Benefits packages are essential to the modern worker. No matter what Industry your company is in, offering a robust retirement plan, an excellent paid time off policy, and extensive health coverage can provide comfort and security for your employees -- especially during a pandemic; however, these benefits incur additional costs that some businesses might not be able to manage or justify. Considering how vital and valuable benefits are to employees, is it possible for businesses to change or remove them without notice? Let’s take a closer look.
Understanding the Law
Prior to the establishment of the Affordable Care Act (ACA), businesses were not required to offer health insurance coverage to their workers. Now, providing health insurance coverage is mandated by law if you have 50 or more employees and has become standard practice if businesses want to attract and keep the best employees.
The Employee Retirement Income Security Act of 1974 (also known as ERISA) is a federal law that was enacted to protect individuals participating in most voluntarily established retirement and health plans in private industry. It performs four fundamental functions:
Requires plans to provide participants with information regarding plan features and funding,
Provides fiduciary responsibilities to the individuals who control and manage plan assets,
Requires plans to establish a grievance and appeals process,
Gives participants the right to sue for benefits and breaches of fiduciary duty, which is an obligation to act in the best interest of another party.
Changes to health insurance plans and benefits coverage are legally known as material reductions and refer to any plan modifications that would be considered by the average participant to be an important or significant change. According to the Employee Benefits Security Administration (EBSA) this includes any plan modification or change that:
...eliminates benefits payable under the plan; reduces benefits payable under the plan, including a reduction that occurs as a result of a change in formulas, methodologies, or schedules that serve as the basis for making benefit determinations; increases premiums, deductibles, coinsurance, copayments, or other amounts to be paid by a participant or beneficiary; reduces the service area covered by a health maintenance organization; establishes new conditions or requirements (e.g., preauthorization requirements) to obtaining services or benefits under the plan.
Under ERISA, employers are required to give 60 days’ notice prior to any material modification scheduled to take place. This includes informing workers of their right to purchase a temporary extension of group health coverage (like COBRA) if a qualifying event occurs. If material modifications, rather than reductions, are going into effect, employers have until no later than 210 days after the end of the plan year in which the change is adopted to inform employees.
Unfortunately, the world of insurance isn’t always easy to understand; whether you’re a small business owner who is simply trying to find a solution so you can get back to the actual work or a benefits manager who wants to make sure they choose the right coverage for their company’s needs, you might need support from an insurance broker to explain the nuances of business insurance and employee benefits, especially considering the potential legal and financial consequences surrounding any mistakes.
Certain pressing situations can force companies to alter or, more commonly, reduce their benefits plans and health insurance coverage out of financial necessity. Because most benefits packages are a combination of mandated and fringe benefits, the latter is the first to be reduced or eliminated if a company has a budget reduction.
Fringe benefits are usually offered for recruiting and retention of workers.Some may include generous paid time off policies, tuition reimbursement, and even a company car.
When the business climate is slow or worse, in a recession the following can be a result:
Understandably, the loss of employment translates to a loss in coverage if coverage is supplied by the employer. The Worker Adjustment and Retraining Notification Act (WARN) requires businesses with 100 or more employees (excluding those who have worked less than six of the last 12 months and those who, on average, work less than 20 hours a week) to provide 60 days’ advance written notice of the upcoming layoffs. Several states have applied similar legislation to small businesses, allowing employees from all backgrounds time to find alternative coverage solutions.
Furloughs have become common since the arrival of COVID-19. Because they are performed to save a business money, or sustain its survival, this option is often turned to after the elimination of fringe benefits. In most cases, businesses attempt to continue health coverage throughout the furlough.
If a business is facing financial hardship, reducing employee pay can be a more practical alternative to layoffs. While it can be demoralizing, employees usually won’t lose their health insurance coverage -- although they may be forced to pay more toward their premiums each month.
Such severe circumstances can cause significant changes in an employee’s life. While losing your job or the salary you’ve grown accustomed to can be difficult, most people won’t need to worry about losing their health insurance coverage -- at least not immediately. As a business owner, it is your responsibility to let your workers know of any major changes that will affect their wages or employment status.
The legalities surrounding company-sponsored insurance are clear cut; if benefits are being reduced, notification is required within 60 days of the adoption of such reductions. While you can be on the hook if they fail to inform your employees of these changes, things get considerably messier if the changes are based on discrimination. No employer is able to decide who gets health benefits and who doesn’t because of age, gender, race, or current health condition. The only distinction that can be made is between part-time and full-time employees; anything beyond that in most scenarios is forbidden by federal laws.
Can employers make changes to their benefits plans? Yes. Can they do so without informing their employees? Absolutely not. Whether you’re a benefits manager at a massive corporation or a small business owner with six employees, you are allowed to rescind or limit benefits for a number of reasons, including something as simple as the maintenance of insurance costs.
However, you are required to give notice to your employees within a specific time frame; this flow of information allows current workers to find new coverage or supplement any expected loss in time to prevent gaps in coverage while also serving to maintain trust and goodwill between the two parties.