Statements are useful communication, recruiting and retention tools however
you should exercise extreme caution
courts may rely upon benefit statement estimates when determining a plan's
actual benefit obligations.
Employee benefit costs
of payroll costs in 2002, up from 39% in 2001, per the
US Chamber of Commerce’s annual benefits
survey. Medical payments accounted for the largest share (about a
third, representing about 15.2% of payroll) of the average of $18,000 worth of
benefits received by workers at the 372 companies surveyed. Another $5,000
went toward payments for time not worked, and $2,600 for retirement benefits,
according to the survey. Medical benefit costs as a percentage of payroll saw
the sharpest rise, increasing to 15.2% in 2002, compared with 11% 2001.
Compensation for holidays and time off accounted for 11.6% of payroll, while
retirement and savings payments accounted for 6.2%, the survey found. The
survey can be obtained here:
lawyers often argue they relied on erroneous benefit statements so they should
receive the benefit erroneously stated benefit (if more favorable). Courts
take these complaints seriously. It is a good idea to draft a benefit
statement that ensures the plan will not have to pay out erroneous benefits.
You should design statement language that works for, rather than against, the
plan administrator. The administrator should reserve the right to correct
errors; you might suggest your legal counsel consider these disclaimers as
"The values in
this retirement illustration should not be viewed as guaranteed, but rather
as estimates of your future benefits."
"If there is
any discrepancy between Plan Documents and the information presented here,
the terms of the Plan Documents apply.... The [employer] reserves the right
to correct any errors in this statement."
was made to avoid errors in the preparation of this statement. However, you
will appreciate that errors may have occurred and that factors and
assumptions used for projecting benefits may be subject to change. Actual
benefits are, of course, subject to verification before any payments are
information shown in this statement is based on personal information in
effect at the time the report was prepared and on various assumptions as to
future events. While great care has been taken in developing this
information it may, in some cases, be subject to inaccuracies in the
accumulation of data or in calculations. In the event of a discrepancy
between the information contained in this statement and the plan document,
the latter will govern."
measures have been taken to make your report accurate. However, the amount
and availability of the benefits will be governed by the provisions of the
legal documents pertaining to the various benefits reported. Your benefit
statement report does not constitute such a legal document."
this Statement of Benefits carefully, including information regarding your
years of service and compensation levels. Contact the Plan Administrator
toll-free within 60 days of the date of this statement if you have reason to
believe information stated here is inaccurate."
You should try
to communicate clearly to participants that actual benefits may be more or
less than the estimates.
ERISA is >20
years old but attorneys and judges say that benefit statements must "[urge]
the participant or beneficiary to bring promptly to the attention of the plan
administrator anything in the statement that does not appear correct." This
proposed requirement suggests a tool for administrators who would rather fix
problems sooner than later.
ERISA's break-in-service rules, or because of mergers with other companies,
bad data occasionally works its way into records. Thus, benefit statements
should include a prominent invitation to participants to speak up if they spot
a mistake. For example: "Please review this Statement of Benefits carefully,
including information regarding your years of service and compensation levels.
Contact the Plan Administrator toll-free within 60 days of the date of this
statement if you have reason to believe information stated here is
days" will probably not legally cut off the participants' right to complain,
it may still serve to bring people forward. A benefit statement could also
enclose a self-addressed stamped envelope (SASE) and ask participants to
certify the information with their signatures.
to speak up might also limit the dispute period insofar as it puts
participants "on notice" that they have a claim to defend, thus triggering a
statute of limitations. For example, in one case, a plaintiff was notified in
1980 that the employer intended to offset her benefits by an estimate that was
greater than the amount of Social Security benefits that she was actually
receiving. The court held that the plaintiff was "at that point on notice that
she should pursue her rights under ERISA" and that the statute of limitations
had run out on part of her claim.
In other cases,
the court rejected the idea that a participant's right to bring a claim only
begins after the participant has submitted a formal claim and been denied.
True, no court has ruled that a benefit statement alone is enough to put a
participant "on notice" that she might have a claim. And yet, especially over
time, a benefit statement urging the participant to come forward if she sees a
problem may help put the participant on notice that she has a claim to defend,
from a court's perspective. It certainly won't hurt.
statements are double-edged swords, but that characteristic can be an
advantage. On the one hand, plan administrators want to use statements to
reserve their right to correct mistakes. On the other hand, plan
administrators want participants to bring any problems to light as soon as
possible, rather than complain about a mounting problem 10 or 15 years down
To accomplish both goals, plan administrators should send out benefit
statements that emphasize that amounts are estimates and reserve the right to
correct any inaccuracies,
and plan administrators should ask participants to certify the accuracy of all
personal information in annual benefit statements.
