It wasn’t exactly an announcement as the news was leaked, but Postmedia told employees in March the media company was making considerable changes to their benefits.
“Across Postmedia, we currently have numerous and varied benefit programs, pension plans and other human resources policies like vacation that apply to various employee groups. In order to both achieve harmony across our operations and to ensure the affordability of these programs going forward, we are making changes that will apply to everyone,” said a memo outlining the changes on www.j-source.ca.
“Once complete, Postmedia will have a harmonized program that is aligned across the organization.”
While not an unusual practice, downgrading benefits and pensions is more common with a challenging economy, according to Glenn Kehrer, president of Group Benefits Consulting of Canada in Winnipeg.
“Everybody looks at their benefit line and says, ‘What is this as a percentage of our overall salary costs? Is it five per cent, six per cent?’ If you’ve got a formal pension plan, it might be 11 or 12 per cent, so that’s becoming a big number on the bottom line. And so I think everybody is looking and saying, ‘How can we save money without negatively impacting the morale and losing employees to the competition that’s out there?’”
And in western provinces such as Alberta, where there have been mass layoffs, many employees are just happy to have a job, he said, “so it is a good time to look at the overall program and say, ‘Were we too rich on the benefits side and if so, what can we do to tweak it and do some cost-containments?’”
The changes at Postmedia include having one defined contribution (DC) pension plan while the defined benefit (DB) pension plan accruals will stop in August. And participation in other DC plans, group RRSPs and the deferred profit-sharing plan will cease.
Postmedia also announced a discontinuation of: retiree benefits, maternity and parental leave top-up payments, and the employee assistance program (EAP).
On the drug front, a pay-direct drug card must now be used and a customized formulary will be based on the lowest-priced generic equivalent.
Modifications were also announced around coverage for paramedical, vision care and dental, along with vacation leave.
The changes were necessary, according to Phyllise Gelfand, vice-president of communications at Postmedia in Toronto.
“The new benefits plan is designed to provide consistent coverage to all employees across our operations.”
Health benefits review
When it comes to altering benefits, a review should first be done, if it wasn’t already, according to Nicola Wieler, a benefits consultant at TRG Group Benefits & Pensions in Vancouver.
That means looking at the corporate culture and benefits philosophy. For example, is it more paternal or transactional about benefits? Then it’s about looking at the overall budget and what the employer can afford within that philosophy and culture.
It’s also important to consider risk tolerance, in terms of financial risk and liability risk, she said. For example, does the company have the risk tolerance to go with administrative-services only (ASO), where the employer is responsible for funding claims costs? And can the employer afford to lose employees who are unhappy with the revised benefits?
Then, it’s about looking at cost-containment or change management, she said, so how can you reduce the claims without taking things away?
Having a very robust drug management strategy is key, said Wieler, and it’s about how to keep the plan the same while reducing the costs.
An evidence-based, tiered formulary is a good approach, so the employer is not removing access to any drugs; instead, it’s about changing employee behaviour, she said.
“We need to educate the employee, so better consumerism.”
It’s important to look at the overall claims data, which drives the premium, before making any changes, said Kehrer.
“So you want to look at your historical stats, what the claim usage has been, before you make any decisions… then you kind of price out and forecast where you’ll be if you do A, B or C as an option.”
For example, if an employer changes its plan to move dental from one visit every six months to one every nine months, is that going to save on costs if the average employee goes every 12 months?
“It won’t have any effect but it will make people mad,” he said.
The mandatory generic option is being used right across the board by all providers, said Kehrer. That means the lowest-cost alternative is paid first and if employees want to take the name brand, they have to pay the difference.
“Not a lot of people are put out by having the mandatory generic, once it’s explained that it’s the equivalent. And pharmacies are very good at educating the plan member,” he said.
High-cost drugs are definitely of concern to employers, said Michael Wolpert, a partner at Lawson Lundell in Calgary.
“So organizations are implementing caps on how much individuals or members can spend in a given year or how much their plan will cover in terms of prescription drugs — so those things are just as important as the use of generics and other types of restrictions.”
And having employees use a pay-direct card can be a good move, along with encouraging employees to use lower-priced pharmacies, said Kehrer.
“If the plan is just a paper-based program and you move to a pay-direct plan, that’s a bit of an enhancement for the plan member and at the point of sale, you can then tie in some co-insurance sharing… it’s the best way to control claims at the point of sale, rather than after the fact.”
