As spring approaches, many of us get the itch for a little “spring cleaning.” It’s less hectic with end of the year issues and open enrollment out of the way. It’s also the perfect time for employers to pull out benefits records for review, confirmation and updating, says Chuck Whitford, consultant at JRG Advisors.
Smart Business spoke with Whitford about the tasks that employee benefits professionals should consider when spring cleaning.
Why should employers review and confirm items in their employee benefits this spring?
Many employers use benefits confirmation statements once employees have completed their open enrollment elections. Although these statements are generally utilized for electronic enrollments, some employers also provide them for paper elections. During this time, an employer should compare the confirmation statements to what is on record for an employee’s benefits choices and dependents enrolled. Furthermore, an employer should ensure that payroll records reflect any premium changes because of the employee’s elections.
This is especially important when an employee’s premium insurance elections are done on a pre-tax basis through an employer’s Section 125 plan. Section 125 rules provide that an election is irrevocable for the 12-month plan year unless there is an IRS permissible reason for a mid-year election change. There are some events not in the 125 rules that could allow an individual to make a mid-year election change, such as a mistake by the employer or employee, or needing to change elections to pass nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing evidence that the mistake has been made. For instance, individuals might accidentally sign up for family coverage when they are single with no children.
What could need to be updated with life insurance and disability benefits?
Two popular benefits that employers provide their employees are group term life insurance and disability (both short and long term). Life insurance premiums are usually based on the age of the employee, while disability premiums are based on an employee’s wages.
An employer should take advantage of spring cleaning to ensure that its records (payroll and invoices) reflect the age changes of employees as well as any pay increases that may have occurred at the beginning of the year. Also, the employer should double-check these benefits for issues such as the removal of terminated employees, employee classification change, which affects the amount of a benefit, and proper taxation.
Depending on the employer’s policies, an employee may be able to have the premiums for disability insurance paid on a post-tax basis, instead of pre-tax, which enables an employee to avoid taxation upon receipt of a disability benefit.
How should beneficiary forms be reviewed and updated, if necessary?
Beneficiary designations are frequently used in retirement and life insurance plans to determine entitlement to benefits payable upon death of the participant. In the case of certain benefits subject to spousal protections, federal law imposes requirements on both the form and timing of beneficiary designations. Other types of beneficiary designations are a matter of plan design. A beneficiary designation that doesn’t accurately reflect an employee’s intent can result in disputes following the death of a participant.
There are a multitude of life situations that could be costly to an employer if a proper beneficiary designation is not on file — think divorce, simultaneous death of the participant and beneficiary, or lost forms as examples. An employer may be required to defend a lawsuit, correct improper payments or find the proper beneficiary.
Does the Tax Cuts and Jobs Act make other changes necessary?
The IRS updated the income tax withholding tables for 2018 to reflect changes made by the new tax law. The updated tables, which were to be used no later than Feb. 15, 2018, reflect the new rates for employers. As part of its spring cleaning, an employer may want to have its employees complete new W-4s. Employers should visit the IRS website for the release of 2018 W-4s.
Insights Employee Benefits is brought to you by JRG Advisors