Evaluating Employee
Benefits
Presented by William Hall
Taylor Insurance Services
March 18th, 2008
Goals and Agenda
1. Section 125 Administration
2. Open Enrollment Practices
3. Supplemental Insurance
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Section 125 Plans
Section 125 Plan Employer Savings
Section 125 of the IRS code allows employers to deduct certain insurance
premiums on a pre-tax basis, thus lowering the federal, state and
local income taxes for both the employer and the employee. These tax
savings can help defray the cost of insurance premiums.
Employer Savings
Avg Monthly Pre-tax Deductions
# of Employees
Total Pre-tax Deductions
Employer FICA rate
Total Pre-tax Employer Savings
Total Employer Annual Savings
$
300.00
300
$90,000.00
7.65%
$ 6876.00
$82,512.00
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Section 125 Plan Employee Savings
Employee Savings
After tax
Pre Tax
Gross Monthly Salary
$ 3,000.00
$3,000.00
Avg Monthly Pre-tax Deductions
$
$ 300.00
Taxable Monthly Salary
$ 3,000.00
$2,700.00
State and Federal Income Tax @ 28%
$
840.00
$ 756.00
FICA Tax @ 7.65%
Gross Take-Home pay
$ 230.00
$ 1,930.00
$ 207.00
$1,737.00
After Tax Deductions
$
$
Net Take Home Pay
$ 1,630.00
$1,737.00
Monthly employee increase in net pay
$
$ 107.00
-
300.00
-
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-
Section 125 Plan Administration
1. Do you currently have your Section 125 Summary Plan
Documents at your office?
2. Are you currently distributing Section 125 Summary
Plan Descriptions to all employees during new
employee orientations and open enrollments?
3. Are you completing discrimination testing on an
annual basis?
4. Do you currently have on file (electronic or paper) signed
documents (deduction election forms, choose not to
participate, etc.) for all employees?
Proprietary and Confidential, Taylor Insurance Services
Open Enrollments
Open Enrollment
The enrollment process is designed around the Circle of Benefits:
mandated, core, supplemental and voluntary. The Circle is
designed to communicate to your employees the importance of a
well-rounded benefits package. It is also designed to help your
employees learn about the financial contribution the company is
making towards their welfare.
When employees understand the value of a well-rounded benefits
package, they are better equipped to make informed decisions. The
open enrollment/benefit communication process is designed to
show your employees how to protect the most valuable asset they
have: their lives.
The enrollment process is recommended for all new employees during
employee orientation and annually during open enrollment.
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Open Enrollment
Mandated
Worker’s Comp
Unemployment Insurance
Social Security
Core
Major Medical
Retirement
Deferred Compensation
Electronic
Enrollment
Process
Supplemental
Group STD/LTD/Life
Dental
Vision
Voluntary
Life, Disability, Accident, Cancer,
Critical Illness, Hospital Indemnity
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Electronic Enrollments
Your Electronic Enrollment should have unlimited flexibility
to perform the following tasks:
Enrollment Setup
Support open
enrollment, new hire
enrollment or qualified
status changes.
Administrator Tools
Monitor enrollment status
and history; EOI tracking
and mgmt; customizable
reports; 24 hour online
access.
Branding
Can be branded and
customized according to
employer’s specs, including
logo’s.
Employee
Complete printout of
“Hidden Paycheck” and
“Benefits Summary”
Data Integration
Regularly updates employee
information to most back
office HRIS/payroll
systems.
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Electronic Enrollments Reports
Hidden Paycheck
The Hidden Paycheck provides employees with details on the cost of benefits
being provided by your organization. The report should be simple and
include employer costs for mandated, core, supplemental and voluntary
benefits. Are you providing this for your employees?
Benefits Summary
The Benefits Summary allows employees to view what benefits they have
elected for the upcoming year, what the cost of those benefits will be and an
estimated paycheck after insurance deductions and taxes. Do your
employees understand their benefits and what will be coming
out of their paycheck?
Data
The information provided back to you should be in a format that meets your
needs and wants (electronic, paper, etc). Are you receiving your
enrollment data in the most efficient manner possible?
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Make Open Enrollment Fun
Benefit fairs and/or employee appreciation days are a great way to kick
off your annual open enrollment. They create a festive mood for
employees who may be experiencing low morale due to market
changes, economic downturns, anxiety over potential layoffs, etc.
Proprietary and Confidential, Taylor Insurance Services
Employee
Benefits
Supplemental Insurance
Supplemental insurance: Innovative, voluntary insurance products
that typically pay benefits directly to insured independently of any
other benefits.
Why does supplemental coverage exist? Because employees want first
dollar coverage but employers can no longer afford to give first
dollar, comprehensive coverage to all employees. The result is a
pleasant compromise where employees buy what they need, and the
employer makes it available to them.
As with any type of insurance, the first rule for supplemental insurance
is to choose a reputable carrier. Use AM Best or Standard and Poor’s
to check the financial stability of a company.
The second rule is to customize your benefits package to meet your
employee’s needs.
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Group vs. Individual
Individual
–
–
–
–
Fully underwritten;
Plans are typically modular…customizable to meet individuals needs;
Always portable without rate increases.
Can be offered under Contingent Guaranteed Issue underwriting.
Group
– Guaranteed issue upon first enrollment;
– Rates are typically lower due to standardization of benefits and pricing
associated with a specific group of people;
– Benefits are usually not portable but if they are, there is usually a rate
increase;
– Group benefits always seek to coordinate with other benefits, so that the
coverage you think you are buying may not be what actually pays out.
