Small size doesn’t necessarily mean small problems. In fact, many smaller-sized employers are often having to choose between benefits plans and pension plans to keep costs at bay. The trick to keeping it all in check? Creativity and communication. Tallman Transports Limited is an entrepreneurial success story. Back in 1935, Grant Tallman started his career as a truck driver, transporting hay and straw to farms around Allanburg, Ont. Seven decades and two generations later, the business is still family-owned and operated, but the loads have become a lot heavier. Tallman, now based in Welland, Ont., dispatches 100 tractors and 350 trailers weighed down by steel and lumber across Canada and the continental United States.

But while the company has grown significantly from its origins to 75 employees, it’s still considered a small plan sponsor by the insurance industry. One of company president Pattie Lenson’s challenges at the moment is balancing the healthcare and retirement needs of her staff with the rising costs of the “off the shelf ” benefits and pension plans available to small plan sponsors. And she’s not alone. Companies with fewer than 500 employees make up 99.7% of Canadian businesses, according to a 2004 Statistics Canada survey.

The good news is that there’s a growing network of specialized consultants and brokers to help them out, and small businesses are drawing on their own ingenuity and creativity to design plans that work for them— and their employees.

The biggest obstacle facing smaller plan sponsors is developing a strategy that enables them to balance what they can afford with a package that will keep them competitive and take care of their staff, according to John Jackson, president and chief operating officer at The Hull Group in Toronto. Often, he says, owners of smaller organizations are close to their employees and are motivated to offer as much as possible. But they’re also responsible for keeping their business profitable, and incurring an additional 5% or so on top of each salary may not be sustainable.

The solution, Jackson suggests, is for plan sponsors to do a benchmarking exercise so they have a clear idea of what benefits other organizations in their industry sector are offering. General information is often available from Chambers of Commerce and the Conference Board of Canada. After that, he recommends that employers without an existing package introduce a plan at the lower end of the scale. That’s because there will usually be a spike in usage in the first year and it’s much easier to improve a plan later than to downshift if it becomes unaffordable.

A Group RRSP on the pension side and a healthcare spending account(HSA)for medical benefits may be a good place for a smaller employer to start. An HSA can be self-administered(according to the Canada Revenue Agency’s requirements)and doesn’t require any involvement from insurance companies. That’s important because once insurance companies do come into the picture, administration fees may be as high as 25 cents on the dollar for a company with 25 or 30 employees, Jackson says. A plan with 500 members, in contrast, might be paying just nine cents on the dollar for administration.

“It’s not just about costs. It’s marrying the plan to corporate policy,” emphasizes Dave Young, a partner with Bencom Financial Services Group in Kitchener, Ont. In other words, a smaller company has to determine its priorities and be willing to compromise. That means carefully evaluating the needs of a particular workforce and looking for options that are affordable and that will help the largest number of people.

Mary Martin, chief operating officer at law firm Lang Michener LLP in Toronto, has had to confront the give and take of plan design in small and big companies. “I’ve worked for larger companies and I know the sky’s the limit in terms of benefits. You had so many options it took you days to read through everything,” she says. Today, she oversees a benefits plan with about 280 members and a Group RRSP and deferred profit sharing plan with approximately 150 members.

“We try to go on a plan that we know will cover the basic needs of people without going overboard to the point where the premiums are ridiculous and, say, more than half of the employees will never need that coverage,” she explains.

Thomas Holloway, president of Equitus Consulting Inc., in Oakville, Ont. agrees that large employers have much more leverage to negotiate with an insurer to get exactly the plan they need and want. He says smaller employers have to find ways to make off-the-shelf solutions, provided by a shrinking pool of consolidated insurers, work for them. Where they do have flexibility, however, is in the area of cost sharing.

The big difficulty, as Holloway sees it, is that employers are up against a strong sense of entitlement among Canadians that tends to increase resistance to co-payments and premium sharing. “Employers want to make an omelet, but they don’t want to break the eggs,” is how he puts it. “They want to manage the plan, but they don’t want to do anything that would be contentious. That’s a tough situation to be in.”

That said, some employers are finding creative ways to control their costs while minimizing any employee backlash. Lucy Boreczek, controller at King-o-matic in Mississauga, Ont., which bills itself as Canada’s largest manufacturer and distributor of transmission parts and has 106 plan members, says that her goal when she has to cut benefits in the face of increasing costs is always to ensure that the smallest number of people is affected. So, for example, if not many people are making use of the physiotherapy option, then that’s the benefit she trims.

