Improving benefit programs helps not only employees but employers too.
In corporate finance, the elixir of other peoples money (OPM) can generate wealth through the benefit of leverage. In HR, the elixir of free benefits can inspire employee loyalty and satisfaction. Imagine the inebriation when other peoples benefits can be harnessed to benefit your employeeswithout any third-party fiduciary duty! Chief Human Resource Officers and their cohorts should consider what free benefits might be available to their employees.
Executives responsible for recruiting and managing the companys workforce should explore how the numbers can be aggregated to fit within free, or reduced rate, employee benefits that boost morale and loyalty with little or no cost to the company. Free rewards programs arguably cost the shareholders nothing. They can be a useful form of free outsourcing provided that they do not tarnish the brand name, increase administrative overhead, or expose the employer to regulatory or operational liability.
Under the U.S. Department of Labor safe harbor regulation, an employee welfare benefit plan and a welfare plan can be defined by required elements. When these four conditions are met, the safe harbor regulation states that the group insurance plan does not fall under the ERISA definition of a welfare plan.
1. No contributions are made by an employer or employer organization;
2. Participation [in] the program is completely voluntary for the employees or members;
3. The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues check-offs, and to remit them to the insurer; and
4. The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with the payroll deductions or dues check-offs.
Group health insurance programs that fall outside such definition are not covered by ERISA. One court ruled, in 1994, that the initial support paid by the employer does not disqualify the group insurance program from non-ERISA freebie status after the employer stops such support. When the employer stopped financial support, the plan became fully contributory by the employees and fell within safe harbor regulation. The court concluded that a past employer contribution does not automatically qualify the group health insurance plan, nor does it demonstrate that the employer has established or maintained the plan under ERISA. That decision underscores the need for employers to avoid unwittingly establishing an ERISA benefits plan from what should otherwise be a free and unregulated rewards program.
Executives have begun to evaluate rewards programs on potential revenue that could be generated as commissions from program sponsors. Some companies require all travel payments to be done through corporate purchasing cards and other accounts payable procedures. The aggregation benefits can thus generate rewards to the employer. Ironically, such recapturing of the freebie value of corporate rewards programs was stimulated by the IRS, who proposed imposing a tax on employees airline mileage incentives from personal credit cards used for corporate purposes. Rather than suffer the indignity of new taxes and reporting obligations, employers shifted to corporate purchasing cards and recaptured the benefits of aggregation through directly negotiated price discounts.
Today, interpretations of the vague language of Sarbanes- Oxley have not implicated rewards programs and OPM benefits programs as having any impact upon organizational dynamics, corporate decision making, or auditability of business operations. To avoid any hint of impropriety, such programs should not be so valuable as to cause employees to make business decisions that favor the supplier who makes the OPM benefit program available.
Some HR BPO service providers offer rewards management programs that include management of co-branded, non-ERISA employee benefit programs. The outsourcing contract should allocate separate responsibilities for the administration of such programs. Special attention should be given to the implications of the program for the employers responsibilities under ERISA, Sarbanes-Oxley, fiduciary duties, corporate policies and procedures, trademark rights, and marketing strategies.
Properly structured, an OPM benefit program can empower employees to enjoy benefits as if their salaries had been raised at little cost and effort to the employer. Given that technology allows easy administration of OPM benefit programs, the opportunities for HR departmentsin companies of all sizesbecomes an open field.