How to Turn a Non-Mandatory Benefits Plan into a Mandatory Plan – Part 1

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In this first part of a two-part series, Barb Feldman looks at the potential liabilities faced by employers who offer a non-mandatory benefits plan.

When employers absorb 100% of costs, there is no reason employees shouldn’t participate in a benefits plan. But when costs are shared between an employer and employees, it’s common to see a few employees opt out, given the chance, says Mike McClenahan, CEO of Benefits by Design. He says that can include those who don’t want to pay for benefits coverage, or say they can’t afford it, or can’t foresee ever needing to use it. Plus, non-mandatory benefits plans can present a number of liability risks for small business owners, says McClenahan.

Zoltan Barszo, president of Accurate Design Benefits & Insurance Agencies, agrees. “What if a non-participating employee incurs a claim for $100,000 and asserts that the company was at fault for not enrolling them?” he says. “Technically they haven’t signed anything waiving their rights; technically you have a benefits program that they should be part of, even according to your contract with the insurance company. So who’s responsible for that $100,000 claim? My guess is that it’d be the employer.”

This is made worse by the fact that occasionally brokers aren’t aware that voluntary plans have mandatory participation levels, which are typically 75% to 85%, says Barzso. An insurance company usually won’t know if a business has fallen below the minimum participation rate, he says, “but they’ll know it when you have a huge claim. Then they find out that you’re in violation of the contract. Now what? Would they actually pay that claim?”

Whenever there’s a dispute over liability or “duty of care” issues, developing case law points to the onus being on the employer, adds McClenahan. “I don’t know if exposure is extended to the insurers and potentially also for advisors, he says, “but it’s another reason to make plans mandatory.”

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