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Individual Supplemental Insurance
Permanent
Life Insurance
Cancer
Insurance
Term Life
Insurance
Disability
Insurance
Critical Illness
Insurance
Heart/Stroke
Insurance
Hospital
Indemnity
Insurance
Accident
Insurance
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Group Supplemental Insurance
Group LTD
Group STD
Group Life
Insurance
Dental
Vision
Long Term
Care
Mini-medical
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Group Life Insurance
•
Group Life Insurance
– Typically offered as employer paid or employee paid or both and is
guaranteed issue.
• Can be offered as a multiplication of the employee’s salary (anywhere
from 2x to 5x income) with a ceiling for the guaranteed issue benefit.
Can also be offered as a set amount ($20,000, $30,000, etc).
• Is usually inexpensive coverage but rates increase as the insured get’s
older
• Coverage can made available for spouses and dependants.
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Individual Life Insurance
•
•
Designed to supplement the group life insurance that is usually
offered by employers. Based on models offered by government after
9/11, most Americans are under-insured. The current recommended
model is 5-10 times annual income.
May be offered on a Contingent Guaranteed Issue basis, allowing
employees to enjoy the guarantee issue underwriting features on an
individual, portable policy.
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Individual Life Insurance
•
•
•
Whole Life Insurance: Equity is developed in the policy by
diverting a portion of the premiums into a cash fund that can be used
as collateral for a loan. Policy typically endows at age 100. Expensive
policies where rates can be guaranteed to age 100. Inflexible death
benefit.
Universal Life Insurance: Equity is built in the policy by investing
a portion of premiums in managed investments with a guaranteed
minimum return on investment from 3-5.5%. Death benefit is flexible.
Rates can be guaranteed. This is designed to change with a person as
their needs change throughout their life while providing certain of
guaranteed features.
Term: Equivalent to renting a house because you have no equity in the
policy. You buy coverage for a certain period of time (10, 20 or 30 years).
Very inexpensive and premiums are guaranteed during the term of the
policy, however, rates will increase when the insured renews after the
Term period.
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Disability
•
Why?
– Disability is designed to protect the most valuable asset that we have:
Your Ability To Earn An Income
•
Types
– Short Term Disability: Income protection that will cover up to 60% of
an employee’s income. Shorter elimination periods with benefit
periods typically up to two years. Can be offered under a group or
individual basis.
– Long Term Disability: Income protection that will cover up to 60% of
an employee’s income. Elimination periods start at 3 months and can
last to age 65. Typically offered under group coverage.
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Specified Disease
•
Why?
– Cardiovascular Disease is the #1 killer of Americans.
– 1 out of 2 men and 1 out of 3 women will be diagnosed with cancer
in their lifetime.
•
Cancer
– Typical policy pays an initial diagnosis up to $20,000 plus
indemnifies the insured for specific occurrences.
• $100 annual wellness benefit
• Hospital confinement, surgery, chemo/radiation, blood transfusions,
new & experimental drugs, ICU, stem cell transplants, etc.
•
Critical Illness
– Can have a guaranteed issue feature;
– Provide up to $50,000 lump sum benefit;
– Provides a lump sum payment for heart attack, stroke, cancer,
Alzheimer’s, By-pass surgery & Renal failure.
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Accident
•
Why?
– One in 8 people in the US sought treatment for an injury in 2007.
•
Features:
– Indemnifies the insured for “First dollar expenses” associated with
unforeseen accidents. There are a variety of reimbursement features
including initial medical expenses, short term disability, broken bone
benefits, surgical benefits, hospital confinement, ambulance charges and
more.
– Can be used to supplement the increasing deductibles and co-pays that are
a result of increasing major medical costs.
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Hospital Indemnity
•
Why?
– The average for 1 day in the hospital in the US is $3,700. With a $500
deductible and 80/20 plan, the employee’s portion of costs would be an
average of $1140.
•
Features:
– Indemnifies the insured for “First dollar expenses” associated with a
hospital.
– Typically provides initial hospitalization benefit, in and out patient
surgery benefits, doctor visits and daily room and board benefits.
– Typically covers maternity.
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Dental / Vision
•
In some cases, dental and vision are included in major medical.
– Restricts the flexibility for an employee to customize their benefits.
– Benefits are typically not as rich as individual plans.
– Numerous “hidden costs” can adversely affect major medical rates.
•
Dental
– Covers dental charges up to and including exams, x-rays, extraction,
dentures, surgery and orthodontics. Provider networks are available but the
insured can typically use any dentist that they choose. Can feature a
combination of co-pays and deductibles plus co-insurance.
• Typically has the highest employee satisfaction rating of all supplemental benefits.
• Recent innovations have enhanced this benefit include Dental rewards
•
Vision
– Covers vision charges up to and including exams, lenses, frames, contacts
and can sometimes offer discounts for laser surgery. True vision plans are
typically offered with a provider network but there are reimbursement plans
available. Can feature a combination of co-pays and deductibles plus coinsurance.
• Very high satisfaction rating from employees.
Proprietary and Confidential, Taylor Insurance Services
Supplemental Insurance
Allstate Products Underwriting
In addition to flexible products, Taylor Insurance Services was
instrumental in the development of the Simplified Contingent
Guaranteed Issue underwriting program at Allstate. Basically, this
program allows almost all of our Individual Supplemental Benefits
to be issued based on 3 questions:
1. Do you work at least 20 hours per week?
2. Have you been diagnosed with Aids/HIV?
3. Have you been hospitalized in the last 6 months?
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Questions?