Employee Benefits

Take Care of Your Employees & They’ll Take Care of You

An adequate employee benefit program is essential in business today, no matter what the size of your company. It’s a necessary tool for attracting new employees and retaining current ones. In fact, when it comes to employee retention, benefits can make or break the deal. For instance, three out of four workers consider employee benefits a decisive factor when eva luating new job opportunities.

Employee benefits like health or life insurance and retirement plans can be costly, which is why almost all smal l employers share the costs with their employees.  Another option for keeping costs in check is to offer a more modest benefits package. There are
also voluntary benefit programs that al low employees to purchase or increase their benefits themselves, often through automatic payroll deduction . An insurance professional can help you select the right mix of benefits and guide you through the
various plan options. It’s also a good idea to consult with your accountant and attorney before establishing or expanding an employee benefits program.

Health Insurance

The one thing that almost every employee wants and needs is health insurance.  More than 80 percent of employees say that hospital and medical coverage is the most important benefit an employer can provide. Fortunately, there are plenty of options,
each offering tradeoffs between flexibility and affordability.  One way to keep costs in check is to share the cost with employees. Another option is to choose a less expensive plan . The most common health plans are health maintenance organizations (HMOs), preferred provider organizations (PPOs), point of service (POS) plans and indemnity plans. Choosing the right program for your employees involves careful tradeoffs between cost and choice. If cost is your paramount concern, an HMO or POS plan might be your best bet. If choice is what you’re after, indemnity plans and PPOs often offer the greatest flexibility when it comes to picking providers.

Life Insurance

Group life insurance is a relatively inexpensive benefit that can be easily supplemented by voluntary coverage. Typically, employers provide a life insurance benefit equal to one to two times the employee’s base salary, paying either all or most of the premium cost.
Some employers also allow those wishing more coverage for themselves or their families to increase the death benefit or add family members through payroll deduction.  Because there are cost efficiencies in issuing one policy to cover all employees, the rates are often quite low. Consult with an insurance professional who can check around to make sure you’re getting a competitive price.

Disability Income Insurance

Disability income insurance is one of the least understood types of insurance, but also one of the most important. Many people mistakenly believe that workers who become  disabled will receive disability income either through Social Security, Worker’s Compensation or both. But Social Security disability benefits are often quite restrictive and employees don’t qualify for Worker’s Compensation unless the disabling illness or injury happened on the job.

Employer-sponsored disability income insurance is much less restrictive and falls into two main categories. Short-term disability income insurance plans usually offer benefits that are paid for a maximum of 26 weeks, while long-term disability benefits
generally continue for the length of the disabil ity or until retirement age.  Cost can be affected by adjusting the maximum monthly benefit, benefit periods and waiting periods before benefits begin. This is another area where it’s sometimes
possible to allow employees to purchase additional coverage either by purchasing increased benefits under the group program or through a voluntary benefit program.

Dental and Vision Insurance

Once offered by on ly a few employers, dental insurance is now offered by 40 percent of small businesses. Dental insurance plans generally cover part or all of the cost of cleaning, X-rays, annual oral exams and fil lings. Some plans also cover major items
such as crowns and restorative work. Most plans do not cover orthodontics. In some areas, dental maintenance organizations (DMOs) may be available. They function in much the same way as medical HMOs and may be less expensive than traditional plans.
Vision plans are also growing in popu larity. A typica l vision plan includes an annual routine eye exam, an annual contribution towards prescription eyewear and a glaucoma screening.

Retirement Plans

With the exception of health insurance, retirement plans are the benefit employees desire most. The good news is that small business owners have a variety of plan options from which to choose.

Most retirement plans fall into one of two major categories:

Defined Benefit plans, commonly known as pension plans, require employers to pay a fixed annual amount to eligible employees during their retirement years. These allow employers a high degree of tax savings, and in good times, favorable growth rates can
reduce or eliminate the employer’s contribution. However, they can be costly to administer and may require higher contributions in times of poor or negative investment returns. They provide the greatest degree of retirement income certainty for employees, since the employees take virtual ly no risk. The benefits are even guaranteed by the Federal Pension Benefit Guaranty Corporation up to certa in amounts.

Defined Contribution plans allow employers and employees to contribute a set amount or percentage of pay, and retirement benefits are based on the actual performance of the funds. These plans give the employer better cost control as the contribution is
defined. The amount an employee can contribute is based on a percentage of their salary up to a maximum amount defined by law. Defined contribution plans can take many forms, including:

• 40l(k) and Profit-Sharing Plans. 40l(k) plans allow employees, often matched in whole or in part by their employers, to set aside a portion of their sa lary for retirement. The employee is not taxed on this income until withdrawals are made, and the employer’s cost is a tax-deductible business expense. Employees can select the investment veh icles into which their funds are deposited. Retirement benefits are not guaranteed, however, and whi le the sum at age 65 may be substantial, it can also be much less if the employee has made poor investment choices or the stock and bond markets have not performed as well as expected.  Employees can borrow from their 40l(k) plans for education, a new home, a medical emergency etc ., although the loan must be repaid within a certain specified period of time.  Sometimes employers elect to integrate the 40l(k) plan with a discretionary profit sharing plan that can increase the employer’s retirement contribution for employees.
• SIMPLE Plans. This option for companies with 100 or fewer employees allows an employee to contribute a percentage of his or her salary up to a fixed maximum to an Individual Retirement Account (IRA). The employer may also make contributions on a fixed or matching basis. SIMPLE plans are easy to set up, require minimal paperwork, and have low administrative costs. Plus, employees retain their SIMPLE account even if they change jobs.
• Simplified Employee Pensions (SEPs). Created with the small business owner in mind, SEPs al low employers to set up IRAs for themselves and their employees.  The employer contributes a percentage of each employee’s salary each year, up to a fixed maximum. SEPs have low administrative costs, and can even be started by those who are self-employed. Since the business owner can decide how much to contribute each year, this type of plan is often the answer for businesses that may want to adjust their contribution based on the health of the business.
• Payroll Deduction IRAs. This type of plan, which requires no employer contribution, is designed solely to help employees fund their Individual Retirement Accounts.  Employers set up a payroll deduction system that allows employees to regularly contribute to their IRAs. Contributions are tax-deductible to the employee, just as they would be with traditional IRA contributions. An insurance professional or accountant can help you determine the best plan for you.

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For more information about our Insurance and Risk Management products, services and solutions, contact us at 319.538.3161.