Lesson 12

Question 1

1.1 Identify the key outcome of the pre-assessment stage of introducing a flexible benefits plan

Answer 1

This stage involves either validating the plan sponsor’s current benefits philosophy or establishing a new one.

Question 2

1.2 Outline basic issues typically addressed in the pre-assessment stage (8)

Answer 2

1) Extent of coverage (to provide plan members with protection against catastrophic events
2) Specific competitive objectives (eg to offer a plan in the 75th median relative to competitors)
3) Relationship between benefit plan and benefits provision (level of expenditure, coverage, eligibility) for different plan member groups, for example: hourly, salaried, union, nonunion, managers, senior executives, full or part time active, retiree
4) Targets such as cost control or cost reductions (to maintain the same level of payroll cost)
5) General issues of plan financing
6) Integration of the plan with government sponsored benefits
7) Contribution basis
8) Degree of choice given to plan members

Question 3

1.3 Explain the role of the benefits philosophy (3)

Answer 3

Benefits philosophy guides the development of and revisions to all components

1) Serves as a guide for evaluating benefit changes and cost savings initiatives
2) Provides the basic framework to implement plan changes effectively
3) Defines the link between human resources goals such as attracting and retaining qualified individuals and the role of the benefit plan in supporting those goals.

Question 4

2.1 Outline the steps in the planning stage of introducing a flexible benefits plan (3)

Answer 4

The steps in the planning stage are:

1) Developing the preliminary plan design
2) determining plan implementation requirements
3) Obtaining management approval

Question 5

2.2 Describe the steps involved in developing the preliminary design of a flexible benefits plan (6)

Answer 5

1) Collect data
2) Define flex plan objectives
3) Develop plan design
4) pretest proposed plan with plan members for insights into plan design and implementation issues
5) Clarify legal and tax issues
6) Determine pricing objectives, preliminary price tags and flex credits

Question 6

2.2 Describe the purpose in developing the preliminary plan design

Answer 6

Developing the preliminary plan design involves:

1) evaluating alternative design approaches,
2) analyzing pros and cons
3) identifying the associated costs
4) Identifying the legal and tax implications

Question 7

2.3 As part of the planning stage a plan sponsor develops objectives for its flexible benefits plan. Provide examples of possible objectives (10)

Answer 7

1) Meeting diverse plan member needs
2) Increasing plan member understanding and appreciation of benefits
3) Managing health care costs
4) Reducing overall benefit expenditures
5) Providing a leading edge benefit plan
6) Meeting competitive pressures
7) offering new benefits at low or no plan sponsor cost
8) promoting cultural change and empowerment
9) Amalgamating two or more benefit plans
10) Maximizing the tax effectiveness of benefits

Question 8

2.4 Explain what is involved in determining the implementation requirements of a flexible benefits plan as part of the planning stage (3)

Answer 8

1) A detailed implementation schedule
2) An implementation budget addressing the cost of resources required including the production of communication materials and all other costs associated with implementation
3) And administrative approach must be determined

Question 9

2.4 Explain what is involved in determining the administrative approach in terms of determining the implementation requirements of a flexible benefit plan (4)

Answer 9

1) Assessing current capabilities by auditing current administration systems and procedures
2) Identifying new procedures and requirements of the flexible benefit plan (calculation of flex credits and special recordkeeping required by HCSAs)
3) Completing a gap analysis by comparing systems/procedures requirements for the new flexible benefits plan against those already in place
4) Evaluating options available to handle admin functions depending on the type of flexible benefits being implemented, staffing and training requirements may be identified in the evaluation as well

Question 10

2.5 Identify factors that impact a plan sponsor’s decision to approve implementation of a flexible benefits plan.

Answer 10

A plan sponsor considers the objectives and design of the flexible benefits plan, a cost/benefits analysis communication and administration requirements, a timetable for implementation and the budget and costs for implementation

Question 11

3.1 Outline the steps in the implementation stage of introducing a flexible benefits plan (6)

Answer 11

1) Finalizing plan design and flex credit structure
2) determining the communications and administration strategy
3) developing legal documents
4) Enrolling newly eligible plan members
5) Communicating enrollment information to the payroll department and insurer
6) Conducting a postimplementation review

Question 12

3.2 Identify the first step in the implementation stage following approval of the preliminary design of a proposed flexible benefits plan

Answer 12

To consider modifications to a proposed flexible benefits plan based on management input and plan member feedback.

