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Comprehensive Benefit Statements

Comprehensive Benefit Statements are useful communication, recruiting and retention tools however you should exercise extreme caution because courts may rely upon benefit statement estimates when determining a plan's actual benefit obligations.

Employee benefit costs averaged 42.3% 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: www.benefitstudy.com

Participants 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 hypothetical examples:

  1. "The values in this retirement illustration should not be viewed as guaranteed, but rather as estimates of your future benefits."

  2. "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."

  3. "Every effort 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 authorized."

  4. "The 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."

  5. "Reasonable 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."

  6. "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 inaccurate."

You should try to communicate clearly to participants that actual benefits may be more or less than the estimates.

Participant input 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.

Because of 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 inaccurate."

Although "60 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.

The invitation 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.

Double-edged swords - Benefit 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 the road.

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.

Samples:

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Benefit Statement (1 page Version) (.pdf file)

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Benefit Statement (8 page Version) (.pdf file)

 

 

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 Benefits Survey

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. 


Commonly used Employee Benefit Acronyms & Terms and what they actually mean

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