Successful programs have proven valuable for other reasons:

• Reducingcostsandlostworktimerelatedtoshorttermdisability;

• ReducingcostsandlostworktimerelatedtoWorkers’Comp injuries;

• Improvingproductivity;

In This Issue:▶ Key Elements for a Successful

Program

▶ Considering a Safe Harbor 401(k) Plan

▶ the workplace HELPLINE – Question of the Month

▶ Compliance FAQ

continues >

HR and Benefits UpdateJanuary – February 2012

HR and Benefits Update January – February 2012 of 4

• Creatingapositive,healthyworkplaceculture;and

• Demonstratingtheemployer’sconcernforitsemployees.

Key Elements for a Successful ProgramAllsuccessfulwellnessprogramshaveseveralcommontraits.Youmayfindliststhatincludefive,sevenoreven12keyelements.Itisdesirabletohaveasmanyattributesworkingtosupportyourprogramaspossible,butwehavefoundfourabsolutely essential components:

• Well-designedyear-roundstrategythatincorporatesavarietyofactivities;

• Effective,well-executedcommunicationsplan;

• Meaningfulincentivesthatdriveemployeeengagement;and

• Visiblesupportfrommanagementatalllevels.

The Wellness PlanA good plan will be systematic, with goals and objectives. Those goals and objectives will help determine which activities will be included in the program. Also, the choice of activities should consider what employees will enjoy doing and find worthwhile.Theplanshouldincludeactivitiesthatmakeemployeesawareoftheirneedtomakeimprovements,andincreasetheirreadinesstodoso.Itshouldincludeactivitiesthateducateemployeesabouthowtomakechanges,andactivitiesthatencourage them to practice new behaviors.

CommunicationsThemessageshouldbeconciseandclear.Employeesshouldknowthebenefitsofbecomingengaged,howtobeengaged,andhowtotrackit.Themessageshouldappropriate,friendly,andpositive.Messagesthataretooclinicalordemandingwillbeintimidating for some employees.

Themediaarethechannelsofcommunicationsthatyoucanusetoreachyouremployees.Everyworkplaceisunique.Youmayuseemails,newsletters,flyers,postcards,paycheckinserts,bulletinboards,departmentalmeetings,ormemos.Useanyandall media that gets your employees’ attention.

IncentivesIncentivescanbeusedtodriveengagementratesof85%orhigher.Yourincentivesneedtomatchthegoalsofyourprogram,yourculture,andtheactionsrequiredtoearntheincentive.Someofthemoresignificantincentivesareintheformofbenefitsimpact,suchasalowerdeductibleorlowerpremiumoremployercontributionintoanHSAorHRA.Therearetaximplications,andsomethingsanemployershouldnotdotoavoidHIPAAandADAissues.

Management SupportManagement support may begin with simple environmental adjustments and grow to more policy and culture changes, including compensation and benefit strategy. Managers who most actively promote wellness to their employees should be rewarded for doing so.Reprinted with permission from Principal Wellness Company; www.principalwellness.com.

Considering a Safe Harbor 401(k) PlanItmaybeadvantageousforaplansponsortoconsideradoptingasafeharbordesignforits401(k)plan.Adoptingasafeharbor401(k)plandesignpermitsanemployertoessentiallyavoiddiscriminationtesting(thetestingisdeemedmet).Remember,thistesting limits highly compensated employees’ contributions based upon non-highly compensated employees’ contributions. By makingasafeharborcontribution,highlycompensatedemployeescandeferthemaximumamountallowedbytheirplanandInternalRevenueCodelimits,withoutreceivinganyrefunds.Generalrulesforallsafeharborcontributionsinclude:

• Safeharborcontributionsare100percentvested.

• Theremaybenoallocationrequirementsimposedonsafeharborcontributions,suchasa1,000-hourservicerequirementora last day employment rule.

• Safeharborcontributionsmaybeusedtowardsatisfyingthetop-heavyplanminimumcontributionrequirement.

• Alleligibleparticipantsmustreceiveawrittennoticedescribingtheapplicablesafeharborprovisionsbetween30and 90daysbeforethebeginningoftheplanyear.Thisnoticemustbeprovidedforeachyeartheplanwillbesafeharbored.

continues >


Generally,therearetwotypesofsafeharborcontributions:thenonelectivecontribution,whichisa3percentcontributiontoalleligible participants, or a matching contribution to participants who are contributing to your plan.

There are two options from which to choose for the matching contribution: the basic or the enhanced match. The basic safe harbormatchingcontributionisdefinedasa100percentmatchonthefirst3percentofcompensationdeferredanda 50percentmatchondeferralsbetween3percentand5percentofcompensation.Alternatively,theemployermaychooseanenhancedmatchingformulaequaltoatleasttheamountofthebasicmatch,e.g.,100percentofthefirst4percentdeferred.

Thatsaid,employerswishingtoexploreasafeharborsolutionshouldalsobeawarethatitmayentailmorecostiftheirpresentcontributionstructureislessthantherequiredsafeharborrequiredstructure.

To learn if a safe harbor feature is appropriate for your plan, contact your plan consultant.

the workplace HELPLINE – Question of the Month

Email Subject: What is the proper process for layoffs?

Full Question: Weareenteringourslowseasonandweneedtolaypeopleoff(atleasttemporarily).Wewanttomakesurethatwedoitproperly. Can you tell us the proper process for layoffs, both temporary and permanent?

Response:Barring any applicable collective bargaining agreements or other employment contracts that govern termination of employment, anemployerisgenerallywithinitsrightstomakestaffingdecisions,includinglayoffandreorganizationaldecisions,asitseesfittomaximizeeffectiveness,productivity,andprofitability.Thejustificationforanylayofforreducedcapacitydecisionandthe selection criteria must be legitimate and not unlawfully discriminatory. When determining which employees to select to be impactedbysuchdecisions,anemployerwouldbewithinitsrightstousecriterialikeseniorityortenure,classification(i.e.,full/parttime),pastperformance,skillset,valuetotheemployer,flexibilityforfuturerolesintheorganization,orsomecombinationofthese,butitisnotrequiredtousealloranyparticularone.Indeeditisabusinessdecisiontodeterminethecriteriatousetomakelayoffdecisions,solongastheyarenotunlawfullydiscriminatoryorretaliatory.Note,however,thatifanemployerusesattendanceandflexibilityasselectioncriteria,totheextentanyemployeehadunsatisfactoryattendanceorlessflexibilityduetothingslikedisabilityorreligiousbeliefsorotherprotectedclassstatus,itWOULDbeunlawfultousethesefactorsinmakinglayoff selection decisions.

The best practice relative to conveying a layoff decision is just to be candid with the affected employees about the layoff decision and why they were selected for impact. Should business needs later justify increased headcount, or if a position becomesavailablebecauseanotheremployeehasvoluntarilyvacatedit,wearenotawareofanylegalrequirementimposeduponanemployertorehirelaid-offorterminatedemployees.Employersgenerallyhavetherighttohirethebestqualifiedpersonforavacantposition.Ideally,theemployershouldbecandidatthetimeofalayoffaboutwhethertheimpactedemployeeswouldbeeligibleforrehireornot(withoutmakinganypromisesorcommitments).

You can always give greater weight or consideration to former employees, which may impact them positively, if they were good performers,ornegatively,iftheywerenot,ifyouchoosetomakethatpartofthehiringcriteriawhentherearejobopeningslateron.Ifaformeremployeeispassedoverforrehireandseekstochallengethatdecisionasdiscriminatory,ifyoucanarticulatealegitimate,nondiscriminatoryjustificationforthedecision(i.e.,youhiredabetterqualifiedcandidate),yououghttobeabletodefendsuchaclaim.However,ifyouadviseanylaid-offworkerthathe/shewillbeeligibleforrehire,andthenfailtoeven consider that person for re-employment without a legitimate justification for the turnaround, it would be more difficult to defend a challenge to the decision.

Ultimately,thebestpracticeistobeveryclearwithimpactedemployeesatthetimeofalayoffaboutwhetherornottheywillbeeligibleforrehire.Ifyouare,thereshouldbenolegalissuesassociatedwithnotconsideringand/ornotrehiringalaidoffemployeewhowaspreviouslyadvisedofhis/hereligibility(orineligibility)forreemployment(andassumingthereasontheindividualwasnoteligibleforrehirewaslegitimate,asitshouldbe).

©2011Gordon&Rees,AllRightsReserved.

continues >


12/11 (BP-14443-11-11) Copyright © 2011. All rights reserved.

Compliance FAQWe have a client who is subject to COBRA but has not been sending out the COBRA Initial Notice when an employee was hired or when a new spouse was added to the plan. How should the client fix this?

