Don't DIY! Why It's Good to Outsource Benefits Administration Services - Zupnick Associates

(by Elton Mwangi)

Francine Helton sued AT&T for failure to communicate benefits information to her.

They were supposed to inform her about changes to her retirement plan that would affect distribution. But they failed and paid the piper. She was awarded $120,000.

In another case, Houston Poly Bag I Limited failed to furnish Kenneth Kujanek with benefits plan documents despite multiple requests. He needed the documents to start receiving payment from the plan sponsor. He sued the company and was awarded damages of $183,881 and attorney fees of $60,030.

Do you see how quickly tables can turn if you decide to handle benefits administration independently? The penalties will hurt, but the bad public image will hurt even more.

Why Outsource Benefits Administration?

Outsourcing the administration of benefits can offer up to 40% cost savings. Your HR staff will also have more time to focus on other facets of human capital.

As seen in the above litigation cases, compliance is a great headache in employee benefits administration. Therefore, you need professional expertise that you can only get from an outsourced company.

Moreover, you’ll get liability protection and more employee benefits options.

Let’s learn some more mistakes that can cost you if you decide to have your benefits administration in-house. 

6 Common Employee Benefits Administration Mistakes

Failure to Make Prompt Deposits

It’s the right practice to make deposits as soon as employees defer their salary as payment into an employee benefits plan. Delay will result in government penalties and fines as well as employee frustration.

Mistakes like this can lose the trust you have with your staff and lower the morale in the office. Therefore, it’s a rule of thumb to make deposits within a week. Otherwise, complaints and potential claims will soon knock on your front door.

Late Enrollment of Qualified Staff

It’s the job of the HR department to enroll any employee who qualifies for any benefit. You can get significant penalties if you’re liable.

Many companies will exclude part-time employees from their benefits packages, but there’re cases where particular part-time employees qualify. This is normally a costly mistake.

So, whether it’s a student debt repayment plan, health savings account, or any other perk, be sure to enroll any qualified member of your team.

Not Writing a Plan Summary

It’s crucial to offer your staff a detailed guide of your program’s benefits and how it functions. And you know what? It’s their right!

Many companies – especially small ones – fail to provide a plan summary due to the habit of keeping things informal. It only takes one employee to claim that they weren’t properly informed for you to face legal troubles.

Buying Insufficient Insurance Plans

When a company underinsures its employees, the staff is left responsible for a significant portion of the expense, resulting in financial distress. For instance, insufficient health insurance may lead to medical debt or bankruptcy in the case of serious illness or an accident.

Employers must buy sufficient insurance that meets the needs of the team members. If you cut corners with group plans, legal troubles will be the least of your problems.

Wrong Treatment of Independent Contractors

It’s easy for the HR team to be confused when dealing with independent contractors. An independent contractor isn’t an employee of your company and shouldn’t be covered by your health plan.

It’s easy to miss this, and the consequence is categorizing your plan as a “multiple employer” plan. This clerical mistake can cost your organization a pretty penny. Therefore, it’s best to categorize all employees accurately. 

Compliance

Compliance is a nightmare. When offering particular benefits, there are minimum requirements businesses must meet. For example, ERISA has reporting and disclosure requirements about welfare, health, and retirement benefits.

Moreover, the Affordable Care Act features provisions that affect companies in various ways. So, human resources have to be careful as there’s no room for error to avoid possible litigation.

Solving the Problems

The magic words are outsourced benefits administration. Dealing with compliance problems, late deposits, underinsurance, late enrollment, and confusion with independent contractors can be too much for an HR department that has to handle recruiting, talent management, training, and onboarding.

And they still have to organize an ugly sweater contest. HR doesn’t have superhuman abilities, so outsourcing benefits is the right call!

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