Also it is common to reevaluate pricing objectives and alternatives to ensure they are in line with the overall benefits philosophy.

Price tags, credit sources and the amount of available flex credits are finalized

Question 13

3.3 Identify communication objectives when introducing a flexible benefits plan (8)

Answer 13

1) To identify and address needs of all plan member groups affected by the introduction of flexible benefits
2) To link the plan sponsor’s goals for the plan to other organizational initiatives by communicating how the flexible benefit plan reinforces the,
3) To emphasize key messages (such as plan member decision making or flex credit allocation based on performance)
4) To identify the role and responsibility of managers and supervisors during plan implementation
5) To select communications vehicles
6) To asses the work environment and target information to the needs and interests of plan members
7) To identify potential points of plan member concern and clearly communicate the plan sponsor’s viewpoint and reasons for the decision

Question 14

3.4 Explain how the concepts of difficult choices and inappropriate choices related to the choice inherent in flexible benefit plans can be addressed in plan implementation

Answer 14

Communication is essential to the success of a flex benefit plan

1) Difficult choices - plan members must realize that they can’t have it all. They should be provided with the information and tools required to lead them to make choices that best meet their current and future needs
2) Inappropriate choices - plan members must realize that choices have implications. Providing examples of various coverage options for sample life scenarios can assist in educating plan members

Question 15

3.5 List 6 administration options available for flexible benefit plans

Answer 15

1) Manual administration - paper listings and word processing
2) Spreadsheet software
3) flexible benefits administration software - interfaces with payroll system and possibly other systems
4) Mainframe administration software systems - beneficial for large companies
5) Use of services provided under a time sharing arrangement. This allows plan sponsors to have online access to software installed on a vendor’s computer. A plan sponsor may be limited to access during certain periods of time, depending on the agreement.

6) Outsourcing most administrative functions to an external administrator or
insurer. This can include recordkeeping, claims processing and payment, plan member requests for reimbursement and other questions about benefits, and preparation of communication material, including enrollment packages.

Question 16

3.6 Outline considerations that impact a plan sponsor’s decision of administration method (7)

Answer 16

1) The plan sponsor’s philosophy, size, location, plan complexity and availability of internal resources
2) Whether benefits administration and/or payroll is centralized and computer systems capabilities
3) The handling of annual reenrollment and subsequent changes including the ability to run current selections while storing enrollment information for the coming year
4) How information from the enrollment system is relayed to parties requiring the information such as insurers and payroll departments
5) The plan sponsor’s management reporting requirements
6) How benefit costs, flex credits and HCSA balances will be calculated
7) The plan sponsor’s accounting requirements for auditing controls and procedures

Question 17

3.7 List 6 procedures involved in the enrollment process in a flexible benefits plan

Answer 17

1) Collecting and verifying plan member data
2) Updating premium rate tables/option prices and computing the flex allocation to each member
3) Checking plan member elections to ensure that information is correct
4) Producing personalized confirmation statements. Plan sponsors may require members to review their statements before benefits become active to ensure accuracy
5) Monitoring the status of plan members with missing enrollment forms and following up with members who made invalid selections
6) Communicating completed enrollment information to the appropriate parties

Question 18

4.1 Compare annual and periodic enrollments

Answer 18

Annual enrollments are enrollments subsequent to the initial enrollment that allow member to revisit their elections.

Annual enrollments are usually taken a few months before the start of the next plan year. To simplify matters some plan sponsors allow re-enrollment every 2 years.