AgrouphealthplanthatissubjecttoCOBRAmustfurnisheachcoveredemployee(andhisorherspouse,ifany)awrittennoticeofCOBRArights“atthetimeofcommencementofcoverageundertheplan.”1TheCOBRAInitialNoticemustbedistributedtonewparticipants(andspouses)within90daysofthedatecoveragebegins.2TheU.S.DepartmentofLaborhasprovided a model notification to use for all employees and spouses covered under the plan.3

PlansfrequentlyfailtoprovidearequiredCOBRAInitialNotice,andthatfailurecanhaveseriousconsequences.TheInternalRevenueService(IRS)mayimposeexcisetaxes.Acourtmayawardcivilpenaltiesagainsttheplanadministratorand“initsdiscretionmayordersuchotherreliefasitdeemsproper.”

TherearepenaltiesthatcanapplyundertheInternalRevenueCode(IRC)andERISAforthefailuretoprovidetimelynotification.IfthefailuretoprovidetheCOBRAInitialNoticeisduetoreasonablecauseandnotwillfulneglect,andifthefailureiscorrectedwithin30days,thennoIRSexcisetaxeswouldapply.However,IRC§4980B(c)(2)statesthatiftheviolationisnotcorrectedwithin30daysofdiscovery,thentheemployermustself-reporttheviolationonIRSForm8928andanexcisepenaltyof$100perdaywouldbeassessed.Italsostatesthatthe30-dayperiodbeginsonthefirstdateanyofthepeopleresponsibleforadministeringorprovidingbenefitsundertheplan(andwhoseactorfailuretoactcausedthefailure)kneworbyexercisingreasonablediligencewouldhaveknownthattheplanfailedtoprovidethenotification.

The employer could also potentially be subject to legal action since a lawsuit may be brought by a participant for failure to provideatimelynotice.Civilpenaltiesofupto$110perdayunderERISAarediscretionarywiththecourt.4

Therefore,ifaplanhasfailedtoprovidearequiredCOBRAInitialNotice, it should provide the notice immediately to all individuals to whom the initial notice should have been provided.

Endnotes1ERISA§606(a)(1).229CFR§2590.606-1.3U.S.DepartmentofLabor.“ModelGeneralNotice.”www.dol.gov/ebsa/compliance_assistance.html.4ERISA§502(c)(2).

This material was created by National Financial Partners Corp., (NFP), its subsidiaries, or affiliates for distribution by their Registered Representatives, Investment Advisor Representatives, and/or Agents.

This material was created to provide accurate and reliable information on the subjects covered. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Neither NFP nor its affiliates offer legal or tax services.

Interviewing Tips: 6 Common Interviewing MistakesSelecting and hiring the perfect employee is a difficult task, but if done right, it is one of the most important moves you can make for your business. In today’s economy, there is no room for bad hiring decisions and the interview process plays a key role in hiring the best candidate for the job.

Interviewing is an art, but few people are artists. We’ve all been there: as anxious job candidates, we researched the prospective company, prepared résumés, perfected our elevator speech and dressed in the perfect business attire. But, believe it or not, conducting the interview takes just as much – if not more – preparation and skill. Effective interviewing skills only come with practice, experience and know-how.

Here are six common errors to avoid when conducting an interview:

1. Rely on First Impressions Interviewers tend to make rapid decisions about the qualifications of a candidate within the first few minutes of the interview based on minimal information. What you first see is

In This Issue:▶ Interviewing Tips: 6 Common

Interviewing Mistakes

▶ Health Plan Savings Through Dependent Eligibility Audits

▶ The Three Stages of Rebuilding

▶ Compliance FAQ

continues >

HR and Benefits UpdateMarch – April 2012

HR and Benefits Update March – April 2012Page 2 of 4

not always what you get! It is important that interviewers reserve their judgment until sufficient information on the candidate is gathered.

2. Emphasize on the Negatives Unfavorable information tends to be more influential and memorable than favorable information, but an effective interviewer shouldn’t focus solely on the negative. He or she needs to keep an open mind to see all the candidate’s strengths and weaknesses.

3. Not Knowing the JobInterviewers who don’t have a comprehensive understanding of the job often form their own opinion of the ideal candidate. But how can someone select the best person for the job if they don’t fully understand the demands and skills needed for the position? To be successful in the selection process, interviewers must fully understand all the job requirements to know whether an individual is really right for the position.

4. Pressure to Hire When interviewers believe they need to make a decision quickly, they tend to make decisions based on a limited sample of information or on a small number of candidate interviews. Interviewers should stick to the established interview procedure and timeline with each candidate to avoid making the wrong hiring decision.

5. Contrast Effects The order in which the candidates are interviewed can affect the ratings given to those candidates. While making ratings, interviewers shouldn’t compare a candidate to those who were previously interviewed. Again, keep an open mind and rate each candidate based on his or her information and ability to do the job.

6. Nonverbal Behavior Interviewers should base their evaluation of the candidate on their past performance and current behavior as it relates to how they will perform on the job – not just on how the candidate acts during the interview. Questions and probes relating to skills and work behavior will usually direct the interviewer to the most important information.

Avoiding these common interviewing mistakes will help you select and hire the best person for the job!Reprinted with permission from Business Insight Technologies. www.hiringstrategies.com.

Health Plan Savings Through Dependent Eligibility AuditsWith systematic increases in health plan costs over the past decade, employers have become much more proficient in identifying cost-savings measures, such as increasing plan deductibles, analyzing claims trends, increasing employee contribution rates and implementing wellness programs. An often overlooked opportunity to achieve significant cost savings is through a dependent eligibility audit. A dependent eligibility audit is a process whereby an employer or third-party administrator requests each covered dependent submit documentation, such as marriage certificates, birth certificates or tax documents, to verify eligibility.

Mercer, a benefits and HR consultancy, conservatively estimates that 3–8 percent of covered family members (spouses and dependents) cannot produce valid verification of eligibility during an audit.1 With employers paying, on average, $2,100 to cover a dependent,2 it’s easy to see how lucrative implementing a dependent eligibility audit can be from a cost-savings perspective. While the potential savings can be substantial, it’s critical that a well-defined process be implemented before undertaking a dependent eligibility audit. Here are a few factors to consider before implementing a dependent eligibility audit:

CommunicationDon’t underestimate the importance of developing a comprehensive communications strategy surrounding a dependent eligibility audit. The success or failure of a dependent eligibility audit is dependent on how well the process is communicated before, during and after the audit. Some important questions to answer while developing your communications strategy are:

• Howwillemployeesandtheirdependentsbenotifiedaboutthedependenteligibilityaudit?Email?Traditionalmail?Multiple delivery methods?

• Whathappenswhenemployeesdon’trespondtotheinitialcommunication?

• Who’sresponsiblefordeliveringthecommunication?Theemployer?Athird-partyadministrator?

• Towhomdoemployeesandtheirdependentssendtheireligibilityverificationdocumentation?

• Whatdoemployeesneedtoknowabouttheappealprocess?

continues >


• Whatroledothecompany’smanagersplayincommunicatingandeducatingemployeesabouttheauditprocess?

• Whatspecialconsiderations,ifany,needtobemadetocommunicatewithinternationalandexpatriateemployees?

TimingIn addition to developing a sound communications strategy, employers should not minimize the importance of determining the time of the year the audit will be implemented. Since a successful dependent eligibility audit has many moving parts – the audit itself, following up with nonresponsive employees and their dependents, the appeals and adjudication process, etc. – employers would be wise to map out well in advance the best time of year to implement the audit, especially in light of other scheduled company initiatives, such as open enrollment.

ComplianceWhile a dependent eligibility audit may result in a certain percentage of dependents losing their eligibility, employers should be aware of, and comply with, any and all state and federal regulations before terminating a dependent’s coverage. Two of the more notable regulations employers need to be in compliance with are COBRA and laws involving medical leaves of absence, such as “Michelle’s Law.”

Implementing a dependent eligibility audit can be an effective means for employers to reap further cost savings from their health care plans. While the savings can be substantial, the dependent eligibility audit process can be a time-consuming endeavor. However, having a well-defined plan in place will equip employers to successfully implement a dependent eligibility audit.

The Three Stages of RebuildingOver the past few years, participants have seen widely varied results in their retirement plans. First we saw tremendous drops in values, most notably in the fourth quarter of 2008. In 2009, there was a rebound effect, with more volatility in 2010 and 2011. This volatility left participants wondering what they should do next.

Following is a summary of the three stages of rebuilding.

• Stage1:EmotionaltoRational— For years participants invested with their emotions. This often led to increased risk by participants who wanted to make sure they were “getting their share” when the markets were strong. In some cases, it also led to pulling out of the market well after their plans had dropped in value. In either case, the investment decision was based on emotion, not on realistic goals for the future. The first step in rebuilding a retirement plan is for participants to set rational goals and understand and use the types of investments that can assist them.

