Four most common plan admin liabilities

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P-app-tech-mental-health-depression-stress.jpg">Plan administrators are human and they can make mistakes. The problem is these mistakes can put the employer at serious financial risk—especially if they are uninsured for such errors.

Gordon Hart, a founding partner of Selectpath, says in a blog post that the top four common liabilities are:

  1. Reporting Salaries: if a plan has coverage based on incomes, it is the plan administrators responsibility to report changes in a timely manner. Failure to do so may lead to improperly paid benefits and potential liability to the plan sponsor for maintaining inaccurate records.
    Read: Why definitions of earnings are so important
  2. Managing Eligibility/Enrolments/Changes: All eligible plan members based on hours of work and legitimate employee/employer relationship should be on the plan unless approved by the insurer. Timely enrolments (within 31 days of eligibility) reduces the risk of late applicant status which often restricts coverage (and could lead to complete decline base on health evidence required). Failure to enrol and maintain eligible plan members is a potential liability to the plan sponsor (even where there is proof of waiver but the plan member can claim ignorance).
    Read: Why mandatory enrolment is so important
  3. Reporting Taxable Benefits: Any premium amounts paid by the employer on plan member’s life insurance coverage should be added as a taxable benefit for taxation purposes.
  4. Taxability on Disability Benefits: To ensure that plan members receive disability benefits on a tax-free basis, the employee must pay the entire premium cost for the benefit. This means that any cost-sharing for premiums is managed in a way to ensure that the employee contributions cover the cost or the portion of the employer premiums for disability are added as a taxable benefit. CRA requires taxes to be paid on either the premium or the claim. Failure to ensure that taxes are not paid on the premium will guarantee taxes are payable on the claim. The liability implications are significant when you consider the potential payout of disability benefits and the cost to the plan member if unexpected taxes are incurred. As with incorrect salary reporting, plan sponsors could be on the hook for the differential between the payout and the expected payout.
    Read: Secure larger LTD benefits for your clients

To protect your clients against these costly mistakes, suggest they purchase plan administration liability coverage.

Before you discuss this with your clients, read up on it in:

To learn more, consider attending this event: Employer liability in plan administration

Transcontinental Media G.P.