Employee Benefit Plan: Why it is important to regularly review and update it

Employee benefits plan are an essential aspect of a company’s compensation strategy. They help attract and retain talented employees while ensuring their financial security and well-being. However, reviewing and updating these plans is crucial as businesses evolve and employees’ needs change. Failure to do so may result in outdated or inadequate benefits, leading to employee dissatisfaction, high turnover, and legal liabilities. This blog post will explore why it is essential to review and update employee benefits plans regularly.

What is Employee Benefits Plan

Employee benefits plans refer to the benefits an employer provides to their employees in addition to wages and salary. They include benefits such as retirement plans, health insurance, life insurance, disability insurance, paid time off, tuition reimbursement, etc. These benefits are designed to attract and retain good employees and motivate and reward them for their work.

Providing employee benefits helps ensure that employees feel valued and supported. It leads to lower turnover, higher productivity, and greater loyalty and dedication. Different benefits meet different needs, from health insurance to help with medical costs to retirement plans to provide financial security after employment ends. Organization size, industry standards, and financial resources determine what mix of benefits an employer can offer.

Benefit plans are administered according to regulations like ERISA and COBRA to ensure they are fair, secure, and comply with the law. Eligibility to participate in a plan often depends on factors such as hours worked, length of service, employee classification, etc. Though funded by the employer, many benefits also require contributions from employees. Benefit plans are essential to an employment relationship and overall compensation package. They significantly impact an employee’s satisfaction and job performance.

Well-designed employee benefits plans can be a win-win for both employers and employees. They strengthen the employment relationship through meaningful, valuable benefits that meet vital needs and priorities. Benefit plans, when provided fairly and appropriately administered, support both short-term and long-term organizational success.

Common Types of Employee Benefits Plans

Some of the most common types of employee benefits plans are:

• Retirement plans include defined benefit pensions, defined contribution plans like 401(k)s and profit-sharing plans. They provide income for employees after retirement. Pensions guarantee a fixed monthly benefit, while 401(k)s and profit-sharing plans depend on investment returns.
• Health insurance: Medical, dental, and vision insurance are popular. It covers employees’ and their dependents’ health expenses. 
• Life insurance: Term life, whole life, universal life, etc. They provide financial support for beneficiaries after an employee’s death. Benefits can cover final expenses, loss of income, etc. Many employers provide group life insurance at a lower cost.
• Disability insurance: Covers income loss due to short-term or long-term disability. Includes health conditions, injuries, and mental health issues that prevent work. 
• Paid time off: Consists of paid vacation days, sick days, personal days, holidays, etc. Allows employees to pay the time away from work for rest, emergencies, sickness or personal matters. Policies depend on company and industry standards.

In summary, employee benefits plans provide financial support and management for essential matters that impact employees’ well-being. It includes employees’ work-life balance, financial security, health, and retirement. A solid and comprehensive benefits package is critical to an employer’s talent strategy.

Advantages of Employee Benefits Plans

Some key benefits of providing employee benefits plans include:

Improved recruitment and retention

Generous benefits packages signal to candidates that a company values its employees and supports the importance of work-life balance and financial/health security. It makes the organization an attractive long-term workplace rather than just job hopping. Low turnover means avoiding costs of approximately 1-2 times an employee’s salary to replace them.

Higher productivity and morale

Better employee satisfaction results in lower absenteeism, lower presenteeism (reduced productivity while at work due to health or personal issues), and higher engagement and discretionary effort. Productivity gains can offset or even surpass benefit costs over time.

Reduced costs

Although benefits have an upfront cost, they can reduce expenses meaningfully. Lower turnover can result in significant savings from less recruitment, training, and loss of productivity during transitions. 

A healthier, happier workforce leads to lower medical costs, less frequent job accidents/injuries, and reduced costs from poor performance or mistakes due to low morale or high stress. COBRA coverage also helps control health expenses for separated employees.

Improved work-life balance

Benefits such as paid time off, flexible work schedules, tuition reimbursement, etc., recognize that work-life balance supports well-being and productivity. PTO reduces stress while still allowing time for rest and recharging. 

Competitive advantage

A comprehensive, innovative benefits package shows that a company is progressive, supportive and concerned with talent well-being. It can attract and retain top talent that other employers also want to hire, competing on benefits and base pay. It highlights a company culture focused on employee satisfaction, development and loyalty.

Regulatory compliance

Benefit plans must comply with ERISA, COBRA, HIPAA, and ADA laws to avoid legal issues. ERISA ensures plan funds are used appropriately and participants receive promised benefits. COBRA provides a continuation of health coverage after job loss. 

HIPAA protects health information privacy and security. ADA prohibits discrimination against qualified individuals with disabilities. Non-compliance can result in fees, penalties, lawsuits or government enforcement actions.