When Boreczek had to make a tough call last year and implement limited cost sharing with employees, she says it was the way the information was presented that smoothed the waters. “We presented this as a benefit for them,” she says. “Employees do not realize how much money is going into the payments for the benefits plan. For them, going to the dentist, for example, is free. They somehow do not make the connection that the more you use it, the more we have to pay.”

Education is key, too, when it comes to enforcing the coordination of benefits and enlisting employees’ support to cut back on simple expenses such as pharmacy dispensing fees; after all, many employees still don’t know what a dispensing fee is or that they vary from pharmacy to pharmacy, she says.

Because educating employees is so critical when it comes to controlling group benefits expenses and helping them make the most of a pension plan—and yet many smaller businesses don’t have full-time plan administrators to organize educational initiatives such as training sessions—smaller plan sponsors need to take advantage of all the resources that are available to them.

The major insurance companies, in particular, have the deep pockets to offer additional services to their larger clients, and smaller plan sponsors can often benefit, too. “They bring a lot to the table for a small employer in regards to disability management services, communication capabilities, education capabilities and employee communication, as well as Webenabled administration solutions,” Jackson says. Furthermore, insurance companies are offering smaller companies services such as third-party administration.

At the same time, he says, smaller companies can enlist the support of a consultant—on retainer or on commission—to provide the services that an in-house benefits and pension manager would handle at a larger company, such as answering employees’ questions yearround and providing seminars once a year in advance of the re-enrollment deadline.

Young points out that some insurers are even starting to incorporate wellness programs into their plans for smaller companies. A full-service employee assistance program is generally out of reach for most small businesses, but he suggests that even a basic, stripped-down service can provide long-term benefits.

“We’d like to see more information regarding health and how people can lead healthier lifestyles,” agrees Brad Forrest, manager of human resources at Breaker Technology Ltd., a manufacturer and distributor of mine, quarry, construction and demolition equipment in Thornbury, Ont., with 140 members in its benefits plan. “That would certainly help the company, as far as rates are concerned, and help the insurance industry.”

There’s one situation that’s not possible for smaller plan sponsors to “educate” away. “Normally, 75% to 80% of claims in a group insurance health plan are prescription drug claims,” says Mike Duggan, president of Duggan Benefits Insurance Agencies Inc. in Mississauga, Ont. Because of that, companies with limited budgets and narrow profit margins can be sideswiped by their benefits costs if just one employee develops an expensive medical condition.

“If you’re a 200-life company, you’ve got maybe $180,000 or $200,000 of drug claims in one year,” explains Holloway. “One person gets prescribed a biologic drug for rheumatoid arthritis and that one drug alone can be $20,000. So now here you have a situation where one drug for one person is taking your costs up by 10%.”

Even if the employer is insured—rather than paying its own drug claims through an administrative services only(ASO) plan—next year’s premiums will reflect this year’s drug claim experience. The solution, Holloway suggests, may be an annual cap on the benefits plan of $10,000 a year, but he says that employers are usually reluctant to introduce a cap.

Pre-authorization processes can also help by requiring employees to get a second opinion from a pharmacist, doctor or medical review officer before the drug is purchased. Generic substitution, where the name brand drug is replaced by a generic drug whenever it’s available, and therapeutic substitution, where only the lowest-cost drug for a given condition is covered, are other options some smaller plan sponsors are trying out.

No matter how many concessions and compromises a smaller plan sponsor makes, sometimes there’s no way to swing healthcare benefits and a pension plan. Michael Coulter, co-owner of Harvest House, a high-end crafter of Mission-style furniture with only 12 full-time employees in Schomberg, Ont., says his company opted to invest in a benefits package without an employer-sponsored pension plan because doing both simply wasn’t financially viable. Benefits, he decided, would provide the more immediate, highly visible incentive to prospective and existing employees.

On the other hand, Lenson finds herself favouring Tallman Transports’ pension plan over the benefits plan when there’s a decision to be made these days. Her longserving, older truckers have made it quite clear to her that they would prefer to forego raises to boost their pension at age 65. So this year, their hourly and mileage rates stayed the same, but the money the company saved was invested in the company pension plan, while the benefits plan remained stable thanks to cost-sharing with her employees.

The burden for resolving those difficult “either/or” questions doesn’t rest solely on smaller plan sponsors; insurance companies have an important role, too, says Young: “When I started in this business, a family health rate was about $40 and a family dental rate was about $60. Now they’re both $150. They’ve more than tripled in 20 years. The insurers, who are a partner in this, have to get a little more innovative with funding.”