• Stage2:InertiatoAction — For too many participants, the only action they will ever take regarding their retirement account is to complete an enrollment and withdrawal form. They feel they have no control over, or understanding of, their account. It’s important to remind them of their ability to choose, monitor and change their account. Original investments might need to be rebalanced or changed to something more appropriate. Participants need to take a more active role, such as sitting down with a financial professional for assistance.

• Stage3:Short-termtoLong-term— Those participants who do take an active role often spend too much time on short-term issues, such as market movement and economic indicators. If participants focused on long-term goals, they could position themselves to take advantage of shorter-term volatility. Thus a 30-year-old investor who experiences a fund that drops 10–20 percent in value may view it as a dollar-cost-averaging opportunity, instead of a reason to change strategy. Markets are always differing in their respective performance, but a long-term investment strategy can help build a pool of mutual fund shares that takes advantage of market movement.

Perhaps the most effective way to communicate with employees about these phases is through education. Group meetings followed by an opportunity to meet with a financial professional on an individual basis are one way to spark interest. Contact your plan consultant for details.

Compliance FAQUnder Section 125 of the Internal Revenue Code, when an employee discovers a mistaken election made at open enrollment, may the election be changed after the plan year has begun?

Many mistakes could potentially occur in communicating and executing employee elections under a Section 125 plan, both by the employer and the employee. Unfortunately, there’s not much Internal Revenue Service (IRS) guidance on how to correct those mistakes, as the IRS generally leaves the adjudication of such mistakes, and deciding whether or not to correct them, to the employer. That said, IRS officials have consistently stated that where there’s “clear and convincing” evidence of a mistake,

continues >


78745 3/12 (BP-14616-12) Copyright © 2012. All rights reserved.

an election change may be warranted. Whether there’s clear and convincing evidence depends on the particular facts of a situation. To make that determination, some plans use an impossibility approach, while others use a facts and circumstances approach.

Under the “impossibility” approach, an election change is allowed only if the evidence indicates that it was impossible for the employee to benefit from the mistaken election. For example, if an individual makes a Dependent Care Assistance Program (DCAP) election by mistake, and that individual actually has no qualifying dependents, it would be impossible for the individual to benefit from the mistaken DCAP election. In that instance, there’s evidence of a mistake that warrants an election change.

Under the “facts and circumstances” approach, mistakes may be corrected if the plan administrator can reasonably ascertain that a mistake actually occurred. This approach may involve inquiring about the employee’s intentions, which may be intrusive. We recommend that when employing the facts and circumstances approach, the employer adopts and applies written guidelines that require consideration of factors such as the employee’s past elections and benefits usage, plausible evidence of a clerical mistake, assessment of the employee’s truthfulness or any change in the employee’s circumstance that might indicate reconsideration rather than a mistake. To limit abuse, the plan could also require that the employee sign a written statement describing the mistake and the intended election, or adopt a time frame in which requests for corrections of mistaken elections must be made.

Importantly, if a mistake is discovered, that election change should only be effective on a prospective basis. This is because a retroactive termination of coverage would constitute a rescission, which is now prohibited under federal health care reform (except in cases where the individual has engaged in fraud or made an intentional misrepresentation of material fact). The interim final regulations make clear that inadvertent misstatements of fact do not give rise to a permissible rescission — meaning that coverage could not be cancelled retroactively. Instead, plans are permitted to correct errors by cancelling coverage prospectively, not by retroactively rescinding coverage, unless there was some fraud or intentional misrepresentation by the employee. So the election change should be allowed only on a prospective basis to avoid issues under health care reform’s prohibition on rescissions.

Finally, there may be other laws to consider, such as state wage withholding laws. Many states require employers to obtain written employee authorization for any salary reductions. Thus, if the election change requires a salary reduction change, state law may come into play.

One way to reduce the likelihood of election mistakes is to provide employees with written confirmation of their elections after open enrollment and before the beginning of the new plan year. Employees could also be reminded to review their elections and to let the employer know before the plan year begins if any corrections are needed.

Endnotes1 Mercer. “Dependent eligibility audits can offer both cost savings and data clarity.” 2010. www.mercer.com/press-releases/1385345.2 Ibid.

For additional information regarding any of the articles in this newsletter, please contact your benefits advisor.

This material was created by National Financial Partners Corp., (NFP), its subsidiaries, or affiliates for distribution by their Registered Representatives, Investment Advisor Representatives, and/or Agents.


Are you focused on taking care of your employees or taking care of your bottom line? If your answer is “both,” it’s time to consider an integrated group long-term disability (LTD) plan.

Group LTD can leave your highly compensated employees less protected than rank-and-file employees. The typical shortfalls are:

• The60percentillusion: Many plans provide for 60 percent income replacement, but the taxability of the employer-paid LTD benefit causes the “take home” benefit amount to be less than the expected amount of income protection actually perceived by the employee.

• Salaryonly: The definition of “income” usually excludes bonuses and other incentive-based compensation, which means that an employee does not have all income protected.

• Reversediscrimination: The maximum LTD benefit in the plan puts a cap on some of the highly compensated executives.

Yes, each of these shortfalls can be satisfied with an adjustment to your LTD contract. But the 7–15 percent rate increase isn’t going to help your bottom line. And even if you do consider the rate increase a necessary cost, it’s important to know that that your new contract isn’t going to get your employees a different level of rehabilitative services or return-to-work benefits that will have them

BenefitsHR & 05–06.2012

May Is Disability Insurance Awareness MonthIntegratedLong-termDisabilityPlans:GoodforYourCompany,EvenBetterforYourEmployees

Continued on Page 2

MaRkETDYnaMICSaffECTInGHEaLTHCaRECoSTS

It is of no surprise to employers that the cost of providing health care has significantly increased over the past decade. According to the 2011 Milliman Medical Index, the cost of health care for a typical family of four has doubled from $9,235 in 2002 to $19,393 in 2011. Milliman, one of the world’s largest actuarial and benefits consulting firms, has performed considerable research to better understand the market dynamics that affect health care costs. Summarized below are the key dynamics identified by Milliman.

HealthCareReformWhile health care reform is an important factor impacting health care costs, it is not the primary relief source of ongoing spending trends. Nevertheless, the following health care reform provisions will influence ongoing cost trends:

• Changesinminimumcoverage – Costs may very well be impacted if utilization increases are the result of the elimination of key provisions such as copays and lifetime limits.

• Premiumratescrutiny – Scrutiny by regulators can influence insurers to take measures to keep costs in check, such as reducing their administrative expenses.

• Individualmandate– Requiring everyone to purchase insurance coverage should reduce the cost shifting that takes place today for uncompensated care.

• Healthexchanges – There are many objectives of health exchanges, including transparency, which allows consumers to shop plans across a range of insurers.

Continued on Page 2

HeALTH & WeLfARe

BenefitsHR & 2

back to work faster. In other words, you’re not getting more for your money.

That’s why you should consider an integrated LTD plan, which uses LTD in tandem with a supplemental individual disability insurance (DI) plan. With an integrated plan, the LTD plan design remains as is, with no additional rate increase to you. The supplemental DI is used to fulfill the income replacement requirements that create parity for your highly compensated employees (see charts to left).

An integrated plan also provides your employees the opportunity to obtain discounted, portable individual disability insurance policies with little to no underwriting. Depending on health history, they may be unable to obtain this coverage on their own.

Over time, your cost may even go down because you’ve transferred some of the potential risk from the LTD variable-rated plan to the DI fixed-rate individual policy. In addition, depending on whether you’re also offering a consumer-driven health plan, an integrated plan can help establish a culture in which employees recognize that their participation is needed to obtain quality benefits.

Contact your benefits advisor to find out more about integrated plan offerings. Your advisor can help you analyze your current plan design and determine if an integrated solution can better meet your needs and the needs of your employees.

GeographicImpactsHealth care costs, just like housing prices, are mainly driven by location. Not surprisingly, regional health care costs can vary widely from national norms. While the same cost drivers affect trends across multiple geographic locations, the magnitude of price pressures and utilization is different in each city and changes from year to year. How care is delivered and the amounts negotiated by providers and payors for health care services are the key reasons for price differentiation from location to location.

GreaterfocusonQualityandaffordabilityWhile most of the discussion involving health care over the past decade has focused primarily on the cost side of the equation, the conversation is increasingly shifting toward the quality and affordability of health care.

The following trends look to address the level of quality and affordability of care:

• Consumer-drivenhealthplans(CDHPs)– These high deductible plans, often paired with a health reimbursement arrangement, give consumers greater control in researching and spending their health care dollars.

• Value-basedbenefits – An arrangement where providers either lower the cost of certain under-utilized services, such as preventive care, or increase the cost of certain over-utilized services, such as emergency room care, to achieve better outcomes at a lower expense.

• accountableCareorganizations(aCos)– A network arrangement that incentivizes medical professionals and facilities based on positive patient outcomes.