Administrative support

Professional administration provides expertise and handles complex requirements, preventing employers from diverting focus from core business operations. Administration services include brokers to design plans and third-party administrators (TPAs) to implement and manage them. 

Benefits Administration software can be used to streamline processes. In addition to that, compliance consultants ensure that regulations are met. They take on fiduciary responsibility for plans which would otherwise fall to employers.

The Importance of Regularly Reviewing and Updating Employee Benefits Plans

Employers must review and update their employee benefits plans regularly. Benefits that were attractive and supportive even just a few years ago may no longer meet the needs of today’s workforce and priorities. The regular review helps ensure benefits continue adding value rather than just costing money. Some key reasons to re-evaluate benefit plans include:

• Changing regulations: Laws and regulations around benefits like ERISA, COBRA, HIPAA, and ACA frequently evolve. Failure to update plans accordingly could lead to non-compliance issues. Professional administration helps monitor for required changes, but employers must still determine how best to implement them.
• Shifting workforce demographics: As the age, location, family status and other demographics of an organization’s workforce change over time, benefit priorities likely shift as well. For example, what supports recruiting younger, single employees may differ from older employees with families. Plans should adapt to meet the critical needs of current employees.
• Varying costs and expenses: The costs of providing benefits like health insurance rise yearly, sometimes quite substantially. Premiums, administrative fees, compliance requirements and other expenses associated with benefits plans also tend to increase over time. Funding amounts and cost-sharing between employers and employees need periodic adjustments to remain affordable and fair relative to budgets and employees’ financial contributions.
• Changing priorities and finances: An organization’s priorities, resources and financial position evolve continually based on business performance, industry changes, economic factors, etc. Benefits that were feasible and strategically important years ago may no longer be viable or the best use of funds. The regular review allows benefit plans to stay dynamically aligned with current priorities, resources and strategic goals.
• Competitor benchmarking: The benefits offered by competitors and industry leaders provide an essential benchmark. Falling behind critical competitors in benefits can make an organization seem like an unappealing workplace, threatening recruitment and retention. Periodic benchmarking against industry standards helps ensure a benefits package remains competitive and supports talent needs despite cost constraints.

In summary, for benefits to provide real value rather than just cost, they must continually evolve along with the needs of employees. It also requires changes according to the finances of businesses, regulations of laws, and competitors’ standards. Regular review and re-evaluation of benefit plans help prevent them from becoming outdated, overfunded or non-compliant. 

Well-managed employee benefits require ongoing strategic oversight and flexibility to adapt to the dynamic nature of organizations. With professional administration support, employers can effectively manage this process to meet both short-term needs and long-term goals.

How Often Should Employee Benefits Plan be Reviewed and Updated

Employee benefit plans represent an ongoing strategic commitment as well as investment. As such, they require regular review and adjustment to continue maximizing value. However, plans also cannot be overviewed, leading to unnecessary changes, increased costs and reduced stability. No set period is suitable for all organizations—each must determine the optimal review cycle based on their environment and priorities.

At a minimum, most experts recommend reviewing benefit plans at least once every 2-3 years or when significant regulations change. Regulation updates often necessitate minor adjustments, if not complete overhauls of plans to ensure continued compliance. Failure to comply with laws like ERISA, COBRA, HIPAA or the ACA can result in hefty fines, legal issues, and damage to a company’s reputation. So professional employee benefits administration and an ongoing review cycle are critical.

In some situations, more frequent reviews, such as annual or semi-annual, may be needed. It includes if there are substantial increases in health care costs, significant shifts in demographics or locations, economic changes that impact the ability to fund plans, or adopting new benefits or eliminating underutilized benefits. Cyclical benchmarking against competitors in high-priority industries or geographies at least once every 2-3 years ensures plans remain competitive to support recruitment and retention goals despite cost constraints.

The review cycle for employee benefits plan depends on each organization’s unique priorities, environment, costs and competitiveness needs. At a minimum, plans should be reviewed at least every 2-3 years or when regulations change for most companies. Annual or semi-annual reviews must account for rising health costs, workforce changes, financial impacts or benchmarking requirements. 

While regular review is essential, stability also matters. Employers can determine the optimal approach to reviewing and updating employee benefit plans with expert administration support and balanced judgment. The regular review helps future-proof benefits as a vital tool for recruitment, retention, engagement and strategic success.

Critical Elements of an Effective Employee Benefits Plan

An effective employee benefits plan meets both short-term needs and long-term strategic goals. Some essential elements include:

Cost Control

Cost control refers to containing costs while funding benefits competitively and generously relative to priorities. It involves strategically determining how costs will be shared between employers and employees, placing reasonable caps or limits where needed and routinely benchmarking against industry standards to ensure budgets are being used effectively. Professional employee benefits software and administrative services help manage costs through optimized processes, negotiated group rates, and oversight to prevent waste, fraud or abuse.

