© Copyright 2000 Rogers Media. The following article first appeared in the March 2001 edition of BENEFITS CANADA magazine.

Benefits without borders

Canadian companies face numerous challenges in administering benefits and pension plans for their U.S. operations. Here's a map through the regulatory maze.

By Jim Corrigan

Jerry Sauer, Maksteel's human resources manager, recalls the challenges the company faced in late 1998 when it acquired its Indiana site and suddenly had to put a benefits plan in place to accommodate more than 30 employees. "As a Canadian company, we had no understanding of benefit issues in the U.S. We didn't know what a typical benefit plan design was down there," says Sauer. "We didn't know what employees were looking for in terms of value. And we didn't know how the system with the different carriers worked."

Maksteel was not only unfamiliar with the regulatory environment for benefits in the U.S. that vary from state to state, it also had American operations that were too small to justify hiring a full-time benefits professional and too large for off-the-shelf solutions. This dilemma was complicated by the fact that the company's Canadian benefits programs offer a high level of protection and value.

Sauer says that although Maksteel was based in Canada, it was beginning to think of itself as a North American company--and it was committed to ensuring some level of equivalent protection for all its employees, regardless of where they worked.

Maksteel and its advisers worked out a co-ordinated benefits strategy for its future growth into the U.S. marketplace, and Sauer says that the lessons learned through the benefits implementation at the company's current U.S. sites have been invaluable.

Kevin Overbey, president and chief operating officer of Seattle-based ClearPoint LLC, advised Maksteel on the company's U.S. benefits strategy. He says Canadian employers will discover important differences between group benefits in Canada and the U.S. "The costs are considerably higher in the U.S. than they are in Canada, and the compliance requirements are greater. Also, the carrier markets are changing rapidly. The Canadian employer should be aware that in the U.S. the prospective employee would be likely to accept or reject an employment offer based on the benefits plan that is offered."

LAWS OF THE LAND

Compliance is a major issue, particularly when a domestic company is acquiring an existing facility in the U.S. that comes with employees. Canadian employers need to know the laws of the land. They are:

• The Employee Retirement and Income Security Act (ERISA). It covers most private sector pension plans and imposes duties on employers who operate plans for the benefit of their employees.
• The Family Care and Medical Leave Act (FMLA). A federal law governing employees' rights to take extended leave from work for specific medical or family reasons without losing their jobs.
• The Health Insurance Portability and Accountability Act (HIPAA). Federal legislation that applies to every group plan that has at least two participants who are current employees. It is designed to help employees maintain coverage that they already have when they move from one group to another.
• The Consolidated Omnibus Budget Reconciliation Act (COBRA). This legislation allows employees to buy their benefits when they're between jobs. Under COBRA rules, an employee who resigns or is terminated for any reason other than "gross misconduct" can continue in the employer's health plan for 18 to 36 months with the individual paying premiums to the employer that are passed on to the insurer.

Employers need to be aware of what qualifying events can trigger COBRA eligibility, and of how they have to communicate COBRA rights to their plan members. "COBRA [used to] apply to companies with 20 or more U.S. employees. But as of Jan. 1, 2000, COBRA rules changed, effectively expanding the number of companies to which the regulations apply," explains Overbey. "COBRA [now] applies to companies with that number of employees in their global operations."

In addition to federal legislation focusing on group benefits plans in the U.S., many individual states have enacted a host of laws pertaining to aspects of healthcare and other benefits. Not surprisingly, compliance issues are much more complicated when the Canadian employer establishes operations in several states. Even with professional advisers in each location, it is easy to run afoul of compliance requirements if there is no strategy for co-ordinating the benefits plans in different divisions.

Consider the following scenario. A Canadian company acquires a production facility in New York state and takes on the employees, along with the existing benefits plan. Shortly afterwards, another facility is acquired 10 miles away in Pennsylvania, also with employees who have expectations about maintaining an existing benefits plan with a different adviser.

Then sales representatives are hired in yet another state to pave the way for further expansion. That staff will also be offered a benefits plan. Although a local agent is contracted to set one up, that party has no knowledge of the plans in the other divisions and, typically, wouldn't be licensed to redesign those out-of-state plans anyway.

This situation is fraught with pitfalls. For example, even though there may be a 401(k) pension benefit in another division, that retirement benefit may not be included in the sales reps' plan because there is no one co-ordinating benefits across divisions. In addition, the differences in 401(k) benefits between U.S. divisions of the same company might put the plans out of compliance. Overbey adds that such a scenario could result in "substantial tax penalties" if the plans are audited.

Maksteel's Sauer says when setting up operations in numerous jurisdictions it's well worth it to obtain the help of professionals who understand the perspective of Canadian benefits and can support the needs of the multi-state employer south of the border. With more growth for Maksteel on the horizon, Sauer saw the need to harmonize all the different benefits from numerous states into a single benefits program that was centrally co-ordinated in some way. He adds that, in his experience, using local benefits brokers in the U.S. will only result in a "hodge-podge of benefits in various states [that] you don't know how [to] align with one other, [or] whether they're of the same value from one division to another."

ATTRACTING EMPLOYEES

Canadian employers designing benefits plans for their American operations generally do not have a good understanding of how benefits are viewed by U.S. employees, says Darryl Ingham, a group marketing representative with Toronto-based PPI Financial. That firm works with ClearPoint on co-ordinating and administering cross-border and inter-state benefits packages.