More Reasons for
Medium & Small Employers to use Comprehensive Benefit Statements:
Because Small Company
Employees are Less Satisfied With Their Benefits
Nearly three-fourth (74%) of
employees at large organizations – those companies with more than 500 employees
– and 60% of medium-sized organizations – companies with employee headcounts
between 100 and 499 – report being satisfied with their total benefits package
compared to less than half (47%) of those employed at small companies, according
to the Society for Human Resource Management (SHRM)/CNNfn Job
Large gaps in satisfaction levels were
noted across the benefit spectrum. Employees in medium-sized firms (62%) and
large organizations (67%) are almost twice as likely to report satisfaction
with their medical benefits than the 38% of small-company employees who report
satisfaction with their health-care benefits. Likewise, employees in
medium-sized (66%) and large (70%) organizations are satisfied with their paid
time off benefits compared to just 44% in small companies. To retain top
talent, remain competitive and grow financially, these businesses must be
resourceful to keep employees satisfied and they should clearly communicate
the TOTAL Value of all benefits via benefit statements.
Variations were also noted among
satisfaction levels across age lines. Educational assistance is important to
20% of employees 35 and under, and only 4% of employees 56 and over. In
addition, employees 35 and under (31%), and 36 to 55 (28%) value flexible work
schedules more than employees 56 and over (19%).
Examining the group as a whole, the survey found health
care, paid time off and retirement benefits to be the most important benefits
related to overall job satisfaction. Among the benefits that ranked least
important were child-care assistance, flexible spending accounts and
professional development. Overall, the majority of employees (63%) report
being satisfied with their total benefits package, and 76% reported overall
satisfaction with their current job.
March 2004 News:
Expenditures for employee benefits surged
6.3% for civilian workers in 2003 as wages and salaries rose 2.9%, driving
total compensation costs up 3.8% for the year, according to the Employment
Cost Index (ECI) compiled by the Labor Department. The 12-month change in
employee benefit costs was the largest annual increase since 1984. -- Spending
on employee benefits increased to 30% of total compensation costs in
2003, driven by surging expenditures for health care coverage. Employment
costs for union workers increased at a significantly faster rate than for
non-union employees, with benefit costs soaring 8.3% for the year while wages
and salaries increased 2.4%. Total compensation costs for union workers rose
4.6% in 2003, compared to 3.9% for non-union workers. "Health care cost
pressures have never been this intense," says Neil Trautwein, assistant vice
president for human resources policy at the National Association of
Manufacturers (NAM). "Union contracts for health care benefits are frequently
for first dollar coverage, so there is little cost-sharing for union workers.
So utilization remains very high in comparison with nonunion workers,"
Trautwein explains. The components of compensation continued to increase at
variable rates, with private sector wages and salaries going up 3% for the
year, compared to a surge of 6.4% for benefits. For state and local
government workers, wages and salaries gained 2.1% as benefit costs grew 6.1%
for the year. For the three-month period ending in December, total
compensation increased 0.7%, with benefit costs rising 1.2% and wages and
salaries increasing 0.5%. High benefit costs are a tremendous burden on the
manufacturing industry. "It makes it hard for our members to compete with
both domestic and foreign competitors," Trautwein comments. "Each additional
dollar spent on health care represents a dollar lost for wage increases.
That's why health care has become such a controversial topic in labor
negotiations." Employers budgeted 3.5% for increases in pay for 2004, the same
rate of increase as the previous year, according to survey data released by
WorldatWork, an association of compensation professionals. The Labor
Department reports that among occupational groups, compensation costs for
service workers jumped 4% in 2003, compared to a 3.4% gain for blue-collar
workers and an increase of 3.1% for white-collar employees. The U.S. Chamber
of Commerce, meantime, reports that benefit costs rose to 42.3% of all payroll
costs in 2002, up from 39% the previous year. Examining 2002 data from 400
companies, the Chamber finds that workers received an average of $42,550 in
total compensation, with $18,000 spent on employee benefits. Benefit costs
included an average of $6,300 for health care coverage, $5,000 for time not
worked, $4,100 for legally required benefits, such as Social Security,
Medicare, unemployment and workers' compensation, and $2,600 for retirement
benefits. As a percentage of payroll costs, health care coverage averaged
15.2% while compensation for time-off accounted for 11.6% of payroll and
retirement and savings programs averaged 6.2% of payroll, the Chamber finds.