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Cathy Fuchs, President, While Willow Benefit Consultants, Inc., Stouffville, ON: “The
small employer may not be able to offer the high levels of coverage or choice available
in a flexible benefits plan. However, there are creative options available through spending
accounts and other options such as flexible work environments, wellness accounts
and so on. A benefit plan is an integral part of the compensation package.”
A large electronics manufacturer or bigbox
retailer has the ability to work with
consultants to design a plan to meet their
exact needs. But the small consumer
electronics company also has that capability;
they just have to find the right advisors
to work with (and not someone who
tells them to take Package A or leave it).
“This stuff is not cheap, they’re spending
a lot of money and they want to make
sure they’re buying the right stuff,” says
Crowder. Business owners should spend
their money wisely, and they should feel
good about it.
There are typically three components to
a benefits plan. First, there are the basics,
which protect employees from catastrophic
events (such as life, accidental
death and long-term disability insurance).
The second component is typically where
customization comes into play, which
includes health and dental reimbursement,
prescription medications, short
stays in hospital, as well as items like
orthotics and knee braces. The third
component is administration, which
includes documenting and communicating
the benefits plan.
The plan needs to align with the
employer’s business objectives, says
Fuchs. Do you need to offer a top-drawer
plan in order to attract talent? How
does the benefit plan compare when you
factor in pay, incentives, flexibility,
advancement opportunities, professional
development, vacation and other pieces
of the total compensation package?
Fuchs recommends completing a
needs assessment to determine your
objectives for the plan, your budget, what
your competitors offer, your administrative
capabilities and understanding
employee needs.
Even if you already have a plan in place,
employee benefit programs should be
monitored on a regular basis. Does your
plan continue to meet the needs of the
employer by being cost-effective and
competitive, while satisfying employees
(since employee populations can change
over time)?
A common mistake employers make is
setting up a benefits plan and never look-
ing at it again; and not taking any steps
to manage it, says Fuchs. Has your
group changed? Have your competitors
changed?
Also, understand your marketplace and
your employee needs before launching a
program, says Fuchs. You may wish to
offer different levels of benefits to different
employee groups (part-time, contract or
based on years of service). But ensure all
communications to employees explains
that the plan can change at any time.
Doing a Cost
Analysis
Should someone pass away, get a critical
illness, or require a $100,000 drug, those
costs are shared among employees and
premiums generally don’t change much.
Where they change is based on utilization
of routine expenses, says Crowder.
In a traditional benefits model, it can be
tough to estimate costs. When you set
up a plan for the first year, “it’s really a
complete crap shoot in terms of what
your rates are going to look like next
year,” says McClenahan. Rates are
renewed on an annual basis, and health
and dental are the primary drivers of the
following year’s rates.
Insurers don’t typically do a medical
screening, so they accept a degree of
risk and price to the best of their ability
(factoring in, for example, age of employees).
Then they see how it all works out
12 months later. If employees are claiming
$1.50 for every $1 in premiums, the
employer is going to see a significant
increase in rates the following year.
The cost of a plan can vary from $2,000
per employee per year to $5,000, and
these costs can be shared with the
employee, adds Fuchs. If an employer is
not looking for the Cadillac version, a
decent plan will cost from 4-8% of payroll.
That’s a good gauge, McClenahan explains,
because provincial variation is huge.
“I would budget eight to 10 per cent a
year for the inflation impact on your benefits
cost,” says McClenahan. “That can be
a bit of a shock to employers, so set those
expectations.” New groups might go for
the idea of a defined contribution to start,
since they’re less likely to face this shock.
To start, focus on the basics. Offering
life and basic health coverage will protect
a company’s employees while providing
more control over the budget. You can
always add on more benefits in the
future. Employee co-payments can help
keep plan costs in check. Self-insurance
is another option that can reduce costs,
but comes with a higher level of risk.
But don’t forget about administration.
That’s part of the overall cost of the plan,
and for a lot of small businesses, those
administrative costs are often hidden in
rates, and can sometimes be as high as
30%, says Crowder.
It’s a smart idea to start small and scale
up. “We often see people who start with
100 per cent of everything, and on the
first or second renewal, usage is higher
than expected, so now they’ve got to
scale back,” says Fuchs. “It’s better to go
the other way.”
