November 2009

From the beginning, the United States has been a multi-cultural nation. As immigrants streamed into the U.S. through the gates of Ellis Island, they brought their culture and languages along with them, earning America the nickname, The Melting Pot. This demographic reality has continued to the present day, as people of different cultures, religions, races, and languages live in our multi-ethnic, multi-linguistic society.

Recent statistics reflect the linguistic diversity of this country. For example, according to a 2007 U.S. Census Bureau American Community Survey, 19.5% of the U.S. population over the age of five speaks a foreign language. Of those speaking a language other than English, more than 60% speak Spanish/Creole; 19% Indo-European; 15% Asian Languages; and 1% other. Nearly 68% of foreign language speakers in the U.S. are between the ages of 18 and 64, and many of these individuals are part of the American workforce. Language diversity among employees can present a variety of challenges related to (among other things) the communication of employee benefits.

Employers with non-English speaking workers must ensure that these employees truly comprehend their benefits programs. Employers need to examine two areas of communications: What is required, and what is good workplace communications practice. The basic required communication piece of an employee benefit package is the summary plan description (SPD). The federal law that governs employee benefit plans, ERISA, does not require that employers provide SPDs in languages other than English. On the other hand, ERISA regulations do require that, in certain situations, an employer must provide within the English-language SPD a notice in another language offering speakers of that language help in understanding their benefits.

In order for an employer to comply with ERISA regulations, the offered assistance does not need to involve written materials, but must be “calculated to provide [the non-English speakers] with a reasonable opportunity to become informed as to their rights and obligations under the plan.” Furthermore, the employer needs to explain the procedures that employees must follow to obtain such assistance. For example, the notice in the other language could include the name, office hours, and phone number of the plan administrator.

In what situations are employers required to provide this notice? If the plan covers less than 100 plan participants, and 25% or more of the plan participants are literate in only the same non-English language, the employer has to provide the notice. For larger plans, the notice is required if either 500 or more participants or at least 10% of the participants are literate in only the same non-English language. Therefore, if only a very small number of workers are non-English speakers, the notice is not required. Conversely, an employer may need to provide notices in more than one non-English language (for example, in Spanish and Korean) if the requisite number of workers are literate in only those languages. Many employers with non-English-speaking workers choose to go beyond the SPD requirements to make certain that all workers understand their benefit programs. Steps to consider include:

• Requesting employees who are fluent in both English and the foreign language to assist those who have difficulty with English. This can be especially valuable at benefits meetings, where the rapid flow of a presentation can be overwhelming and hard to follow.
• Translating some written materials into a foreign language. These might include enrollment forms, highlights of the benefit programs as well as comparison charts. Companies that specialize in translation services for business needs could be contacted for this service.
• Opening benefits meetings, including enrollment meetings, to family members. In particular, younger family members are more likely to be fluent in English.
• Having bi-lingual or separate meetings in another language is also an option, but this option could require more time as well as create more expense.

Employers make a large investment in their benefits programs, and employees cannot appreciate these benefits if they don’t understand them. Additionally, complex employee benefits programs can be confusing, even for native English-speakers. Therefore, taking actions to ensure that all employees have an equal opportunity to understand their benefits is an investment that helps employer and employees, alike.

In the U.S. today, employee benefits constitute a significant portion of an employee’s total compensation. Although past studies revealed that many employees did not fully understand the value of their benefits packages, a 2008 MetLife Employee Benefits Survey showed that more workers are paying extra attention to the value of benefits. The study revealed an increased appetite among employees to receive benefits advice at the workplace. Furthermore, when asked about the significance of benefits in generating workplace loyalty and retention, employees ranked health benefits as the No. 2 factor, only trailing behind the importance of salary/wages. Advancement opportunities and retirement benefits tied for the third most critical factor in retention and loyalty.

According to the most recent (2008) Kaiser Family and Health Research and Education Trust study of employee benefits, the average annual premiums for employer-sponsored Health insurance was $12,680 for family coverage, and $4,704 for individual coverage. Although these numbers represent a 5% increase over 2007, in a 10-year period the cost increase of family coverage represents a whopping 119%!

As benefits become more expensive to employers, and more valuable to employees, effective communication regarding benefits is critical. Too often, employee benefits discussions are limited to the annual enrollment period. During this period, many employees’ focus will be on what their benefits are costing them, and not on what their employer contributes to the total benefits package. Communications regarding benefits need to continue on a year-round basis, and should reinforce regularly the value of the entire benefits package.

Beyond the heavy contribution most companies make toward Health insurance, there are other items, such as employer contributions to a pension plan or profit sharing plan or matches to a 401(k) plan, that need to be emphasized. As the work force ages, companies need to address the wishes of employees who are nearing retirement. The MetLife study points out that in 2007 63% of employers that offered retirement benefits expected the amount of the benefits to increase in the next five years. But in the 2008 study, 73% of employers said they expected this portion of benefits to increase, highlighting the importance employees are placing on retirement related benefits.