Periodic enrollment involves newly eligible individuals. Generally only a few plan members during the year are impacted, similar to new hires in traditional group benefits plans

Question 19

4.2 Describe events that can trigger changes to plan member coverage in flexible benefits plans.

Answer 19

1) Life events such as changes in marital status,
or gaining or losing coverage under another plan (usually spouse’s) proof may be required within 31 days of the life event

2) Changes to coverage also occur when plan members terminate, retire or change classifications (such as promotions or becoming eligible for full benefits after a waiting period)

Question 20

describe the processing of claims reimbursements from a HCSA

Answer 20

The HCSA is usually the last payer for claims.

As an administrative practice however some plans may allow plan members to request payment from the HCSA before the core plan. The administrator verifies the eligibility of the plan member and the expense

Question 21

4.3 List 5 recordkeeping functions required for a HCSA included in a flex plan

Answer 21

1) Record of deposits of flex credits (may be annual, quarterly or monthly)
2) Processing claims for reimbursement
3) Handling the unused HCSA balance of plan members whose employment has been terminated
4) Processing year end claims
5) Reporting activities to each plan member

Question 22

4.4 Describe the financial review of a flexible benefits plan (4 points)

Answer 22

The review of the flex plan is more complex and done once there is sufficient data.

It is done at several intervals in the year to keep the plan sponsor appraised of changing experience.

Common to review experience by option. And if premiums or deposits are remitted to the insurer their sufficiency is also reviewed.

Annual reviews may involving changing price tags, flex credit provision and reviewing fees charged by the insurer/TPA

Question 23

4.5 Outline factors impacting the frequency and scale of a plan design review (3)

Answer 23

• plan member feedback
• enrollment patterns
• plan sponsor cost objectives

In many instances minor adjustments to the plan are all that is required rather than a full plan redesign

Question 24

4.6 Explain why a plan sponsor would undertake a benchmarking review

Answer 24

A plan sponsor may periodically do a benchmarking review to determine where its flex plan ranks relative to the market.

Many sponsors have goals for their benefit plans relative to the competition.

The results of the review could be small or large changes to the plan.

Question 25

4.7 Provide examples of 3 situations where it would be appropriate to redesign a flex benefits plan.

Answer 25

1) Plan no longer meets the plan sponsor’s objectives.
2) Plan doesn’t meet the needs of current members
3) Plan sponsor merges with or acquires another organization and wishes to implement an amalgamated program for both companies.

Question 26

4.8 Outline steps involved in determining the magnitude of a flexible benefits plan redesign (3)

Answer 26

1) Revisiting plan objectives, internal and external factors as well as overall objectives
2) Reviewing plan member feedback
3) Conducting a gap analysis - reviews current plan objectives and member feedback to determine gaps between the objectives and the current state of the plan

Question 27

5.1 Describe the advantages of implementing a flex benefits plan (9)

Answer 27

1) Flex benefits plans provide members with the opportunity to participate actively in benefits selection
2) Plan members can increase net spendable income by covering health care and dental expenses using plan sponsor paid nontaxable benefits instead of after tax income
3) Flex benefits use a DC approach to funding which helps plan sponsors budget
4) By matching benefit options to plan member needs the plan sponsor can reduce unnecessary duplication of coverage
5) Through plan design and pricing plan sponsors can encourage plan members to select more cost effective options that lower premiums and provider discounts
6) Direct conversion of plan members pay into flexible benefits for health care benefits usually results in tax implications for plan members. However providing flex credits evenly at the beginning of the year in lieu of pay increases may be a tax effective way of trading taxable pay for nontaxable benefits
7) In some cases new benefits can be added at little additional cost without redesigning the current benefits package
8) Cost of flexible benefits not included in plan member income are not subject to CPP deductions and employee health taxes
9) Plan member morale may improve when plan members become more knowledgeable consumers and participate in the selection of benefits that match their needs.

Question 28

5.2 Outline the disadvantages of implementing a flex benefits plan

Answer 28

1) Freedom of choice leads to adverse selection which can lead to increased costs
2) Upon introduction of flex benefits there will be winners and losers depending on individual needs
3) Increased resources are required for member communication
4) Administrative costs will be higher
5) Plan sponsors cannot recoup HCSA funds paid to terminated members. Some plan sponsors honour HCSA claims up to the full amount of a plan member’s projected annual contribution, even if the flex credits allocation has not kept pace with claims.