Administrative Efficiency

Administrative efficiency reduces burdens on HR staff so they can focus on higher priorities. Benefits software streamlines enrollment, changes, claims, compliance monitoring, reporting and more through automated, integrated processes. Some handle most administration responsibilities, while others provide supplemental support. Using best-in-class software and outsourcing to reputable administrators as needed ensures a strategic focus and minimal distractions. It drives down total costs while improving employee and manager experience.

Regulatory Compliance

Regulatory compliance prevents legal penalties and protects an organization’s reputation. Regulations frequently evolve, so ongoing monitoring is needed. Compliance software features alerts, checklists, and guidance on all requirements while administrators remain updated. It can perform audits to identify and correct any issues before regulators do. Non-compliance can lead to hefty fines, which should not be taken lightly. Compliant benefit plans also signal integrity and trustworthiness to be current and prospective employees.

Other elements

Other key elements include recruiting power, retention support, and work-life balance. It will attract top talent in a competitive job market where benefits often outweigh base pay. Well-designed benefits also keep good staff happy, loyal and less likely to job hop at a high cost. 

How to Conduct a Review and Update of Employee Benefits Plan

Here are some steps to conduct a review and update of employee benefit plans:

1. Determine review timeline– Decide if a full review and potential overhaul are needed or if minor tweaks will suffice. Generally, review every 2-3 years or when regulations change. More frequent for high-priority or high-cost plans.
2. Benchmark against industry standards– Compare benefit offerings and costs against competitors and industry leaders to ensure remaining competitive for key talent while responsibly containing coverage and expenses. Make adjustments as needed to maintain competitive advantage.
3. Monitor benefit costs and expenses– Review premiums, fees, administrative costs, claims expenses and more to ensure affordability and budget alignment. Look for opportunities to improve efficiency, reduce waste or lower costs while preserving key benefits. Increase employee contributions or slice benefits if costs have become unsustainable.
4. Evaluate utilization and value– See how benefits are used by analyzing participation rates, costs, claims, enrollment choices, and feedback. Identify any underutilized benefits that could be reduced or eliminated for cost savings. Also, spot opportunities to improve value by reducing premium share costs or claim dollars spent.
5. Address administrative issues– Review how benefits are administered and determine if current approaches, software or outsourcing optimize efficiency and minimize burdens on HR and management. Make adjustments to streamline processes, improve experience and control costs as needed. Stay up-to-date with the latest technology and best practices.
6. Ensure regulatory compliance– Review plan documents, policies, procedures and audits to confirm continued compliance with laws like ERISA, COBRA, HIPAA, and ACA. Update or replace anything out of compliance to avoid legal penalties or damage to reputation and employer brand.
7. Redesign or renew plans as needed– If significant changes are required to costs, coverage, administration or compliance, it may make more sense to redesign benefit plans from the ground up rather than make piecemeal adjustments. Work with brokers and advisors to determine optimal renewals or new plans based on reviews. Hold employee education sessions to communicate changes.
8. Continually monitor and quality check– Regularly monitor costs, claims, complaints, regulation changes and administrator performance to ensure plans continue optimizing value after updates. Get employee feedback on perceived value and areas for improvement. Schedule periodic meetings with administration partners and adjust plans or providers as needed to achieve goals.

Reviewing and updating employee benefit plans involves ongoing strategic management and oversight. Regular benchmarking, monitoring, evaluating, reviewing regulations and redesign benefits continue supporting high-priority goals at a reasonable cost rather than just being added obligations. 

Professional administration partnerships support this critical process while optimized user experiences retain trusted value propositions to attract and retain key talent. With the right approach, benefit plans remain valuable rather than costly, responsive rather than rigid, and practical rather than superficial. 

Common Pitfalls to Avoid while Reviewing and Updating Employee Benefit Plans

Here are some common pitfalls to avoid while reviewing and updating employee benefit plans:

• Failure to benchmark- Not comparing plans and costs against competitors and industry standards means potentially falling behind in the war for talent by not providing a competitive benefits package. Benchmarking ensures plans continue supporting critical recruitment and retention goals.
• Lack of cost monitoring– If costs of providing benefits like premiums, fees, expenses and claims are not monitored regularly, they could increase substantially without notice, making plans unaffordable long-term. Look for costs that have increased by more than medical inflation each year.
• No evaluation of utilization– Understanding how benefits are being used helps determine where there are opportunities to improve the value or reduce costs by improving policies, increasing employee contributions or cutting underutilized benefits altogether. Poor utilization signifies wasted funding that could be better spent elsewhere.
• Lack of flexibility– If plans remain static for too long, they become less able to adapt to constant changes in priorities, costs, regulations and workforce needs. Retain some ability to make at least minor adjustments quickly and affordably rather than whole redesigning plans each time changes arise. Well-managed flexibility supports long-term success.
• Poor communication– Failing to educate employees on any benefit plan adequately changes risks confusion, dissatisfaction or making the wrong choices. Hold informational sessions, provide written communication and ensure all managers understand updates so they can address questions and issues. Transparency builds trust in the value and strategic thinking behind plan decisions.

