Small plan sponsors want to offer the same kinds of benefits options as their larger counterparts. It can be done, to some extent, as more products and services are now available to them. But for the most part, smaller plans still face the same challenges now as always: cost, competition and capability. “It’s always a challenge to keep the prices down—and still have some good benefits,” says Murray Kirkpatrick, administrator of Queens Association for Assisted Living in Milton, N.S. The 70-employee organization recently switched insurance carriers to help contain costs. Queens Association is fortunate. According to a 2002 survey from the Canadian Federation of Independent Business (CFIB), of the 14,500 small- to medium-size businesses surveyed, 44% said they don’t currently purchase extended health insurance. The main reason? Premiums are too high (84%). Also, 7% said they used to provide extended health but now can’t afford it. “It’s a catch-22,” says Jessica Cerato, human resources coordinator for Hostelling International, Canada, Pacific Mountain Region, in Vancouver. “We want employees to take advantage of the benefits we offer, but at the same time, it’s a little difficult.” Aside from health and dental, the 60-employee branch offers each full-time plan member $500 per practitioner per year for eight different services, such as acupuncture and massage therapy. However, employees are using it “to the max,” says Cerato, so the company is looking into requiring a referral for those paramedical services. “It wouldn’t take away the benefit; it would make sure it would go to those who need it,” she says. “It’s just that extra step.” Talent Competition As small plan sponsors continue to struggle with benefits costs, benefits are playing an increasingly important role in competing for an ever-shrinking talent pool. “A lot of small companies don’t have anything,” says Scott Scobie, managing director, sales and marketing, with Canadian Western Trust (CWT), in Vancouver. “[But] with the issues of retention nowadays, [benefits are] becoming more popular. Employees who come from large companies are used to having pension plans or group registered retirement savings plans or some type of benefits plan. If you’re hiring people away from those large companies, they might expect to have benefits they’ve had in the past.” Says Arlene Rampersad, human resources administrator, with Mitutoyo Canada, in Mississauga, Ont., “It is becoming increasingly difficult to retain employees, who are often courted away by larger employers that can offer greater compensation packages. Our industry is extremely specialized, so skilled workers can be hard to find. Being able to compete with total compensation packages can be a stumbling block.” Retaining employees is particularly important during times of change. One of CWT’s clients, a 20-person company in Alberta, purchased another branch in Saskatchewan. As neither firm had any kind of retirement savings program, the merged company opted for a GRRSP with a single investment choice to retain its staff. “It’s a balanced fund,” says Scobie. “In that way, it’s going to mitigate the amount of administration that they have to do.” Capable Hands That administration can take up a lot of time—time that a small plan sponsor may not have. And, a one- or two-team human resources department or senior accountant may not have the required capability and expertise. “They’re multi-tasking,” says Rhonda Sommerville, senior vice-president for group and retiree areas, with ENCON Group Inc., in Toronto. “The person who’s responsible for benefits can be responsible for sweeping the garage floor— you never know.” Marlene Mann, senior accountant, with Tekmira Pharmaceuticals Corporation, in Burnaby, B.C., agrees. “I’m in charge of payroll and the benefits and administration. I do everything.” But small businesses may be willing to take on more onerous administration requirements in exchange for more flexibility. “There are benefits in our package that we don’t use,” says Mann. “Our package, although it is a fixed package, would be more beneficial if it could be more flexible [in] how you use the benefits or the money, instead of just being set up into this huge package that may not suit the whole company.” However, the flex or cafeteria-style plan isn’t an option for most small plan sponsors at this point. “Right now, we’re not seeing flex plans for small companies,” says Anthony Feher, president of A.F. Group Benefits Inc., in Toronto. “And I don’t think we should. [Small companies] can’t afford the anti-selection.” Benefits Possibilities When a full flex program isn’t possible, healthcare spending accounts (HSAs) may help offer that flexibility. “The one-plan-fitseverybody doesn’t work,” says Steve Moffatt, vice-president, sales and marketing, with Green Shield Canada, in Toronto. “You have single employees and people with kids and younger people versus people in their 50s. That’s where HSAs get to be very popular.” Denise Richardson, segment manager, group benefits, with Manulife Financial, in Waterloo, Ont., agrees that HSAs are popular but offers a word of caution. “For an unsophisticated client, an HSA can be more complicated,” she says. “There’s a little bit more education involved for employees, [but it’s] definitely a very cost-effective tool. [Manulife is] very interested in pursuing it for the smaller market, but our hesitancy has been because of the lack of sophistication and resources required to provide some kind of training or support to employees.” Fuller Landau wants to do the right thing and help its employees save for retirement. Four years ago, Fuller Landau took the money it would have