Read the Milliman Medical Index in its entirety at www.milliman.com.

“Disability Awareness ...” continued from Page 1

“Market Dynamics” continued from Page 1

Need more info?for more information regarding any of the articles in this newsletter, please contact your benefits advisor.

DisabilityIncomeReplacement:Problem

*60 percent of base salary to a maximum of $10,000 monthly benefit

Title BaseSalary Bonuses

TotalannualSalary

TotalMonthlySalary

GroupLTD* IndividualDI

%SalaryReplaced

CEo

Sr.VP

VP

Manager

$200,000 $150,000 $350,000 $29,167 $10,000 $0 34%

$175,000 $100,000 $275,000 $22,917 $8,750 $0

$100,000 $75,000 $175,000 $14,583 $5,000 $0 34%

$75,000 $50,000 $125,000 $10,417 $3,750 $0 36%

$50,000 $25,000 $75,000 $6,250 $2,500 $0 40%

38%

Manager

PRoBLEM

Title BaseSalary Bonuses

TotalannualSalary

TotalMonthlySalary

GroupLTD*With

IndividualDI

TotalMonthlyBenefit

%SalaryReplaced

CEo

Sr.VP

VP

Manager

$200,000 $150,000 $350,000 $29,167 $10,000

$175,000 $100,000 $275,000 $22,917 $8,750

$100,000 $75,000 $175,000 $14,583 $5,000 $6,000 $11,000 75%

$75,000 $50,000 $125,000 $10,417 $3,750 $4,100 $7,850 75%

$50,000 $25,000 $75,000 $6,250 $2,500 $2,200 $4,700 75%

$11,875 $21,875 75%

$8,425 $17,175 75%

Manager

DisabilityIncomeReplacement:Solution

*60 percent of base salary to a maximum of $10,000 monthly benefit

SoLuTIon

Benefits Partners

BenefitsHR & 3

asitrelatestoemployer-providedhealthbenefitcoverage,whatbenefitscomplianceissuesmightaplansponsorfaceindraftingtheemployer’sleaveofabsence(Loa)policy?

employer LOA policies may give rise to benefits compliance issues under several different federal laws, including the family Medical Leave Act (fMLA), eRISA and COBRA. In addition, if the employer-provided group health plan is insured, there may be carrier issues to consider. Ultimately, the employer’s leave policy and the employer-sponsored group health plan document should be consistent with each other, as well

as with any requirements imposed by the carrier.

fMLaConsiderationsWith respect to fMLA, the act generally requires employers to allow eligible employees to take up to 12 workweeks in any 12 months of unpaid, job-protected leave each year because of the birth of a child or the placement of a child for adoption or foster care, to care for an immediate family member who has a serious health condition, or because of their own serious health condition. Specifically, during any fMLA leave, coverage must be provided to employees on fMLA leave on the same basis as coverage would have been provided if the employee had remained continuously employed. An employee is eligible for fMLA if he or she has worked for the employer for at least 12 months (and 1,250 hours), the employer has at least 50 employees within a 75 mile radius, and the employee has a serious health condition that results in their being unable to work for at least three consecutive days. The LOA policy should address any fMLA obligations and employees’ fMLA rights, including coverage continuation during fMLA leave.

ERISaConsiderationsAs for eRISA, an employer-sponsored medical plan is generally considered a group health plan subject to eRISA. There are

several considerations under eRISA with respect to the situation you describe. Under eRISA’s written plan document requirement, the plan document must include eligibility and enrollment provisions. Thus, the effect of employee leaves of absence on welfare plan eligibility should be addressed in clear and specific plan language.

eligibility that is conditioned on an individual’s remaining an “active employee” will present issues for employees on leave – particularly if the plan document does not define this term precisely – and could result in litigation and unexpected liability for the employer. In particular, the employer should address whether taking leave will affect eligibility and coverage under its welfare plans. for example, will employees on leave become ineligible under the plan? Become responsible for a greater cost-sharing obligation than an active employee? These are all issues that need to be clearly addressed in the plan document, in employee handbooks, and in the employer’s LOA policy.

CoBRaConsiderationsIn addition to fMLA and eRISA, there are COBRA considerations for LOA policies, particularly if the carrier sticks to some sort of “active at work” policy in its eligibility provisions. Generally, an LOA would trigger COBRA as a “reduction in hours”

Compliance

The investment due diligence process we use to evaluate our clients’ investment option lineups places an important emphasis on a fund’s style, employing a technique called “quadratic optimization.” Quadratic optimization is a mathematical equation that basically calculates the style of a fund, reflecting how a fund behaves or what segment of the market the fund best represents.

Most managers have a unique investment philosophy that decidedly places them in some segment of the equity or fixed-income marketplace. The U.S. equity marketplace has some of the most numerous and varied managers, with focuses ranging from large company stocks to small company stocks, and whose stock prices may be considered “value” (companies with low prices relative

to various accounting measures) or “growth” (fast-growing companies with high growth rates). Many managers may also reflect a “blend” style, which means they invest in both “value” and “growth” companies.

A fund’s style is important for two reasons. first, it helps us determine whether a plan is well diversified among its various investments. At the most basic level, it is important to have investment exposure in a broad array of asset classes, from U.S. equity and international equity to fixed income. Understanding a fund’s style within these asset classes allows the investor to be well diversified or, said another way, not have all of his or her eggs in one basket. for some asset classes, such as U.S. equity, a greater level of analysis is required to determine the diversification among the different styles.

Secondly, style helps us determine manager skill. Without style analysis, we would not be able to tell with any certainty if a certain benchmark is correct for a fund, or if that fund is being classified in its most appropriate area. A well-performing small cap fund may look attractive against the S&P 500 Index (a large cap benchmark), but analyzing it more closely against an appropriate small cap benchmark may lead to the conclusion that the manager has done a poor job selecting small cap stocks (due to the fund’s relative performance). Indeed, measuring a fund against its most appropriate benchmark helps us find the most skilled managers in their respective categories.

EVERYfunDHaSITSSTYLEReTIReMeNT

Continued on Page 4

Benefits Partners

BenefitsHR & 4

81592 5/12 (BP-14896-12) Copyright © 2012 NFP. All rights reserved.

COBRA-triggering event. Specifically, a reduction of hours occurs when an employee goes on an LOA that is not accompanied by an immediate termination of employment. That said, for COBRA to be triggered, the event must be coupled with a loss of coverage under the plan. Thus, if an employee goes out on leave, but never loses health coverage, the employee has not technically experienced a COBRA-qualifying event. This can cause problems under LOA policies, since the employee – having never received COBRA election notices and rights – could demand COBRA coverage on top of any leave coverage already provided by the employer.

To help alleviate this problem, COBRA does allow the employer to choose from several different options when it comes to leaves of absence and reduction of hours. So how and when the employer would offer COBRA coverage in this situation should be outlined in the plan document. Namely, there are three options:

1.Treatthestartoftheleaveasaqualifyingevent. Under this option, coverage is lost, and the maximum COBRA coverage period begins when the leave begins. Therefore, the termination of coverage at the beginning of the leave would invoke the employer’s requirement to offer COBRA. The employer could still choose to pay premiums for COBRA coverage or extend the COBRA maximum coverage period for as long as it wanted

(i.e., past what is required under COBRA), which would enable the employer to be more generous if it so desired.

2.Treattheendoftheleaveasaqualifyingevent. Under this option, coverage is not lost until the leave ends. The employer would need to clearly outline how long the leave will last. In essence, though, the employer is extending the coverage period and deferring the loss of coverage. The termination of coverage at the end of the leave would invoke the employer’s requirement to offer COBRA.

3. Treatthestartoftheleaveasaqualifyingevent,butofferalternativecoverage. Under this option, the COBRA maximum period starts at the time the leave starts, but the employee is allowed to choose between some sort of alternative coverage and COBRA coverage. If the employee and any covered dependents elect the alternative coverage and the 60-day COBRA election period expires, the employee will not be entitled to COBRA coverage after the alternative coverage expires. This optional coverage should be clearly outlined in the plan document, as well as in the COBRA election materials, so as to avoid employee confusion.

PlanDocumentandLoaPolicyfinally, the plan document is also important because it is the instrument by which the plan sponsor is required to operate the plan. Plan sponsors that fail to operate the plan

according to the terms of the plan document risk fiduciary liability. So it is important that the plan sponsor/administrator operate the plan in accordance with the terms of that plan document.

The above federal and state laws should be taken into consideration when drafting the employer’s LOA policy. The LOA policy should include, among other things, how to deal with benefits issues while an individual is out on an LOA. Thus, if the employer’s policy is to continue health insurance coverage for an employee on unpaid leave up to 30 days, then they should outline that in the LOA policy. Absent any language in the LOA policy, the employer should remember that it will be setting precedent by how it treats other employees that go out on leave. Again, though, if the plan is insured, the carrier often has a policy regarding coverage for inactive employees; coverage is typically only continued for 30 to 90 days for inactive employees.

