In this post we explain what plan sponsors should do if they want to extend benefits as part of a severance agreement or temporary layoff – particularly in the context of COVID-19.
When terminating employees, many employers include benefits provisions in severance agreements or informally extend benefits until the end of the month or for a period of time. But there are a couple of considerations when extending benefits.
We paid for benefits until the end of the month, so the plan member should be entitled to the benefits. That may be true, but it’s also true that you don’t pay for benefits in the first month of an employee’s enrollment if their start date is after the first of the month.
Higher utilization is often observed when termination is imminent or has occurred. When employees fear the loss of benefits or when benefits are going to be terminated, they suddenly want to make use of the plan’s bells and whistles. This could mean that the rest of the group is left dealing with the higher premiums that may result when this higher utilization occurs.
When an employee is not actively at work, most insurance contracts specify that some benefits may not be continued, such as disability coverage and travel insurance. Best practice is to notify the insurer prior to termination to ask about any special provisions and processes. Notify the terminating employee what limitations there are on their coverage.
The large number of layoffs that have occurred in conjunction with COVID-19 have led some insurers to offer special provisions for employees who have been temporarily laid off.
These provisions vary by insurer, but generally, employers should follow these guidelines when considering whether to extend benefits as part of a temporary layoff:
Pre-authorization requirements: Many insurers stipulate that if benefits are to be extended during a temporary layoff, the insurer must be notified that the employee is no longer actively at work.
Benefits extensions provisions should be offered to all employees or class of employees.
Time limits may apply to how long benefits may be extended.
Please let us know if you have any questions about terminating or laying off plan members or offering extensions of benefits. We are always happy to help!