budgeted for a holiday party and threw a Christmas party for primary classes at Lord Dufferin Public School in Toronto’s Regent Park instead. “We’ve got a few pictures framed around the office that the classrooms did to say thank you,” says Jennifer King, the firm’s director of human resources. But the 50-year-old accounting firm on Bloor Street West isn’t only looking after its local schools; it’s looking ahead to its employees’ retirement through a new group registered retirement savings plan (GRRSP). “It’s a firm-matching program,” says King. “We match [employees’] contributions [at] 50% per pay period up to a maximum of $500 for staff and $1,000 for management level per year.” The voluntary program, which 32 of its 50 eligible employees have joined, was rolled out on Jan. 1, 2008. A pension plan just wasn’t an option for the 65-employee firm, King admits, because it has more complicated administration requirements. “It’s just me in HR ,” she says. “I don’t have a benefits department that just does the benefits.” The portability of a GRRSP also suits the company’s demographics. “Many of our staff members are very young because it’s the way the [accounting] track works,” says King. “You come out of school, you stay for three years, [and] you get your designation. Lots of people will, from there, go into the industry,” she continues. “We wanted something that was meaningful for that Gen X [or] Gen Y person who will probably have several kinds of jobs.” And it will mean even more when that employee ends his or her career. “We asked, What are we doing to contribute to not only their work lives while they’re here, but also their lives when they retire?” says King. “We want to be like a community citizen—being responsible for people, ensuring that they’ve saved something for retirement later down the road.” King says the GRRSP was very well received. Plus, the HSBC branch that Fuller Landau uses is right across the street. “Team members can walk over there if they need some advice or if they need to switch into a different fund,” she says. “You spend a lot of time at work. On your lunch hour, if you can deal with your finances, too, then that’s just a good bonus.” — Brooke Smith |
Employee assistance programs (EAPs) are becoming more common, too, says Michael Milos, director, business development, SunAdvantage Group Benefits, with Sun Life Financial Canada, in Toronto. “As sponsors continue to see higher utilization, it’s becoming more important for them to take advantage of the tools that are out there for their employees to keep their costs in line.” Although Queens Association doesn’t have a formal EAP, it manages these needs as they arise. “I have connections here that I can send staff to, but it’s a private kind of thing and as needed,” says Kirkpatrick. But if he could find the means, he would implement an EAP. “I can’t seem to scrape the money together to do that,” he says. “It’s just like any insurance kind of thing. Costs change from year to year. Sometimes [insurance carriers] just price themselves out of our ability to have it.” Retirement Matters On the pension side, GRRSPs remain the most viable option for the smaller plan. Scobie says that plans such as employee stock ownership plans and deferred profit sharing plans—which were traditionally add-ons to large defined benefit plans—are also becoming more popular as plans within themselves for smaller firms. Pension plans are still relatively rare among small plan sponsors, most likely because of the more demanding administrative requirements. According to the CFIB survey, 75% of respondents do not offer a pension plan—31% said the administration is too burdensome. But perhaps, in the future, insurers may devise a pension plan that’s easy to administer and geared specifically toward the small business. Quebec small plan sponsors already have that option. “Legislation is different by province on pensions,” says Greg Bell, vice-president, group retirement services operations and corporate accounts, with Sun Life, in Waterloo, Ont. A simplified pension plan, which is easier to administer than a traditional defined contribution plan, is available for smaller businesses in Quebec. “It takes a lot of the responsibility away from the plan sponsor,” he says. As small plan sponsors continue to demand cost containment and flexibility, insurers listen and act as best they can. Insurers, consultants and plan advisors must communicate with plan sponsors and relay up-to-date, quality information, including meeting the growing demand for benchmarks and comparatives. Meanwhile, in Milton, N.S., Kirkpatrick will keep searching out possibilities to provide his employees at Queens Association with that EAP. For now, after switching carriers, at least he can continue to offer the benefits plans. “It kept a continuity at a price that we can afford.” A Small Group Benefits Checklist With many new options available to the small group market, how can you ensure that your group benefits plan is meeting expectations? Here are a few key considerations. Engaging the appropriate expertise – Do you or your broker/consultant have access to the necessary resources to assess potential opportunities and evaluate the pros and cons of your plan, review third-party administrators, associations or chamber plans available, and find the most appropriate solution for your employee group? Adjusting NEM s and overall maximums as the group grows – Do the current non-evidence maximums (NEMs) and overall maximums for your benefits plan match those typically available to a group of your size? If you’re making a job offer in which the group benefits plan is part of the agreement, can you match