Continuation of Benefits for Leaves of Absence, Layoffs, and Retirees
By: Benefits by Design | Tuesday July 27, 2021
There are many instances where an employee may lose their employee benefits coverage. In some cases, employers and employees may wish to retain benefits coverage through either a continuation or an extension of benefits. Though similar, the two are different, and the distinction is an important one when it comes to retaining benefits coverage.
Let’s explore these two!
What is a Continuation of Benefits?
Continuation of benefits is possible when an employee is temporarily losing their benefits, such as a temporary or seasonal lay off or a leave of absence. With a continuation of benefits, the employee’s group benefits remain in place with no lapse in coverage, provided premiums continue to be paid.
A continuation of benefits can be offered to employees who are taking a leave of absence due to a personal illness or injury, and can be offered for parental leave, or other leave reasons. It can also be offered to seasonal employees who are temporarily laid off each year.
Lastly, it’s important to note that employees on a leave of absence are still employees, with all the same rights and protections as before.
What is an Extension of Benefits?
An extension of benefits is used for employees who are leaving the company permanently. Through an extension, the terminated employee maintains their benefits coverage for a predetermined amount of time. This allows them to keep their coverage in place while searching for alternatives, either through another employer or an individual policy, or during a Waiting Period for benefits at a new job.
Retirement is a common reason for an extension of benefits and may also be part of a severance package or as a good-will gesture for an employee.
What Plan Administrators Need to Know about Continuation of Benefits
Whenever an employee goes on a leave of absence (including maternity leave), they must choose whether or not they wish to continue with all of their benefits. When it comes to premium payments, employers have two options:
- Employer continues paying their portion of premiums. If an employer has a cost-sharing arrangement, they can choose to continue paying a portion of the employee’s premium during this leave, or even increase it to cover more. Employers who choose to do this must do so for all employees who take a leave of absence — they cannot pick and choose!
- Employer does not continue paying their portion of premiums. Alternatively, an employer may choose not to continue paying their portion of premium during the leave of absence. In which case, employees are still allowed to choose whether to continue their benefits, but they are then responsible for 100% of the premiums.
It should be noted that in some Provinces, employers will be required to continue benefits per provincial legislation and will not have the option to choose. Likewise, employers must pay the same proportion of premiums if an employee is on a medical leave of absence, according to the Canada Labour Code.
Should Employers Encourage Continuations of Benefits?
Ultimately, the answer to this question can only be answered by the employer. However, with questions like this, it is important to remember your benefits philosophy, or the “why” behind your benefits plan. If keeping employees happy, healthy, and at work features anywhere in there, it may be worth discussing a continuation of benefits with employees prior to a leave of absence.
For example, a common instance where a continuation of benefits will come up is maternity leave. Pregnancy and childbirth is not without risk of complications, and continuing with a benefits plan during a maternity leave may be worth consideration for an employee. However, it may be difficult for many employees to justify paying 100% of the premiums on a reduced salary, leading many to forgo continuing with their benefits during that period. Remember — employers have the option of continuing to pay premiums at their current cost-sharing arrangement, or even increasing it to cover more or all of the cost.
Employers should do their due diligence and inform employees of the risks involved in choosing not to continue with their benefits coverage. If employees still wish to go on a leave without continuing coverage, employers may wish to have them sign a waiver accepting the risks and liability. Consider discussing this with your Insurer or group insurance Advisor when the time comes!
Extensions to the Length of the Leave of Absence
If there is going to be a change in the length of the leave, it is the responsibility of the employee to advise their employer as soon as possible, as it could affect the continuation of the benefits if the leave is longer than anticipated.
For seasonal employees in particular, the continuation of benefits is usually only for a specific period of time that is pre-determined by the Insurer (such as a season).
What Plan Administrators Need to Know about Extension of Benefits
Employers offering an extension of benefits may wish to continue providing benefits only for a set period of time. However, depending on your Insurer, there are varying limitations to the allowable time frame, and employers are encouraged to check with their specific Insurer to confirm.
To give you an idea, here are some commonly allowable extension time frames:
- Life Insurance — 6 to 12 months
- Accidental Death and Dismemberment (AD&D) Insurance — 6 to 12 months
- Extended Health Care (EHC) — 3 to 6 months
- Dental Insurance — 3 to 6 months
Disability Insurance gets a special mention here, as it is not always available for extension. Since the benefit typically has a termination age of 65, retirees, who make up a significant portion of employees eligible for extensions, would not be eligible. However, during COVID-19, Empire Life, our primary carrier for Life and Disability Insurance, allowed a 3-month extension for temporarily laid-off employees, but this is not the norm.
Plan Administrator Liabilities
As with many things in group insurance, not handling continuation and extension of benefits properly could open up employers and even Plan Administrators to potential liabilities. It is important to handle these requests appropriately, and Plan Administrators are encouraged to speak with their Insurer and their group insurance Advisor if unsure.
Here’s a few quick tips to keep in mind to help avoid any potential problems:
- Have employees sign off. It may be best practice to have employees taking a leave of absence sign off on what benefits they do not wish to continue, and which ones they do. Depending on the cost-sharing arrangement, it may also be helpful to include the method of payment and have the employee acknowledge their understanding that, if they cease paying the premiums, benefits coverage will terminate.
- Discuss conversion, if applicable. If employees are choosing not to continue with some or all of their benefits while on leave, they may be eligible to convert them to an individual policy.
- Confirm extension timelines with your Insurer. When it comes to extension of benefits, you should always confirm with your Insurer how long they will allow the extension. Most benefits have a standard length of time that an employer can extend without prior approval, but it’s always best practice to confirm, as these timeframes may vary by Insurer.
Still Have Questions? Consult the Experts
This blog is meant to inform, not advise. If you are unsure of the limitations and liabilities, or would like to speak to a professional, you have options!
- Your Group Insurance Advisor — your group insurance Advisor is there to share their vast expertise and knowledge with you to help you navigate the group insurance landscape.
- Business Assistance Program (BAP) — BBD groups with Life Insurance through Empire Life have access to a Business Assistance Program (BAP) through HumanaCare embedded in their coverage. A BAP provides all kinds of business advice and assistance, including Human Resources and legal.