Since most small businesses do not have a dedicated HR person, the responsibility of group plan administrator usually falls on someone in the office. Although this is a fairly simple job in most cases, the responsibilities that come with it should not be taken lightly. There are many liabilities that come with the job that if not dealt with properly could make this job a nightmare and cost your employer thousands.
1. Are All Eligible Employees On Your Plan?
Employers should make it mandatory that every full-time, eligible employee be on the plan for life and long term disability insurance at the very least, no exceptions.
Potential Liability: Refusal of coverage by an employee may lead to legal action against the plan sponsor if an uninsured employee dies or becomes disabled and the employer cannot prove the benefit was offered to the employee. The courts may rule that the plan was intended to provide coverage for all employees and the employer should have acted responsibly and insisted that all employees participate.
Action: Make life insurance and LTD coverage a condition of employment, and make desired hires whom refuse coverage sign a Refusal of Benefits form. This will assist you in court if needed to prove that the employee refused the benefit and understood the importance of their decision.
2. Ensure Employees Who Are Eligible For Coverage Beyond The Non-Evidence Are Applying For It.
Ensure group life and long term disability insurance plan has a certain level of coverage which is available to each plan member referred to as a non-evidence limit (guaranteed issue). Any additional amounts over and above the non-evidence limit that the employee may be eligible for will require that the employee provide medical evidence for approval. In some instances, the employer does not advise the employee of this opportunity, and sometimes even when the employee is advised they do not respond to the request.
Potential Liability: In the event of a death or disability, a plan sponsor may face litigation from the employee or their estate because it is deemed that due to error or neglect on the part of the plan sponsor the employee was not given the opportunity to apply for this additional coverage.
Action: Documentation is key; all employees should be notified in writing of their eligibility for coverage beyond the non-evidence limit. They should be provided the proper forms with instructions and be informed of the insurer’s decision. If the employee does not apply for the additional coverage, always ensure they sign a document saying they understand the importance of their decision and retain the document for future refernece.
3. Enroll New Hires Immediately.
Plan administrators need to understand that it is their responsibility to enroll new employees onto the group life and health plan within 31 days of the expiration of the plan’s waiting period. For most groups this is 90 days. Failure to enroll the employee within this allotted time usually means the employee and their dependents are deemed to be “late applicants” and subject to providing satisfactory medical evidence at their own expense. It may also mean having a restriction on the amount of dental coverage they may have during the first year they are on the plan and possibly having other benefits declined. The submission of medical evidence does not mean that everyone will be approved for coverage either, and the consequences of a decline are that everyone is unhappy. It is the plan administrator’s responsibility to ensure enrollment forms for new employees are submitted to the insurer, not the employee.
Potential Liability: If a late applicant dies or becomes disabled before coverage is approved, the plan sponsor may be held accountable.
Action: Enroll new hires immediately. The carrier will pend the form until it’s time to add the employee to the plan. If the employee does not work out, it’s just a matter of notifying the insurer of this in order to have them removed from the plan and to receive any refund of premium paid. Also, provide new hires that opt out of coverage with written notification that they may be declined coverage if they decide to opt in later. Ensure that all late applicants fill out the health evidence form. If the insurance company declines coverage, make sure the employee is notified in writing as to what benefits have been declined for.
4. Inform Your Insurer Of All Employees Who Are Not Actively At Work (NAAW).
All insurance contracts state that employees who are “not actively at work” (NAAW) are ineligible for coverage, because of the risks involved. Insurance companies assume that people who are actively at work are healthy and pose no significant underwriting risk. Anyone not actively at work represents risks that were not agreed upon when the policy began. Any employee who takes time off – apart from sick days, scheduled vacations and maternity leave – are considered NAAW. Grey areas such as compassionate leave, leave of absence, sick leave or unpaid vacation could be considered as NAAW.
Potential Liability: If an employee took three months leave for personal reasons and died or became disabled during this time, an insurance claim would most likely be denied as the employee would be considered NAAW. If the disabled employee or deceased employee’s spouse sued the plan sponsor, they would most likely win.
Action: Many judges will side with widows over “negligent” employers. To lessen the financial risk, notify your broker/consultant and insurance company immediately, in writing, when you know an employee will be NAAW. Your broker/consultant will then request to extend benefits. The employee must receive communication in writing regarding any benefits that are not extended. If required, purchase – or have the employee purchase – additional life or travel insurance for the period that he or she will be NAAW.
5. Apply For Group Life & Long Term Disability Insurance Waiver of Premium.
This provision allows the group life and disability insurance to remain in force for a disabled employee with no premium payment either by the policy holder or the insured employee. It must always be applied for on the forms provided by the insurance company.
Potential Liability: This provision is often overlooked, robbing plan sponsors and the individual of valuable protection, as well as making it difficult to transfer the plan to another carrier because the carrier does not want to assume the liability for either the life or the long term disability for the disabled plan member. This oversight could occur because the life and long term disability benefits are with two different carriers and the waivers are not simultaneously adjudicated. It could also occur due to the employee being disabled from a work place accident or sickness, and the disabled individual is collecting disability benefits from Workers Compensation/WSIB, but the group life and health insurance carrier is not notified so the waiver of premium isn’t applied for in a timely fashion, or perhaps never at all.
Action: Submit the appropriate paperwork as soon as possible after the disability has occurred – ideally, within a few weeks of the disability.
There are more plan liabilities that could lead to lawsuits. Attention to detail and proper documentation are critical in your interactions with plan members to avoid putting your company at risk!