The Overlooked Risk in Employee Benefits

Why Plan Administration Matters More Than You Think

For many employers, an employee benefits program represents one of the largest investments they make in their people. From Life Insurance and Accidental Death & Dismemberment to Long Term Disability (LTD), Critical Illness, Extended health care and Dental, these programs are designed to protect employees and their families when it matters most.

Yet one of the greatest risks in a benefits program isn’t the insurance carrier or the coverage itself it’s plan administration.

Strong administration is what ensures the coverage you believe is in place is there when you need it.

The Foundation: Accurate and Timely Member Information

Most insured benefits are directly tied to employee data. When that information is incorrect or outdated, the consequences can be significant.

1. Salary Updates

A number of core benefits are often calculated as a function of salary, including:

• Life Insurance
• Accidental Death & Dismemberment (AD&D)
• Long Term Disability (LTD)

If an employee receives a raise but their updated salary is not reported to the insurer in a timely manner, their insured benefit amount may not reflect their true earnings.

In the event of a disability or death claim, this discrepancy can create serious financial consequences, for the employee’s family and potentially for the employer.

2. Spousal and Dependent Information

Similarly, changes such as; marriage or divorce, birth or adoption of a child, a dependent aging out of eligibility, a spouse gaining or losing coverage elsewhere must be updated promptly.

Failure to maintain accurate dependent data can result in; claims being denied, retroactive premium adjustments, coverage disputes, employee relations issues. Plan administration is not just paperwork, it is risk management.

Where Employers Face Hidden Exposure

Many employers assume that once premiums are paid, their liability ends there. Unfortunately, that is not always the case.  If a claim is denied or reduced due to administrative oversight such as failing to update salary, terminate a departed employee, or enroll a new hire properly the employer may be held responsible. In other words, administrative errors can create direct financial liability.

Non-Evidence Maximums (NEM): It is commonplace for insurance carriers to include an overall maximum as well as a Non-Evidence Maximum for benefits such as Life Insurance, AD&D and specifically Long-Term Disability. One area that we see many employers increasing their risk is due to employees not applying or not being aware of required applications for coverage amounts above the NEM (Non-Evidence Maximum). An employee’s coverage could inadvertently be capped at a much lower level than they thought which can lead to costly litigation.

The Safety Net Many Employers Don’t Know They Need: Plan Administrator Liability Coverage

One of the most overlooked protections available to employers is Plan Administrator Liability Coverage.

This coverage is designed to protect employers from Errors and Omissions (E&O) arising from the day-to-day administration of their employee benefits program.

It can respond to claims involving:

• Failure to enroll an eligible employee
• Incorrect benefit amounts reported
• Missed termination updates
• Administrative mistakes that result in denied or reduced claims

In some cases, Plan Administrator Liability Coverage is included, often a single line item imbedded in the fine print within a standard Commercial General Liability (CGL) policy. But unfortunately, its not always included and many employers assume they have it without ever confirming.

Employee Benefit programs are becoming more complex. Remote workforces, salary fluctuations, flexible plan designs, and increased employee expectations all add administrative pressure.

At the same time, claims, especially LTD and Life, tend to surface years after enrollment. That means an administrative oversight today may not become visible until much later, when it’s far more difficult to correct.

Employers are fiduciaries of their benefit plans. That responsibility extends beyond paying premiums, it includes maintaining accurate records and ensuring compliance with plan terms.

Practical Advice for Employers - Confirm You Have Plan Administrator Liability Coverage

Contact your insurance broker or provider and ask:

“Do we have Plan Administrator Liability Coverage included in our policy?”. If not, ask what it would cost to add it. In most cases, it is a very inexpensive addition, especially relative to the financial exposure it protects against.

Final Thoughts

Employee benefits are designed to protect families at their most vulnerable moments. But that protection is only as strong as the administration behind it. Timely updates. Accurate records. Proper oversight. The right liability coverage in place.

Plan administration may not be the most visible part of a benefits program, but it may be the most important. If you haven’t reviewed your processes or confirmed your liability protection recently, now is the time.

This publication is for informational purposes only and shall not be construed to constitute any form of advice. The views expressed are those of the author alone. Opinions expressed are as of the date of this publication and are subject to change without notice and information has been compiled from sources believed to be reliable. This publication has been prepared for general circulation and without regard to the individual financial circumstances and objectives of persons who receive it. You should not act or rely on the information without seeking the advice of the appropriate professional.