Medical benefits, in particular, are critical to attracting and retaining the best employees in the U.S. as American plan members can face significant costs for such services without insurance. Given that a routine delivery of a child can range from US$6,000 to US$10,000 in medical fees, it's no wonder that U.S. employees look much more carefully at the level and nature of the benefits their employers offer.

Even the method of healthcare delivery selected by the employer can make a difference in the competition to recruit employees in the U.S. With a health maintenance organization (HMO) arrangement, American employees receive care first from a primary care physician with the HMO. If specialist or hospital care is required, that physician makes referrals only to other providers affiliated with the HMO. With this model, generally there are no benefits for care from physicians or hospitals not under contract with the insurer.

A point of service plan relies on a primary care physician to manage referrals and employees have access to a wider range of physicians. Care from providers considered to be outside of the network is allowed, but the employees share higher costs in the form of deductibles and co-payments.

With a preferred provider organization (PPO) option, employees have even more choice, although that privilege comes at a cost. Although plan members are able to seek care from providers outside the PPO, plan members are obliged to pay a significantly higher portion of their healthcare bills when they do so.

All of these models are designed to encourage employees to use physicians and hospitals that have contractual agreements with the insurer if they want to receive the highest level of benefits from their plans.

In light of these cross-border differences, Canadian employers must think carefully and seek advice before they make decisions about plan design or carriers because they may be changing people's doctors. "Picking an insurance carrier who does not have a significant list of contracted hospitals and doctors is a serious issue," says Overbey, speaking of employee satisfaction.

Cost is another compelling reason for Canadian employers to harmonize multi-state benefits plans. A typical plan in Canada may cost an employer about $1,500 a year per employee for routine benefits such as health, dental, life as well as short- and long-term disability.

To provide an equivalent level of coverage for a U.S. employee, a Canadian organization may pay out US$2,500 to US$4,000 annually for single coverage and between US$6,000 to US$10,000 each year for a family. Typically, employers in the U.S. invest in excess of 15% of payroll on employee benefits alone.

If an employer is dealing with four different plans in four different states delivered by at least four different insurers and administered by four different brokers, then administration costs aside, the organization is likely paying premiums at different rates and is not getting the most cost-effective benefits possible.

Co-ordinating these plans into a single U.S. benefits program is the first step to building the critical mass necessary for lower premiums. In some situations, a co-ordinated benefits program for all U.S. employees can even be integrated with the Canadian program to reduce costs further.

Sauer says Maksteel's main objective was to foster its distinct culture in its U.S. locations. One of the best ways of accomplishing that was through a benefits program. More specifically, the company wanted to offer uniform benefits to all U.S. employees that would be of equivalent value to the protection that it was already providing to its Canadian workers. That approach, says Sauer, was "consistent with our way of thinking about benefits."

Jim Corrigan is president of Corrigan Insurance and Benefits Planning and a partner in The Callery Group, both based in Whitby, Ont. corrins@sprint.ca.

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Have benefits, will travel

When a Canadian employer sets up shop outside North America, a major challenge is how to deliver benefits programs that meet the needs of new employees in other countries and reflect the values of the benefits philosophy and culture that has contributed to the parent company's success at home.

More Canadian head offices are dealing with these issues as they pursue business opportunities around the world. Here are some tips on going global with your benefits.

• Underwriting principles are similar across many international boundaries, but what motivates employees in different countries often varies. Know what benefits are valued in the country of expansion--it will make the job of recruiting and attracting employees that much easier.
• Know the local labour laws, employee rights and your organization's obligations in these areas, especially as they pertain to benefits.
• Hire the experts needed to explain compliance and regulatory issues related to employee benefits and satisfy those requirements.
• Be clear on your own benefits strategy. According to Kevin Overbey, president and chief operating officerof Seattle-based benefits consulting firm, ClearPoint LLC, employers should quantify the investments that they will be making in their new employees in the context of the local market and regulatory environment. While you want to know what it will take to recruit the right employees, you also need to be aware of those entitlements that may be difficult to unwind.
• Integrate the local strategy into the parent company's own benefits philosophy and culture at home. As much as possible, strive for benefits objectives that are consistent with the corporate culture that is the basis of the company's success. Remember, a benefits plan is one of the best ways to communicate the company's values to employees, particularly those who may be half a world away.
• Set up timely and effective reporting mechanisms that allow you to manage the progress of the benefits plan as it goes forward. Because of the hurdles imposed by distance, employers may not hear as quickly as they would like if things are going awry.
• Find out which benefits in the parent company's plan can be globalized resulting in more opportunities for critical mass savings. Healthcare and retirement benefits may have to stay within a regional or national environment. But life and disability benefits can, in many cases, be extended globally. Look for an organization that can co-ordinate them for maximum results.
• Review the benefits plan regularly in each jurisdiction. Changes in government or social programs miles away can quickly push benefits costs up or leave employees exposed.

The Romanow Commission has released its final report on the future of healthcare in Canada.

For Commissioner Romanow's recommendations, click here.

Click here for Senator Michael Kirby's report, "The Health of Canadians – The Federal Role: Recommendations for Reform."