One Size
Does Not Fit All
Many consumer electronics stores may
only have a few full-time employees or a
couple of managers, while the choices
offered by insurance companies are limited
(usually to plan A, B or C). These
generic benefits packages are typically
designed around the lowest common
denominator.
You can bet, however, that the president
of a large manufacturer has a different
set of benefits than the guy working
at the loading dock. Even in a small business,
however, different benefits can be
assigned to different groups; even when
there is only one owner, one manager,
and a couple of full-time employees.
“One size does not fit all,” says
McClenahan. “We also believe one insurance
company may not have the best
solution for all the different benefits for a
single employer.” For example, one insurer
may be a specialist in health and dental,
while another might specialize in disability.
A broker or benefits consultant will
bring together the best elements of different
insurers into a custom benefits plan.
Employers can choose to offer benefits
to different groups within the group, or
based on various criteria such as years of
service, earnings, or product knowledge.
And they can make changes at any
point. “The insurance industry has done
an incredible job of screwing with people’s
heads,” Crowder opines, “but you
can revisit the benefits plan as often as
required.” Employers often feel that
they’re tied in to a plan, since it’s renewed
on an annual basis, but that’s actually
based on a 12-month snapshot; group
insurance is a 30-day contract. “You can
make any changes at any time you want.
Building a Benefits Plan
It can change as frequently as your business
requirements change. The business
owner is in control; they’re not locked in
for a year,” he says.
Another thing to consider is that different
markets have different requirements, and
that those are often in flux. “Times are
tough for certain people, but it depends on
what your market niche is. People continue
to spend money,” says Crowder.
In Sudbury, ON, for example, retailers
are having a difficult time keeping and
maintaining good employees because
the mines are so vibrant and paying
employees a great deal of money. Bob’s
electronic store might be paying $15 an
hour, whereas the mines might be paying
$25 an hour, so it may be in Bob’s best
interest to offer a highly competitive benefits
plan. In another environment where
there’s higher unemployment, a business
owner might look at it differently.
And this needs to be revisited on a regular
basis. Northern Alberta, for example,
is very different today than it was three
years ago during the oil boom, and
Sudbury is different than it was two years
ago when the mines were on strike.
“Every environment is different; it doesn’t
make sense for an electronics store in
Barrie to have the same plan in northern
Alberta. They sell different things to different
people,” says Crowder.
Traditional vs.
Alternative
Funding Models
“We’re seeing a significant change in
benefits and it’s really come about in the
last few years,” advises McClenahan.
“Cost pressures are driving benefits.”
There are pooled benefits, which include
life, disability and critical illness, which are
designed to protect against catastrophic
events. The other area; which employees
typically regard as most important;
includes health and dental, and that’s
where we’re seeing more of a change
due to cost pressures.
In a traditional benefits plan, an
employer might offer a defined benefit,
which means they define what the benefit
looks like (such as everybody gets
80% coverage for prescriptions). In most
cases, the employer is funding at least
50% of the benefits. What remains
somewhat undefined year over year is
what it will end up costing the employer
overall.
“Imagine the scenario where I as the
employer am paying the majority of the
premium,” says McClenahan. “Most
health plan inflation is running at 10 to 15
per cent annually, so you can imagine in
this economic climate that most company
revenues are not going up by the
same margin. That puts pressure on their
ability to continue to offer those benefits.”
According to Cathy Fuchs, President of White Willow Benefit Consultants, here
are some of the components to consider when building a benefits plan:
• Traditional benefits such as life insurance, accidental death, short- and longterm
disability, extended health (hospital, out-of-country emergency medical,
drugs, medical supplies and services), dental, and retirement savings vehicles.
• Other benefits such as health care spending accounts, optional life coverage,
and critical illness.
• Through a health care spending account, an employer can offer the employee
flexibility, or cover specific costs that are important to the employer at a fixed
cost.
• Taxable accounts are also available to reimburse wellness expenses, such as
a fitness membership.
• Access to additional value-added services might be available through some
consulting firms, such as pharmacy services, chronic illness and second-opinion
services.