Ultimately, the employer’s treatment of employee LOAs should be consistent with applicable federal laws (i.e., fMLA, eRISA, and COBRA) and clearly outlined in the employer’s LOA policy. That LOA policy should also be consistent with both the plan document and the carrier’s positions on plan eligibility and COBRA. This will help the employer avoid liability resulting from employee confusion and lawsuits and civil penalties from regulatory agencies.

“Compliance FAQ” continued from Page 3

This material was created by National Financial Partners Corp., (NFP), its subsidiaries or affiliates for distribution by their registered representatives, investment advisor representatives and/or agents.


Benefits Partners

7200 Wisconsin Avenue, Suite 1025, Bethesda, MD 20814

At first glance, incorporating a wellness program into an employee benefit package can appear to be an added expense. When you take a closer look, wellness is an effective way to save on costs with healthier employees. In fact, the decision to wait — or do nothing — can end up costing more in the long run. Here’s why.

Costs follow risks Unhealthy behaviors can lead to health risks. If left unaddressed, health risks can turn into chronic diseases that can lead to added costs such as increased medical, short-term disability and workers’ compensation claims; and lost productivity. All of which impact your bottom line.

Overcome negative health trends with wellnessWellness programs based on evidence and research can help prevent three negative health trends that are costly to both the employee and employer.

Trend #1: Low-risk employees, those with 0-2 health risks, can move to moderate or high risk.

Trend #2: Moderate-risk employees, those with 3-4 health risks, can remain moderate risk or move to high risk.

Trend #3: High-risk employees, those with 5+ health risks, can remain high risk.

Research conducted by Dr. Dee Edington shows that the average medical cost per moderate-risk employee and high-risk employee is 157% and 251% higher, respectively, than a low-risk employee.1

Can you afford to wait? In addition to improving the health of your employees, an effective wellness program can improve the health of your organization. According to a 2010 wellness study, medical costs improve by an average of $3.27 and absenteeism costs improve by an average of $2.73 for every dollar spent on wellness.2

BenefitsHR & 07–08. 2012

The Cost of Doing Nothing

Continued on Page 2

dOn’T fOrgeT abOuT 404(a)(5)

With all the attention surrounding the 408(b)(2) regulation, preparation for 404(a)(5) could be falling by the wayside. But don’t forget, under 404(a)(5), plan sponsors have 60 days from the effective date of the 408(b)(2) to provide fee information to participants. In other words, participant disclosures must be made by Aug. 30, 2012.

As a refresher, the regulation requires plan fiduciaries to give workers:

• Quarterlystatementsofplanfeesandexpenses deducted from accounts

• Costandotherinformationaboutinvestments available under their plan

• Accesstosupplementalinvestmentinformation

Disclosures must use uniform methods to calculate expense and return information and present it in a format that makes it easier for workers to comparison shop.

Continued on Page 2

REtIREMEntCosts Follow Risks

Unhealthy Behavior Physical inactivity, poor eating habits, tobacco use, unmanaged stress

Health Risks Obesity, high blood pressure, elevated cholesterol and blood sugar

Chronic Disease Diabetes, heart disease, hypertension, stroke

Costs Healthcare, short-term disability, worker’s compensation, productivity

HEALtH & WELfARE

Up to this point, many participants perceived the retirement plan as a free benefit. This new understanding of plan costs could create some vocal, disgruntled employees.

BenefitsHR & 2

a client’s successful resultsAfter the first year of their wellness program, thisPrincipalWellnessCompanyclient:

•Increasedthenumberofemployeesinthelow risk group

•Reducedthenumberofemployeesinthemoderate- and high-risk groups

the client’s actual results for each risk group before and after their wellness program are shown in the chart. the projected results if an effective wellness program had not been implemented are also represented.

the “After Wellness” results compared to the “no Wellness” results demonstrate the success of the wellness program based on the difference in the percentage of employees in each risk group.

This difference is the cost of doing nothing. the Principal Wellness client experienced a higher return on investment than what is typical of other programs.2 their higher return included improvement in medical costs and productivity costs, which included absenteeism.

1 Edington D, Emerging research: a view from one research center. Am J Health Promotion. 2001; 15:341-349

2WorkplaceWellnessProgramsCanGenerateSavings,Health Affairs, february 2010. http://content.healthaffairs.org.content/29/2/304. abstract

Reprinted with permission from Principal Wellness Company; www.principalwellness.com.

Impact to ParticipantsSomeparticipantswillfindoutsomethingthey may not have known: how much they payeachquarterfortheir401(k)plan.Soonthese fees won’t be hidden in the back pages of a lengthy legal document or in some fine print, but made obvious on the one document read most often — their quarterly statement (in combination with other disclosures that are repeated annually). thus, participants will now have a method to compare apples to apples and truly understand what they pay for these services.

Up to this point, many participants perceived the retirement plan as a free benefit. this new understanding of plan costs could create some vocal, disgruntled employees.the best way to help participants is, of course, through information and education. Your nfP retirement plan advisor stands ready to assist and is ready to work with you to address any concerns that you or your employees may have. Your advisor can alsoprovideyouwithNFP’s“ERISA 404(a)(5) – Participant fee Disclosure” brochure designed to answer common questions related to the issue.

“The Cost of ...” continued from Page 1

“Don’t Forget About ...” continued from Page 1

Need more info?for more information regarding any of the articles in this newsletter, please contact your benefits advisor.

Client Case StudyAfter First Year

BEFOREWELLNESS

AFTERWELLNESS

NOWELLNESS

100

80

60

40

20

0

Low RiskModerate RiskHigh Risk

The Cost ofDoing Nothing

76%

20%

4%

80%

17%3%

73%

21%

6%

1 Workplace Wellness Programs can Generate Savings, Health Affairs, February 2010. http://content.healthaffairs.org/content/29/2/304.abstract

Cost Benefits

Every

$1spent onwellness

Wellness Study1 Principal Wellness Company Client

$3.27 inreducedmedical

costs

$2.73 inlower

absenteeismcosts

$3.42 inreducedmedical

costs

$3.91 inlower

productivitycosts

An effective wellness program can improve the health of your organization.

Benefits Partners

BenefitsHR & 3

Question: What are the legal considerations for an employer sponsoring a wellness program? What is considered a wellness program? for example, if an employer charged smokers a higher group health plan premium deduction than is charged for non-smokers, is this a wellness program?

HIPAA generally prohibits a group health plan from discriminating in terms of eligibility, premium, contributions or benefits based on health status. Health status includes a medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability. thus, an individual with high claims experience or a medical condition must be offered coverage under the plan at the same cost as other individuals. there is an exception for employers who want to offer premium discounts or rewards to employees as part of a wellness program that is aimed at promoting good health and preventing disease.

Types of Wellness Programsthere are two types of wellness programs. A participation-based program does not condition eligibility for a reward upon a participant’s ability to meet a health standard. In other words, it is based only on an employee’s participation in the wellness program. this type of program is permissible if participation is available to all similarly situated individuals. Examples of participation-based wellness programs would include receiving a premium discount for attending educational sessions, waiving a copayment for completing a physical exam, reimbursing employees’ gym membership fees and contributing an amount to a flexible

spending account or health reimbursement arrangement for completing a health risk assessment. An employee is eligible for the reward regardless of the exam results or assessment report. they do not have to satisfy any health standard to receive the reward.

the second type of wellness program is a standard-based program, which requires an individual to satisfy a health standard. this type of program must meet five requirements to comply with HIPAA nondiscrimination rules. An example would be an employer wishing to implement a premium differential for smokers versus non-smokers. In other words, the employer will contribute a higher amount toward the cost of group health plan coverage to non-smokers than to smokers. thus, the employees who are smokers (or tobacco users) are required to pay a higher premium contribution. In this example, the health standard to be satisfied is being a non-smoker. the five requirements are:

• Thepremiumdifferentialmaynotexceed 20 percent of the cost of coverage. Under the Patient Protection andAffordableCareAct,thiswouldbeincreased to 30 percent in 2014. the amount of the reward given for being a non-smoker cannot be more than 20 percent of the employee-only group medical premium. the cost is

Compliance

Recently there have been articles written regarding the potential benefits of hiring an investment advisor who agrees to act inthecapacityofanERISASection3(38)investment manager (or “3(38) fiduciary”) asopposedtoanERISASection3(21)fiduciary for a qualified retirement plan. the information presented in these articles can be confusing and even misleading.

erISa Section 3(21)OnedefinitionofanERISASection3(21) fiduciary is an advisor who renders investment advice for a fee with respect to any monies, investments or other property of a plan, or has responsibility to do so. Suchanadvisorservesinaco-fiduciarycapacity to the plan and thus shares fiduciary responsibility and liability with other

plan fiduciaries (e.g., investment committee members,boardmembers).HiringanERISASection3(21)fiduciarymayhelpmitigatethe potential liability of the other plan co-fiduciaries, as the advisor would provide the necessary investment expertise and process to assist in making investment decisions.

erISa Section 3(38)ERISASection3(38)definestheterm“investment manager” as a fiduciary who also is responsible for providing investment advisory services, but with the important distinction of possessing discretionary control over the investment decisions for the plan. In hiring a 3(38) fiduciary advisor, plan fiduciaries (again, investment committees, board members, etc.) remove themselves from the ongoing investment decision-

making process. However, they cannot eliminate all of their fiduciary responsibility, as some articles would suggest. Procedural prudence remains necessary for all fiduciary decision-making.

this prudence should include the process forhiringnotonlyanERISASection3(21)fiduciary advisor, but also the process for hiringanERISA3(38)advisor(becausethefiduciaries are turning over control of all investmentdecisionstotheERISA3(38)advisor).