Other benefits that employers should highlight are: Employer premium contributions toward other health and welfare benefits (e.g., Life, Disability, Dental insurance); savings employees realize through purchasing any voluntary benefits at a group rate; the salary-in dollars-represented by paid vacation days; and employer contributions to mandatory benefits, such as Social Security and Medicare. Many employees are unaware of the dollar value of these extra benefits. Helping them understand the worth of such benefits increases employee satisfaction, and hence, retention.

Besides the annual enrollment information meeting, benefits communications should use a multi-media approach throughout the year to explain the value of the benefits package. Options might include: Did-you-know e-mails, colorful placards and posters, printed newsletters, as well as an annual total compensation statement that shows the employer’s actual outlay — in salary and benefits — for the employee. All communications should discuss benefits and their value in easy to understand terminology.

Although there is a cost to employers in continually reinforcing the monetary worth of benefits, it is an investment that will pay off in the long run. Employees will feel valued as they gain an understanding of the true worth of their total compensation, thus increasing goodwill between parties. And the carefully communicated value of benefits will help in both recruitment and retention of key personnel.

Employee benefit plan compliance is a top concern for employer plan sponsors. Failure to follow statutory rules and regulatory guidance for health and welfare and pension plans can lead to penalties, adverse tax consequences and plan disqualification.

The Internal Revenue Service (IRS) — one of the federal agencies responsible for aspects of employee benefit plan oversight — has issued a listing of the trends it sees recurring in plan audits and voluntary case submissions. Although the observations are based on experiences with large plans, plan sponsors of all sizes can benefit from knowing the issues that are causing common compliance problems.

The top failure across all plan types involved failure to amend the plan document to bring it in line with tax law changes, within the time period required by law. According to the IRS, failure to amend plan documents to comport with legal changes in a timely manner can cause problems in plan operation (is the plan following the law or the un-amended plan document?), and can result in plan disqualification upon audit. To avoid missing plan amendment deadlines, the IRS suggests:

• Reviewing the annual Cumulative Lists of necessary plan amendments maintained on the IRS Web site.
• Maintaining a calendar or ticker file of when amendments must be completed.
• Ensuring the plan document and summary plan description (SPD) match.
• Maintaining contact with the attorney, actuary, or company that services the plan, on at least an annual basis, to keep abreast of impending amendment deadlines and receive any amendments that the vendor provides.

The second most common failure found across all plan types was the failure to follow the plan’s definition of compensation in determining contributions. The IRS states that plans may be drafted to define compensation differently for contribution purposes and testing purposes, and that “it is extremely important that the payroll department follow the plan’s definition of compensation for contribution purposes.”

Failure to do so may result in participants receiving allocations that are either greater than or less than what they should be. To avoid compensation mistakes, the IRS suggests performing annual reviews of plan operations; making sure amended definitions are communicated to every individual involved with plan operations; ensuring the person in charge of determining compensation has been properly trained to understand the plan; and, if possible, simplifying the definition of compensation and using this simplified definition for all purposes.

Failure to follow the plan document’s eligibility provisions accounted for the third most common failure. The most significant trend in this category involved the improper exclusion of employees who are later determined to have been eligible for the plan, most frequently part-time employees who become eligible for the plan, incorrect continued eligibility of employees following a merger, and misclassification of independent contractors.

Rounding out the list of Top 10 plan failures were these:

• Failure to satisfy plan loan provisions.
• Impermissible in-service withdrawals.
• Failure to satisfy the 401(a)(9) minimum distribution rules.
• Employer eligibility failure (an employer adopts a plan it is not legally permitted to adopt, such as a government entity adopting a 401(k) plan).
• Failure to pass the ADP/ACP tests for 401(k) plan deferrals and matching contributions.
• Failure to provide the minimum contribution or benefit to non-key employees in a top-heavy plan.
• Failure to satisfy the contribution limitations of IRC Sec. 415.

In the listings, the IRS breaks out, in more detail, the most commonly seen mistakes made in 401(k) plans, defined benefit plans, 403(b) tax-sheltered annuities and 457 government plans.

The IRS notes, “The earlier a plan mistake is detected and corrected, the cheaper it is to fix. This also precludes the mistake from affecting other areas of the plan. For example, improperly excluding an employee from the plan for many years could lead to a mistake affecting not only the plan participant, but overall nondiscrimination testing, and other plan operations.” The release, “Employee Plans Team Audit (EPTA) Program-EPTA Compliance Trends & Tips,” can be found on the IRS Web site.