When implementing an employee benefit program, there are a lot of considerations. Clearly, the employer must consider what benefits will be advantageous in order to attract the right employees. But employers also must be sure they know what risks they’re taking on when opting to include specific benefits.
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Let’s take a look at some of these risks.
Health insurance benefit risks
Of course, with the implementation of the Affordable Care Act (ACA; also known as Obamacare), large employers have an obligation to either provide health insurance as a benefit to full-time employees or pay the associated penalty that comes from choosing not to provide this benefit. The first risk here is fairly clear—if a covered employer opts not to provide this benefit, it will be at risk for penalties.
If offering health insurance, it’s also critical to ensure that it meets the ACA standards—insurance that does not meet the minimum standards is subject to the same penalties as not providing insurance at all. There are minimum requirements in terms of affordability, coverage, and more. This point is especially relevant for any employer who offers self-insured coverage—it still must meet the standards.
Whenever an employer has any type of medical information about an employee – which could come up when offering health insurance—there’s also the risk of violating HIPAA. HIPAA is the Health Insurance Portability and Accountability Act, and it’s directly associated with privacy of medical information. When an employer violates any provision of HIPAA, penalties may result—even if the violation was unintentional. (Note: HIPAA violations are a risk any time this type of information is obtained, and there are lots of ways this may occur, such as administering FMLA leave or workers’ compensation leave—it’s not solely related to the ACA.)
FMLA leave risks
As we just noted, any time medical information is obtained, employers must have steps to ensure that this information is kept private. There are risks of mishandling sensitive information, which could violate HIPAA. This risk is present for other benefits, such as Family and Medical Leave Act (FMLA) leave.
Improper administration of FMLA leave can also leave an employer at risk of discrimination claims or claims of obstructing employee access to FMLA rights.
Retirement plan risks
Offering a retirement plan benefit for employees comes with a lot of legal obligations. There are disclosure obligations to meet and all fiduciary responsibilities must be met as well. It must be implemented in a way that ensures it is not discriminatory, and contributions must be made in accordance with the rules (and subject to legal maximums). Employers must act in accordance with the Employee Retirement Income Security Act (ERISA) and act in the best interest of the employees[i]. More and more retirement plans are being sued in recent years for improper administration—often centering on excessive fees, investment options that are not in the best interest of the employees, or general mismanagement.
This article is just a primer—there are risks involved in almost all business decisions, and this is just a sampling to get an idea of what to consider when it comes to choosing what employee benefits to offer.
Has your organization ever opted to forgo providing an employee benefit because the risks involved outweighed the advantages?
*This article does not constitute legal advice. Always consult legal counsel with specific questions.
[i] https://www.irs.gov/retirement-plans/retirement-plan-investments-faqs