In brief, plan fiduciaries seeking to reduce their liability for investment decisions by hiringanERISA3(38)fiduciaryadvisormustunderstand that it requires giving up the control over plan investments and that some, but not all, fiduciary liability can be shifted.

erISa 3(21) vS. 3(38) fIduCIaryREtIREMEnt

Continued on Page 4

Benefits Partners

BenefitsHR & 4


based on the total cost of coverage including both the employer and employee contributions.

• Theprogramshouldbedesignedto“promote health and prevent disease.” the employer should maintain and distribute written material detailing the program and its purpose.

• Participantsmustbeofferedanopportunity at least once annually to meet the standard and, thus, qualify for the reward.

• Ifitisunreasonablydifficultforanindividual to meet the health standard due to a medical condition (or if it is medically inadvisable), the program must offer a reasonable alternative standard.PleasenotethattheU.S.Department of Labor maintains that addiction to nicotine is a medical condition. therefore, a physician could certify that it is unreasonably difficult for an individual to quit smoking. An alternative must be offered, such

as completing a smoking cessation program. the reward provided to the non-smoker must be the same as what is given to an individual who has completed the smoking cessation program regardless of whether the individual actually quit smoking.

• Allprogrammaterialsmustincludeinformation on the availability of a reasonable alternative standard.

gInaEmployers that provide health risk assessments for employees to complete should be aware of obligations under the GeneticInformationNondiscriminationAct(GINA).GINAprohibitstherequestofgenetic information prior to enrollment or in conjunction with enrollment. It also prohibits a plan from rewarding those who submit geneticinformation.Geneticinformationwould include health risk assessment questions related to family history. thus, if the assessment asks questions related to family history, a reward cannot be given for completing the assessment.

adaSomeemployerswishtorequirebiometricscreening or health risk assessments as a condition of eligibility for the group health plan. this is not recommended because of an interaction with the Americans with Disabilities Act (ADA). Under the ADA, an employer may only require medical examinations of employees or make inquiries related to an employee’s health if the examination or inquiry is voluntary and the information is not used to discriminate against the employee. though no formal guidance has been issued, the Equal EmploymentOpportunityCommissionhasinformally stated that ineligibility for a group health plan is considered to be a penalty. therefore, the program would not meet the voluntary nondiscrimination standard. An employer may offer biometric screening or health risk assessments, but should not condition eligibility upon completion of these tests.




Benefits Partners

If you are like most people, you probably have a fairly good idea of what you are going to pay when you go shopping for a new pair of jeans or when you need to replace your cell phone. However, change the conversation from everyday purchases to the topic of health care prices, and we are all in the same place — the dark.

When we consider our deductibles and coinsurance, it would be ideal if we could shop health care prices similar to how we compare other purchases. Unfortunately, one factor that prevents consumers from effectively shopping for care is the fact that most patients don’t understand a reasonable price to pay, or are unaware that the price for the same service can be very different depending upon where a patient chooses to have treatment.

We thought that we would take a step back and use some examples to illustrate the

basic problem of in-network price variability, as well as share some general advice that can help both patients and employers get better value from their health care benefit.

Where You Go for Treatment Will Have a Big Impact on PriceThe fundamental challenge faced by patients as consumers, and employers who still pay the majority of the health care benefit cost, is that in-network prices for the identical procedure can vary by as much as 200 to 500 percent, with no difference in quality. For decades, employee benefit designs, particularly PPOs with modest copays and coinsurance, have masked these large price differences, causing both employers and employees to pay far more than they could or should have for many services.

The advent of CDHP and other account-based plan designs that ask employees to make a greater contribution to first dollar

09–10. 2012

Cost Transparency

Continued on Page 2

WHaT ParTIcIPanTs are saYInG: I’m Too YounG To save for reTIremenT

Too often, we hear the younger generation of workers tell us saving for retirement is not high on their priority list. It’s easy to understand why retirement may not be a priority. Instead of thinking about the long-term financial impact of ending their careers, most young workers today are focused on launching their careers. However, what the younger generation needs to understand is that this is the most crucial time to begin saving for retirement. The earlier, the better!

Those individuals who start saving in a 401(k) plan early have the advantage of time and the power of compounding. The interest you earn compounds over time, meaning you are letting your money work for you. The earlier that you start saving, the more time your money has to compound and, as a result, it can grow more quickly. Consider the following: If you begin saving for retirement at age 25, contributing just $2,000 for 40 years, you can achieve an ending balance of around $560,000, assuming an 8 percent annual rate of return. Let’s say you wait until you

Continued on Page 3

ReTIRemenT

HeaLTH & WeLFaRe

The concept of retirement may be far off for the younger generation, but there is no better time to begin saving for retirement than now.

BenefitsHR &

BenefitsHR & 2

coverage has driven both awareness of price variability and interest in transparency tools, but many employers and most patients still do not fully understand the phenomena.

So how large are the differences in price?

Patients pay staggeringly different prices for a wide array of common services, including diagnostic tests, outpatient surgeries, medications and more. For example, sleep studies in most markets can range from about $700 at an accredited independent facility, to over $4,000 at hospital-based sleep labs.

moreover, only a few years ago sleep studies were a sparsely used diagnostic. However, as awareness of sleep apnea and the clinical connection to heart disease has grown, the prevalence of these tests has more than doubled, creating a significant and growing expense to employers.

Technical imaging, such as an outpatient diagnostic mRI exam, is another area of large price discrepancy. Prices can range from around $850 to over $3,000. Patients can typically find the best value at accredited independent imaging facilities, while hospital-based facilities are typically among the most expensive options.

For many outpatient procedures, such as surgeries and endoscopic procedures, the facility where the patient chooses to receive treatment will have the biggest impact on the cost of the service.

Prices for outpatient endoscopic procedures, such as a diagnostic colonoscopy, can range from $800 to over $4,000 in many markets. In most markets, the best value can generally be found by having the procedure performed at an independent endoscopy center or ambulatory Surgery Center.

Diagnostic colonoscopy may seem an odd choice for an example, given that the procedure is exempt from the deductible and other out-of-pocket costs as a preventive procedure under health reform. However, it is an excellent illustration of why both employers and employees should care about the cost of these types of procedures.

For employers, the cost burden of preventive procedures, such as colonoscopies and mammograms, falls entirely on their tab. Thanks to the focus on HRas, biometric screenings and wellness, utilization of these services is at an all-time high. making better use of the high value in-network providers can save employers tens of thousands of dollars, and actually pay for their screening and prevention initiatives.

For employees, diagnostic colonoscopies are exempt from the deductible, but colonoscopies with biopsy, lesion removal colonoscopies and other procedures that may be done at the same time, such as upper GI endoscopies, are not exempt from the deductible and can have significant out-of-pocket costs. moreover, sometimes patients are not made aware of their option

for moderate sedation ($85) or anesthesia ($300-$700) — a decision that can add considerable out-of-pocket expense.

What can Patients Do to make sure They Get a fair Price?

• Knowthefairprice,orwhatyoushouldreasonably expect to pay for a service in your area. If you don’t know what a service costs, a good place to start is The Healthcare Blue Book.

• Talktoyourdoctorandaskaboutpricebefore receiving treatment.

• Understandthecomponentsofpricefor your procedure. For example, are there separate professional, facility and anesthesia bills? What are the pathology fees for biopsies?

• Understandthetypesofdecisionsthatyouwill make with your doctor, and how those decisions can impact costs. For example, do you need anesthesia or sedation? Can the procedure be performed in the office or at an outpatient facility?

• Makesureyouaregettingthecareyouneed. Is your doctor recommending a colonoscopy and an endoscopy, and if so, why? additional procedures can double or triple the cost.

“Cost Transparency” continued from Page 1

colonoscopy (no biopsy) Brain mrI (with and without contrast)

Benefits Partners

BenefitsHR & 3

Question: at open enrollment, may employees elect to pay premiums for individual policies, such as individual accident or voluntary plans, on a pre-tax basis?

