The future of voluntary deductions, without the deduction
NASHVILLE – Employers are taking a hard look at voluntary benefits billing — and advisers can help ease the burden.
Consultants can assist clients in shifting the way voluntary benefits are paid for, William L. “Tripp” Amos, chairman of Piedmont Payment Services, said this week during Employee Benefit Adviser’s Workplace Benefits Renaissance.
“What if you could tell your clients, ‘I could eliminate voluntary benefit billing and reconciliation, remove tax liabilities associated with offering these types of benefits and simplify plan design to make it easier for your employees to understand?’” Amos asked.
“If you can say that statement to your voluntary clients, then you’ve already started the process of moving toward the shifts I see coming through in the next two years,” he said.
Billing problems stemming from payroll deduction of voluntary benefit premiums remain a top reason employers drop voluntary plans, he said. Amos noted that last October, the Commonwealth of Kentucky communicated to workers they will be ceasing all payroll deductions for voluntary benefits; knocking out 43 voluntary benefit providers.
“And this is gaining traction with other public sector accounts as budgets are tight and they are looking to cut costs,” he said.
Imagine the impact on the voluntary industry if this goes viral in the public sector industry, he noted. As with other issues, such as legalization of marijuana or gay marriage, once one state breaks a barrier,; others tend to follow. If governments and other public sector entities are looking for a reason to get out of the payroll deduction business, they may have just found it.
To tackle some of the billing issues with voluntary benefits, more organizations are turning to banking technology and payroll deductions to eliminate the employer billing and reconciliation process, while still providing voluntary benefits.
As it is now, deductions for the benefits are deposited in the business’ checking account, and they aren’t setting it aside, he said, they’re spending it as operating capital.
Through direct deposits, funds go outside the company into a premium account with 100% visibility, he noted.
“Any time you can included automation, it makes it easier,” he said.
In addition to incorporating direct deposit funds, Amos added other changes are impacting the voluntary market.
For instance, IRS rulings about the taxability of voluntary benefits paid for with pre-tax dollars have always been an issue, he said. With the ACA preventive services, wellness benefits have become a taxable benefit that burdens employers, and many large brokers are recommending clients to cease the pre-taxing voluntary models.
“If you lose the pre-tax savings, your clients will be less willing to do all the work currently associated with the billing process,” he added.