With professional support and guidance, employers can navigate changes thoughtfully while retaining the flexibility to responsibly meet evolving priorities and constraints. The right balance of proactive management and well-considered stability helps ensure long-term success from benefits as a tool for recruitment, retention, workforce management and competitive advantage. 

Conclusion

Employee benefits plan are crucial in attracting and retaining talented employees and ensuring their financial security and well-being. However, these plans must be regularly reviewed and updated to meet changing employee needs and comply with legal requirements. Employers who fail to update their benefit plans may risk losing top talent, facing legal liabilities, and damaging their reputation. Therefore, it is critical to work with qualified professionals to assess the effectiveness of the current plan and implement changes that align with the company’s goals and employee needs. By doing so, employers can create a positive work environment and enhance their employees’ satisfaction, productivity, and loyalty. 

Frequently Asked Questions (FAQs)

What is the employee benefits policy?

The employee benefits policy outlines an organization’s guidelines on the benefits they provide to employees, including things like:

• Which benefits the company offers (health insurance, retirement plan, paid time off, tuition reimbursement, etc.)
• Eligibility criteria for different benefits (hours worked, job classification, length of service, etc.)
• Cost-sharing between employers and employees (percentage or dollar amounts)
• Administration procedures for enrolling, changing or terminating benefits
• Compliance requirements to ensure regulations are followed properly
• Review cycle for evaluating and updating the benefit policy

The policy helps ensure consistency, affordability, compliance and strategic alignment from the organization’s benefit offerings. It forms the foundation for any formal employee benefits program.

What are the features of employee benefits?

Some common features of employee benefits include:

• Healthcare benefits: Financial protection from health-related costs like medical, dental and vision care expenses. 
• Retirement plans: Helping employees save and prepare for financial security during retirement. It includes options like 401(k)s, pensions, profit sharing, etc. 
• Paid time off: Giving employees paid days off for rest, illness, vacations or personal matters. It can improve work-life balance, morale, productivity and health/wellness. 
• Bonuses: 
• Bonuses provide additional financial incentives and rewards for solid performance, exceeding targets, milestones, or other accomplishments. It motivates high productivity and discretionary effort.

What is the purpose of a benefits management plan?

A benefits management plan serves several important purposes:

• Strategic alignment- The plan helps align benefits with recruitment, retention, workforce management and business goals. It shapes benefits into tools rather than just costs or obligations.
• Cost control– A benefit plan establishes guidelines for containing benefit costs, including sharing costs between employers and employees in a balanced, affordable manner. It prevents costs from increasing disproportionately over time.
• Regulatory compliance– It ensures benefits to meet all applicable laws and regulations to avoid legal issues, penalties or damage to reputation. It codifies policies, procedures and oversight needed for compliance.
• Administrative efficiency- The plan streamlines the administration of benefits through well-designed processes, compatible systems, appropriate delegation and optimization of resources. It reduces burdens on HR and management while improving the experience of employees.
• Flexibility– it forms the basis for continually optimizing benefits to meet changing priorities, costs, regulations and workforce needs. It establishes a cycle of periodic reviews to make adjustments while promoting stability.
• Competitiveness– The plan facilitates benchmarking benefits against industry standards and competitors to maintain a competitive advantage in attracting and retaining key talent. It supports recruiting and hiring qualified candidates that other employers want to hire.

What are long-term employee benefits?

Long-term employee benefits continue providing value to employees even after they retire from a career with an organization. They represent meaningful investments in supporting employees’ financial security, health, and well-being for years rather than just during an active career. Key long-term benefits include retirement plans, health insurance for retirees, deferred compensation, life insurance, disability insurance, stock options and equity.

What are the components of a benefit plan?

A benefit plan typically consists of several components designed to meet the diverse needs of employees. The primary components of a benefit plan include healthcare coverage, retirement savings plans, disability and life insurance, paid time off, and additional perks such as wellness programs, flexible work arrangements, and tuition reimbursement. Health coverage can include medical, dental, and vision insurance, while retirement savings plans may include 401(k) plans or pension plans. 

Disability and life insurance provide financial protection for an unexpected injury or death. Paid time off includes vacation days, sick leave, and holidays. Employers may also offer additional perks to enhance employee well-being and job satisfaction. These components work together to create a comprehensive benefit plan that supports employee needs, promotes loyalty and productivity, and helps attract and retain top talent.