Having the double whammy of group insurance and a pension plan together can help retain top talent at your company.
The biggest case in favor of providing a group benefits program is employee retention.
The Case for Group Benefits
For anyone that might consider pursuing entrepreneurship, their first concern is often the loss of their group benefits plans. This is especially true for those with families!
Working for a large company in the world can be enticing because of the lucrative benefit packages offered. Offering your employees something like a health & dental plan, with a variety of paramedical options such as chiropractor appointments, and vision care can go along way in keeping your employees feeling happy and taken care of. To go along with that group insurance program, many companies offer a group RRSP or Pension that the employees can contribute to; usually with the employer matching a portion of their contributions.
As a startup founder, you may not have access to such comprehensive benefits plans. So how can a growing entrepreneur support their employees and retain talent?
Luckily, the Health & Welfare Trust can be a viable option for a new startup with a small pool of employees.
Even if you are a solo-preneur, (as most group plans require at least of 2 other employees), the Health & Welfare Trust can help provide some tax relief for the medical/ dental expenses of that new business. Though fear can have a big influence on your decisions, so can the feeling of being appreciated and well taken care of. This should be the biggest motivator, because keeping your employees happy should bring greater productivity for your business and less turnover of employees.
A big dental bill, laser eye surgery, or braces for kids can be a big expense to find the money for, even when it’s partially covered by 80% co-insurance under a group insurance plan. It’s even worse when the employer does not pick up the cost, and you have to pay for it personally with after-tax dollars. If paid personally only a small percentage (18%) is reimbursed under the Medical Expense Tax Credit after the deductible is met. A 3% of net annual income is used as far as yearly deductibles for the METC.
For many, finding the money to get dental work done can be difficult. Having the company absorb these costs can mean the difference of getting any work done at all. The company can also make the premiums for a group insurance program tax deductible, or in the health & welfare trust case, make the medical or dental expense a tax-deductible business expense.
Why Don’t More Companies Provide Group Benefits?
Some of the main issues that may dissuade a company from going down the road to providing group benefits mainly depend on the size of the company, I’ll list off some of the main reasons I’ve encountered:
Cost
simple enough, some companies might believe the value they are getting in return just isn’t worth what they have to pay. Insurance companies aren’t exactly fighting over each other to win the small business group insurance marketplace either. Depending on the age and occupation of your employees the premium you can be charged might deter from implementing the program, or taking the renewal if you had a bad claim year the previous year.
If you go the Health & Welfare Trust route the cost is straightforward with the setup fee and admin fee per claim, so there are no unexpected surprises. There is no discrimination based on age, sex or occupation either. Every company has the same costs.
Not Incorporated
If you are a sole proprietorship or partnership, there is a very small pool of options out there for you. If there is an option, such as the Health & Welfare Trust, then what’s covered such as the maximum amount of claims is limited compared to what is available to incorporated companies of the same size.
The solution, time to get Incorporated… in all seriousness most group insurance programs make the most tax, cost, and benefit sense when you are incorporated.
Lack of Income
Having your premiums or expenses tax deductible for your business is an attractive reason why you might provide a group benefits program, but if you have no active income then there is no revenue that you can deduct for tax purposes. Seems simple enough of a concept, but for many startups still in the pre-launch phase of their company, it can be a major detriment.
Perceived Complexity
An overabundance of information in the marketplace and for each program available can seem overwhelming to some. Most people understand the basics of a traditional plan with co-insurance, deductibles, and premiums. But, for something like the Health & Welfare Trust, the word trust alone can get people hung up. Many proposals can seem confusing when their 10 pages plus and you’re not exactly sure what is covered under a group insurance program after deductibles, premiums and coinsurance is paid.
I apologize in advance for the amount of paperwork you will have to read through. I promise though, the concept at its core is a simple one. Working with a broker with experience in the group insurance marketplace can go a long way in simplifying some of these concepts for you.
Lack of Coverage
depending on the industry you are in, you might not be insurable under a traditional group benefits program. Specifically, Short Term & Long Term Disability is most commonly not offered to a large portion of occupations & industries as part of most plans. There are sometimes underwriting requirements for certain benefits depending on the plan, which some employees may not qualify for because of health reasons.
If you are not looking for disability or life insurance as part of your group insurance program then the health & welfare trust is a viable alternative. There is no health underwriting to qualify, and many more industries and occupations qualify that wouldn’t under a traditional plan.
In Summary
If you are currently entertaining the idea of a group benefits program for you and your employees then please speak with a broker like myself who can guide you through the options available. There are attractive benefits of implementing a program for your company which include: coverage for shareholders/ employees and their families, tax-deductible premiums (or in the H&W Trust case, medical&dental expenses), increased employee retention and happiness, having the insurance company pick up the cost of your medical & dental expenses instead of paying for them personally, and attracting new high-quality employees.
If lack of insurance coverage is holding you back from finally making that dentist appointment then please reach out and have a chat with me. We intend to write more articles for Spring in the future, so keep an eye out for future posts.
About Karl Jung Financial Services Ltd.
Adam Jung and Karl Jung
Karl Jung Financial Services Ltd. is a family owned and operated financial services company. As independent brokers, we help families and small businesses find the most appropriate life and disability insurance solutions, along with group benefits packages and pension fund management. We broker with 9 of the largest insurance companies in Canada, and have a combined 40 years of experience in the insurance & financial services industry.
Other key areas we can assist you with:
- What would happen to my business if either myself or my business partner were to pass away prematurely?
- What would happen if a key employee were to pass away prematurely or become disabled?
- How do I protect my income and business if I were disabled or developed a serious illness?
- What type of benefit packages are available to my employees and how can I provide them with an adequate retirement?
- How do I get money out of my company in the most tax-efficient manner and how do I fund my retirement?
Written by Adam Jung