The payments for individual policy premiums may be paid on a pre-tax basis, but only through a Section 125 cafeteria plan. In addition, offering voluntary plans through a cafeteria plan may subject the plans to eRISa. So, while possible, allowing employees to elect pre-tax premium payments for voluntary plans raises considerations under Section 125 and eRISa, as outlined below.

To begin with, Section 125 limits the types of individual policies that can be offered on a pre-tax basis to basically accident and

health coverage and individual insurance contracts that qualify as group term life insurance. In no event can a policy that defers compensation (like a cancer policy with a return-of-premium feature) be offered under a cafeteria plan.

If the policy premiums are paid on a pre-tax basis through a Section 125 cafeteria plan, the plan would be subject to Section 125’s requirements, including the election irrevocability rule. This means that the election to withhold the premiums on a pre-tax basis must be effective for the entire period of coverage, which is generally a 12-month period (usually just the plan year). So an open enrollment period would probably have to be provided prior to the 12-month plan year. This would also mean that the individual coverage could not be dropped at any time (unless there was a qualifying event) other than open enrollment. That said, the open enrollment for individual policy premiums does not necessarily have to coincide with the open enrollment for the other health benefits offered by the employer (although, for administrative convenience, the open enrollment periods could be combined). Finally, the inclusion of the individual policies under the Section 125 cafeteria plan should also be addressed in the cafeteria plan document.

Importantly, allowing individual policy premiums to be paid through a cafeteria plan may also subject those individual plans to eRISa, meaning that the employer would be responsible for meeting eRISa requirements for the plan, including the

summary plan description (SPD) and Form 5500 requirements, among others. There is an exception to eRISa, called the “voluntary plan safe harbor,” which may apply for voluntary plans. The determination of whether a plan meets the safe harbor depends on multiple factors. In addition, different courts apply different standards toward the voluntary plan exemption. So while some general information on the safe harbor is provided below, the employer should engage outside counsel for an exact determination.

There are basically five requirements that need to be met to satisfy the voluntary plan safe harbor:

1) The plan must be completely voluntary for employees.

2) There must be no employer contributions at all.

3) The employer involvement in the plans must be limited to the activities allowed by the regulations.

4) The employer must not endorse the plan.5) The employer must not make a profit from

the plan.

making participation in the plan a requirement, or attaching incentives to the plan, would result in the plan failing to meet the first requirement. Second, any employer contribution toward the insurance coverage, including insignificant, partial or for only certain employees, would be treated as an “employer contribution” and would take the plan outside the safe harbor.

Compliance

are 35 to begin saving for retirement, saving the same $2,000 every year, but for 30 years instead, and assuming the same 8 percent annual rate of return. at age 65, you would end up with about $245,000, which is less than half the money you would have saved if you had started saving sooner.*

The concept of retirement may be far off for the younger generation, but there is no better time to begin saving for retirement than now. Save now and reap the rewards later.

*NOTE: These examples are hypothetical in nature, do not represent any specific investment and do not account for any fees or expenses associated with an actual investment that would lower returns.

Continued on Page 4

“What Participants are Saying ...” continued from Page 1

Young workers

need to save sooner rather

than later.

Benefits Partners

BenefitsHR & 4


The third and fourth requirements are somewhat intertwined. While there are some activities that the regulations specifically allow the employer to engage in, the employer must not cross the line into endorsement of the plan. as for allowable activities, the regulations state that the employer may:

1) Permit the insurer to publicize the program to its employees;

2) Collect premiums through payroll deductions;

3) Remit those payroll deductions to the insurer;

4) Perform functions that are ancillary to the above three activities.

ancillary functions would include selecting the effective date of the policy, verifying the full-time status of employees to the insurer and maintaining a list of covered employees, maintaining a file on the voluntary plan policy, and issuing certificates to enrolled

employees confirming the commencement of coverage. That said, the ancillary functions listed above may be seen by some courts as endorsing the plan — so the employer really should avoid engaging in most ancillary functions.

as for endorsement, whether an employer has endorsed a plan is an inherently factual determination, and is dependent on many different facts and circumstances, including the court that would be reviewing a challenge. Some activities may constitute endorsement in and of themselves, while other activities are endorsements only when additional factors are present. Here are some activities that courts have held to be endorsement:

• Selectinginsurers(coupledwith other factors)

• Negotiatingthetermsofcoverageortheemployees to be covered

• Usingtheemployer’snameandlogoonplan communication materials

• Designatingtheemployerastheplanadministrator, plan sponsor or trustee

• Distributinginformationthatassociatesthevoluntary plan with other eRISa benefits of the employer

• Recommendingtheplantoemployees• Payingpremiumsthroughtheemployer’s

cafeteria plan• Resolvingorassistingemployeeswith

claims and disputes• Performinganyactionthatcreatesthe

impression to an objectively reasonable employee that the program is actually an employer-sponsored program

as outlined above, there are many different factors and variables to consider in making the determination. again, outside counsel should be engaged for an exact determination of whether a voluntary plan meets the safe harbor described above.




Benefits Partners

There’s now more proof than ever that well-executed wellness programs produce real results. A study by Principal Wellness Company shows that companies that offer effective wellness programs experience a significant reduction of health risk in as little as 18 months. Plus, results improve when there is more focus on individuals since Health Coaching participants experienced the greatest impact.

The proof is in the numbersHealth coaching helped participants decrease their likelihood of developing diabetes, heart attack and stroke.

• Morethan1in3participantsmovedoutofmetabolic syndrome* status.

• Thelow-riskgroupgrewbyover11%inallthree companies.

Study details and methodology• Two-yearstudytrackedadultsenrolled

in Principal Wellness Company health coaching programs for three large clients.

• Severalkeybiometricvaluessuchasglucose, triglycerides, blood pressure and waist circumference along with tobacco use were monitored.

• Metabolicsyndrome,whichcanleadtodiabetes, heart attack or stroke, was used to identify high-risk participants.

• Individualswereinvitedtoparticipatein health coaching and were required to complete the program to earn an incentive.

BENEFITSHR & 11–12. 2012

Health Coaching — Workplace Wellness Programs Work

Continued on Page 2

IMPROVING THE OPEN ENROLLMENT EXPERIENCE

The open enrollment season can often be one of dread for employees — a time-consuming and complex process of forms, decisions and calculations. However, it doesn’t have to be that way. Employers can greatly influence and improve the open enrollment experience for their employees by incorporating the following steps:

• Personalizetheopenenrollmentexperience.

• Providedecisionsupport.• Provideflexibilityinhowopen

enrollment elections are made.

Personalize the Open Enrollment ExperienceEmployers often leverage the open enrollment period to communicate key company and benefit plan initiatives for the upcoming plan year. To a large degree, the success of these initiatives depends on how they are communicated. An effective way for employers to ensure their initiatives are effectively communicatedistopersonalizetheopenenrollmentexperience.Someexamplesofpersonalizingtheopenenrollmentexperience include:

• Provideeachemployeewith access to their own total compensation statement.

• Providebenefitplanoptionsonlyavailable based upon an employee’s eligibility (e.g., division, location, employment status).

• Leverageaudioandvideotechnologyto provide employees with real-world examples on the benefits of company initiatives, such as the adoption of health savings accounts.

Continued on Page 2

HEALTH&WELFARE

HEALTH&WELFARE

BENEFITSHR & 2

• Completionincludedatleastfourtelephonic health coaching sessions. Print and online materials, emails and text messages were also used to complement the sessions.

An in-depth analysis was used to complete a risk trend study of more than 12,000 adults participating in a comprehensive wellness program during an 18-month period from 2010-2012ofwhich3,600(30%)qualifiedfor health coaching. The net change in risk status was determined by evaluating the difference of the net positive movement and net negative movement among individuals and dividing by the difference.

Individual company resultsCompany 1• 36%ofthosewithmetabolicsyndrome

who participated in one-on-one, personalizedhealthcoachingnolongerindicated metabolic syndrome after completing health coaching.

• Tobaccouseamonghealthcoachingparticipantswascutbynearly40%.

• Over11%ofthehealthcoachingparticipants moved to low-risk.

• Bothhealthcoachingandnon-healthcoaching participants improved their healthstatusby8%.