prior coverage and maximums? Managing employee contributions – Small group plans often have costsharing arrangements, and therefore, payroll deductions beyond the longterm disability benefit. How will this affect claims, utilization and costs? How will you balance employee deductions with plan design? Understanding high-amount pooling variances and costs among insurers – What high-amount stop loss or pooling is included in the plan, and which benefits does it cover? Is it priced fairly, based on your exposure? Defining cost-plus for executives – If a cost-plus benefit is available, have the applicable classes, benefits covered and associated tax considerations been properly defined? Handling annual renewals and marketing – Are you getting an independent report with the information you need to understand the methodology, renewal analysis and cost of your group plan? If the plan is being marketed, is there a report outlining deviations to the current plan design, the pros and cons of the proposals and the overall costs described in detail? Recognizing errors and omissions (E&O) issues – Small plan sponsors often don’t pay enough attention to possible E&O issues and responsibilities in cases that include contested death claims, drug claims denied because they exceed a plan maximum or denied disability. With the current confidentiality and privacy laws in place, are you protecting yourself against these types of claims? Maintaining 100% participation levels – While many insurance contracts require at least 75% participation, it is prudent to have 100% participation. When employees choose certain types or levels of coverage, they or their families may be declined in the future for medical reasons. Do you and your employees fully understand the liability issues? Are Declination of Benefit statements always signed and filed? Assessing administrative services only (ASO) and self-insurance – Groups as small as 10 employees can now participate in ASO and selfinsurance through niche products and insurers, with appropriate stop-loss and pooling levels. Is ASO a viable and cost-effective option for your organization? If so, do you understand the inherent risks? Anthony Feher is president of A.F. Group Benefits Inc. anthony.feher@sympatico.ca |
A Small Group Pensions Checklist When implementing or reviewing small group pension plan arrangements, here are some important considerations. Selecting a broker/consultant focused on group retirement programs – Typically, the selection process will come by way of a referral from someone who is already using the services of the broker or consultant. In addition to having the requisite expertise with group retirement programs, it’s also recommended that the broker/consultant be able to provide a certified financial planner (CFP) as a resource for employees. Identifying which retirement vehicle best meets your goals, targets and needs – There are three basic plan types to consider: defined benefit, defined contribution (DC) and money purchase. Each type of plan has inherent advantages and challenges. The plan most commonly selected by smaller employers is the group registered retirement savings plan (GRRSP). Due to payroll taxation issues, some employers will opt for a registered DC pension plan combined with a GRRSP. Choosing which funding process best suits your budget and objectives – This step requires determining what kind of retirement partnership you’d like to establish with your employees. Should you make basic contributions without any required financial contribution from employees? Or should there be a partnership whereby employees are required to contribute to receive a corresponding employer contribution? If so, what should the match percentage be? Meeting the Capital Accumulation Plan (CAP) Guidelines – Committing to this course of action involves providing employee education, information and decision-making tools. Following the CAP Guidelines gives you the assurance that your plan is compliant, and that you’ve fulfilled your fiduciary responsibilities. Selecting the right service provider – Your organization’s needs and wants, along with those of your employees, must be carefully matched to the provider’s strengths. This is the key to a long and positive relationship between the employer, the service provider and the employees. Choosing the investment options – Many providers offer hundreds of possible investment choices, but it’s essential to keep your employee demographics in mind throughout the selection process. With the introduction of target-date funds, passive investment is now easily accessible. Asset allocation funds are ideal for employees who do not wish to select specific funds. Investment funds with varying volatility and manager styles will satisfy a range of employees who wish to specifically control the makeup of their portfolios. Launching the program – How you launch your retirement program is important, and the resources provided should include plan documents, educational materials, decisionmaking tools and sources for more information. The launch is also a great opportunity to communicate to your employees the many reasons why you are an “employer of choice.” Communicating on an ongoing basis – Regular newsletters, access to CFPs, online statements and annual reviews all play a part in ongoing employee education. Not only are these positive incentives for employees, but continued communication and education are also part of your fiduciary responsibilities. Al Kaminskas is partner of Net Worth Employee Benefits Inc. networth@look.ca |
Click here to see highlights from our Small Plan Sponsor Roundtable. For a PDF version of this article, click here. |