Michael Coulter
Harvest House
Schomberg, Ontario
Number of plan members: 12

BC: What type of pension/benefits plan do you have?
MC: The benefits plan is fairly standard: health, dental and long-term disability. It’s with Manulife. We’ve also set up a Group RRSP with AGF so if people want to pay in we’ll deduct it off their salary. We don’t have the revenue to pay for an employer-sponsored pension plan, and we think the benefits plan is a better use of dollars. People see it as a more immediate benefit.

BC: What challenges do you face as a plan sponsor?
MC: Insurance seems to be a bit of a black art, in that changes to your business premiums, vehicle premiums and benefits premiums can seem somewhat arbitrary. We’ve been lucky in the sense that we’ve never had a catastrophic illness. We’ve never had a long-term disability claim. We’ve never had something where somebody’s had to go on drugs that cost $2,000 a month. We haven’t needed anything too esoteric. But this year our renewal is coming up and the first draft of what they want to charge increases our premiums by nearly 15%. This might be the first year we have a real issue.

BC: How have you dealt with those challenges?
MC: I get approached all the time: would you like to have a benefits consultation? And I keep saying, no, we’ve been with Manulife for many years and we’re happy with them. The risk is if you go to a new company and you do have a catastrophic issue, you have no track record with them. You don’t want to lose that potential leverage. If I move for 5%, and then lose a 15-year track record at Manulife, that’s an awful price to pay. In my mind, that loyalty is worth something and hopefully [we could] use it with Manulife if something ever arose.

Pattie Lenson
Tallman Transports Limited
Welland, Ontario
Number of plan members: 75

BC: What type of pension/benefits plan do you have?
PL: We offer dental, health, prescriptions, long-term disability, short-term disability, life insurance and spousal life insurance. We have a defined contribution pension plan(both the employer and employee contribute) and an optional Group RRSP(the employer does not contribute). The carrier is Manulife.

BC: What challenges do you face as a plan sponsor?
PL: One personal challenge is we have a great group of employees who work for us and have been with us for many, many years. The average for our drivers is between 25 and 30 years of service. Of course, trucking is a very labour-intensive job and our drivers are more likely to use the medical/dental side of the plan—particularly prescriptions— as they get into their late 50s and early 60s. It’s just superb that we have long-term employees that are dedicated, but we have to look at the other side, too—the extra cost that they’re putting on our plan—and it’s substantial.

BC: How have you dealt with those challenges?
PL: Medical/dental benefits are a costly benefit to carry.We went through a difficult time when three companies we dealt with went into bankruptcy protection. We either had to reduce the coverage in different areas or co-pay. Obviously there was a little bit of resistance, but people were concerned about job security, too, and they realized that they would have to assist the company in some way. We formed an advisory committee of the different areas—our office, the shop staff and the drivers—and the majority ruled. They chose to co-pay and keep the same coverage. But it’s an ongoing battle to try to keep the costs down.We are ASO for medical/dental and we have saved some money that way, too. Mind you, we do have an insurance policy in case people are injured in the U.S.—anything above and beyond $10,000, the insurance company will pay. Down in the States it could be hundreds of thousands of dollars and we just can’t afford to pay $100,000 here and there.

Brad Forrest

Manager, Human Resources
Breaker Technology Ltd.
Thornbury, Ontario
Number of plan members: 140

BC: What type of pension/benefits plan do you have?
BF: We have a company-sponsored Group RRSP. Breaker Technology contributes 6% non-contributory, and if employees throw another 2% of their wages in they can get another 1%. On the benefits side, there’s a health component that includes physiotherapy and chiropractic, a prescription drug plan, a short-term and long-term disability program, and a dental program. That’s all through Great West Life.

BC: What challenges do you face as a plan sponsor?
BF: Costs! We considered going ASO(administrative services only), doing a pay-as-you-go for some parts of our program. We took a look at it because we had an upwards swing in the benefits program three or four years ago. But we renewed in January and were able to negotiate a decrease in the benefits costs. For us, the benefit of price stability by staying insured rather than going ASO makes a difference. Having one short-term disability claim or a huge health claim can really throw the numbers out of whack, especially on the shortterm disability side.

BC: How have you dealt with those challenges?
BF: The biggest thing we’ve embarked on in the last three years is the communication component of it. Three or four years ago, we put a limit of $1,500 per person on our dental plan, which is still a pretty big limit for cleanings and fillings and that type of thing. Just by communicating that there is a limit, we’ve seen a significant decrease in our dental costs. We brought in Pharmex(a mail order pharmacy provider)and we’re seeing some benefits with that and some stabilization in our drug benefit experience. One of the other significant things we did is we implemented a return-to-work program, and it was not only for work-related injuries. We had the Workplace Safety & Insurance Board come in, do a presentation and discuss the cost for a person who is off work.

Alison MacAlpine is a freelance writer in Toronto.