Provide Decision SupportWhile employers shift a greater share of health care decisions and costs to their employees, employees are often ill-equipped to make informed decisions about their benefits package. A great way for employers to empower their employees is to provide access to decision support tools and resources throughout the open enrollment process. Providing employees access to decision support tools will not only make them more educated about their benefits offering, but also increase their engagement. Someexamplesofopenenrollmentdecisionsupport tools and resources include:

• Side-by-sidebenefitplancomparisons• Interactiveplancostcalculators• Archiveoffrequentlyaskedquestions

(FAQs)

Provide Flexibility in How Open Enrollment Elections Are MadeFewwouldarguethattheopenenrollmentprocess, in which employees make health and wealth decisions not only for themselves, but also their families, is one of the most important activities during the year. Providing employees with flexibility and options about how open enrollment elections are made gives employees an opportunity to consult with family members, especially outsideoftheworkplace.Someexamplesofhow employers can provide flexibility around elections include:

• Anautomatedtechnologyplatformthatenables enrollment elections to be made according to an employee’s own schedule (24/7/365)

• Mobiledeviceaccessibilitythroughdevices such as smartphones and tablets

While employers go through great pains to plan for each year’s open enrollment period, they would be wise to consider their employees’ experiences throughout theopenenrollmentprocess.Bysurveyingtheir employees and implementing ways to improve their employees’ experience during open enrollment, employers will reap the benefits of not only improved employee engagement, but also the perceived value of employer-sponsored benefit programs.

“Health Coaching...” continued from Page 1

“Improving the Open ...” continued from Page 1

Need more information?Formoreinformationregarding any of the articles in this newsletter, please contact your benefits advisor.

A strong wellness solution should include data analysis to determine risk of the population, tools to create a cultural change, and the personalized, one-on-one support some participants need.Company 2• 29%ofthosewithmetabolicsyndrome




• Bothhealthcoachingandnon-healthcoaching participants improved their healthstatusby5.5%.

Company3• 38%ofthosewithmetabolicsyndrome




A strong wellness solution should include data analysis to determine risk of the population, tools to create a cultural change, andthepersonalized,one-on-onesupportsome participants need. *According to the International Diabetes Federation, metabolic syndrome is a cluster of the most dangerous heart attack risk factors: diabetes and prediabetes, abdominal obesity, high cholesterol and high blood pressure.

Principal Wellness does not diagnose or treat any medical condition or provide medical advice. Results obtained from program participation depend upon health status and how the information provided is applied. Program materials are provided for the sole purpose of general education and are not intended as medical or other professional advice.

Reprinted with permission from Principal Wellness Company; www.principalwellness.com; [email protected] or 877-265-9460.

BENEFITSHR & 3

Question: What is a Section 125 cafeteria plan, and what are its requirements related to employee elections for benefits? A cafeteria plan is a program that employers can use to help employees pay for certain expenses, like health insurance and dependentcare,withpretaxdollars.Infact, it is the only way for employees to pay for health benefits on a pretax basis from their paycheck. The concept is that the employees choose from a menu of available benefits, which is where the term “cafeteria plan” originates from.

The rules governing cafeteria plans are foundinSection125oftheInternalRevenueCode(IRC).Thus,theterms“Section125plan”and“cafeteriaplan”areusedinterchangeably to describe this type of plan design. A similar design, a “premium only plan”orPOP,isthemostsimplistictypeofSection125cafeteriaplan,butissubjecttothe same requirements discussed below.A cafeteria plan is required to be in writing. According to the 2007 proposed regulations, which may be relied upon for guidance, a cafeteria plan document must contain all of the following information:

• Descriptionofavailablebenefits• Participationrules• Electionprocedures• Mannerofcontributions• Maximumamountofcontributions• Planyear• Ifpurchaseorsaleofpaidtimeoff(PTO)

days is offered, the ordering rules for use ofnonelectiveandelectivePTO

• Iftheplanincludeshealthordependentcare flexible spending arrangements (FSAs),theplan’sprovisionscomplyingwith any additional requirements for thoseFSAs

• Iftheplanincludesagraceperiod,theplan’sprovisionscomplyingwithInternalRevenueServicerequirementsregardingthe grace period

Inaddition,theplanmustbeformallyadopted by the employer prior to the first dayoftheplanyear.Forexample,employerssponsoring a calendar-year plan must adopt theplanoramendmentstotheplanbyDec.31beforetheplanyearbegins.

Typically, health plans are written with an intended period of coverage of 12 months. Infact,electionsmadeunderacafeteriaplanusually allow for annual elections. The 2007 proposedTreasuryRegulationsstate:

“The plan year of a cafeteria plan must be twelve consecutive months...The plan year generally is the coverage period for benefits provided through the cafeteria plan to which annual elections for these benefitsapply.Benefitselectedpursuantto the employee’s election for a plan year generally may not be carried forward to subsequent plan years.” Prop. Treas. Reg.§1.125-1(d)

There are also exceptions to this general rule within the proposed regulations permitting rollover (also known as evergreen) elections. However, an employer wishing to implement such a provision must follow specified steps and plan at least a year ahead prior to requiring employees to have a continuous election that is effective longer than 12 months.

Compliance

TheU.S.DepartmentofLabor’sEmployeeBenefitsSecurityAdministration(EBSA)released a final rule that will help America’s workers manage and invest the money they contribute to their 401(k)-type pension plans. The rule will ensure:

• Thatworkersinthistypeofplanaregiven, or have access to, the information they need to make informed decisions, including information about fees and expenses

• Thedeliveryofinvestment-relatedinformation in a format that enables workers to meaningfully compare the investment options under their pension plans

• Thatplanfiduciariesusestandardmethodologies when calculating and disclosing expense and return information

so as to achieve uniformity across the spectrum of investments that exist among and within plans, thus facilitating “apples-to-apples” comparisons among their plan’s investment options

• Anewleveloffeeandexpensetransparency

Overview of Final Rule

• Thefinalruleprovidesthattheinvestmentof plan assets is a fiduciary act governed bythefiduciarystandardsinERISASection404(a)(1)(A)and(B),whichrequireplan fiduciaries to act prudently and solely in the interest of the plan’s participants and beneficiaries.

• Thefinalrulealsoprovidesthatwhenaplan allocates investment responsibilities to participants or beneficiaries, the plan

administrator must take steps to ensure that such participants and beneficiaries, on a regular and periodic basis, are made aware of their rights and responsibilities with respect to the investment of assets held in, or contributed to, their accounts. The rule also states that participants or beneficiaries must be provided sufficient information regarding the plan and the plan’s investment options, including fee and expense information, to make informed decisions with regard to the management of their individual accounts.

• Aplanadministratormustprovidetoeachparticipant or beneficiary certain plan-related information and certain investment-related information. These categories of information are described as follows.

PROVIDING CLARITY FOR PLAN PARTICIPANTSRETIREMENT

Continued on Page 4

Continued on Page 4

BENEFITSHR & 4


A cafeteria plan must provide that participant elections are irrevocable for the period of coverage(generallytheplanyear).Recitingthe general rule that a plan must require participants to make irrevocable elections, the regulations continue as follows:

“An election is not irrevocable if, after the earlier of [the date when taxable benefits are currently available or the first day of the plan year or other coverage period], employees have the right to revoke their elections of qualified benefits and instead receive the taxable benefits for such period, without regard to whether the employees actually revoke their elections.” Prop.Treas.Reg.§1.125-2(a)(1).

Inanutshell,onceaparticipantmakesanelection, the participant generally may not change that election for the duration of the coverage period (usually the plan year) without experiencing a qualifying event.

Otherwise,thecafeteriaplanwillnotbequalifiedunderIRCSection125.Unlessan exception (known as a qualifying event) applies, a participant must not be permitted to increase, change or revoke the election during the period of coverage under the plan. As mentioned above, the period of coverage in a cafeteria plan is typically the 12-month plan year. Those qualifying events thatareprovidedforunderIRCSection125are optional. An employer must decide which qualifying events it will permit and identify them in the plan document.

There is a quick reference guide available explaining permissible qualifying events that may allow a participant to increase, change or revoke his or her elections midyear, provided the plan permits them. A copy of this chart can be obtained from your advisor.


Effective and Applicability Dates

• TheJuly1,2012effectivedateofthe final regulation relating to service provider disclosure under section 408(b)(2) impacted when disclosures must first be furnished under the final rule on fee disclosures for participants. The transitional rule for the final rule on fee disclosures for participants was revisedinJuly2011sothatthefirstdisclosures would follow the effective date of the 408(b)(2) regulation.

• Forcalendar-yearplans,theinitialannual disclosure of “plan-level” and “investment-level” information, including associated fees and expenses, must have been furnished nolaterthanAug.30,2012(i.e.,60daysafterthe408(b)(2)regulation’sJuly1 effective date).

• ThefirstquarterlystatementmustthenbefurnishednolaterthanNov.14,2012(i.e.,45daysaftertheendof the third quarter, during which initial disclosures were first required). This quarterly statement need only reflect the fees and expenses actually deducted from the participant or beneficiary’saccountduringtheJulythroughSeptemberquartertowhichthe statement relates.

“Providing Clarity ...” continued from Page 3



hr and bene ts updateayallc.com/documents/2012_ hr_benefits_ updates.pdf · page 3 of 4 hr and bene...

Documents