An employer can also look at putting in a health-savings account with a defined maximum per calendar year, instead of traditional paramedical coverage, said Wieler.
“You will limit the costs in most cases if you do it properly; a lot of analysis has to go into that. It will be a (disadvantage), obviously, for those employees who are using it quite a bit… but generally that can help reduce costs and it provides some flexibility, so employees are often very happy with that type of change — you get some morale points there.”
But there are risks — if, for example, an employee opts for 50 per cent wage replacement as part of his long-term disability coverage, and then he becomes disabled, he could come back to the employer and say he didn’t understand his choice, she said.
“The liability risk goes up significantly if the plan is not well-communicated, and communication can cause a bit more of an administrative burden.”
When it comes to short- and long-term disability, some organizations still rely on employment insurance (EI) for that type of coverage, but many are tightening up the rules around how they administer those plans and what’s required of employees, said Wolpert.
“Larger organizations have introduced much more rigorous or comprehensive return-to-work programs,” he said. “And insurers have been part of this trend as well, to introduce more active management of claims, so not just letting somebody languish on long-term disability.”
But Postmedia’s decision to end the EAP is an interesting one as it’s a low-cost, big-value benefit, especially when there are layoffs and morale takes a hit, said Wieler.
For every $1 spent on an EAP, an employer may get back $6 in lower health costs, lower absenteeism and presenteeism, and increased productivity, she said.
“So (an EAP) is not one we typically would recommend removing. Even if they’re slashing other things, we would actually recommend putting one in place if they didn’t have one.”
Retirement savings plans
As for ceasing retiree benefits, that’s not surprising as providers are becoming shy of underwriting these, said Kehrer. They are reluctant, for example, to provide out-of-country coverage at age 70 because the risk of a claim is much greater than that for a 25-year-old.
“On top of that, it is a big cost to that employer for someone who is no longer a profitable employee for them.”
Retiree benefits often end up in litigation, said Wolpert.
“Many organizations have taken a look at the cost of those benefits in the last number of years, especially since they were required to start accounting for them on the future basis on the value of the liability of those benefits… you had organizations that had perhaps a modest amount showing on an annual basis and, all of a sudden, they had millions of dollars showing on their balance sheet.”
Retirees can be heavy users of prescription medication, and they’re the main reason for soaring costs, said Wieler.
“But it’s so difficult to change (those benefits) because (employers) didn’t have the proper wording in place to protect themselves to make changes in the future,” she said. “Insurers often impose caps, certainly for out-of-country (coverage), even the drugs. But it’s still better than what (retirees) could get on the retail market, on individual plans.”
For pensions, the switch to a DC plan is not new as it’s about moving the financial risk to the employee, said Kehrer. And it’s rare these days for employers to put in place a new retirement program.
“They don’t want to take on an extra four per cent, if their payroll is $10 million — that’s quite a few hundred grand as an extra cost, so if they don’t have one currently, they’re not putting one in.”
While offering a group RRSP can be an alternative, it can also be a lot of work for the HR team, and it doesn’t seem to get a lot of contributions unless it’s really well-communicated, he said.
“Once you have the employer making a contribution, the uptake of registration is a completely different story.”
An RRSP might not fit with the organization’s philosophy, said Wolpert, “because people can leave and generally they can do what they want with the money — it’s not locked in... And (employers) may have just found ‘Really, it’s not helping us attract or retain employees.’ Maybe employees didn’t want it, maybe they just wanted additional cash.”
However, a retirement savings plan is the lowest cost to providing compensation, said Kehrer.
“If you’re giving a $100-a-month contribution to a retirement program, and you’re requiring the employee puts in money, so it’s a matching basis… that $100 is a direct cost, so you’re not including EI, CPP, workers’ comp, payroll tax. So that $100 costs $100, versus if you give a pay raise, $100 costs maybe $112 and the employee sees $70, $75. So who makes all the money on a pay raise? Revenue Canada loves pay raises because they just got another $40, $50 — $12 from the employer through different programs and another $30 or $40… depending on the tax structure, from the employee.”
But when it comes to making a unilateral decision to change benefits, employers run the risk of employees’ legal claims, such as constructive dismissal — and that will depend on the particular circumstances, said Wolpert.
“If the change amounts to less than a five per cent decrease in total remuneration, it’s likely not a constructive dismissal; if the change amounts to more than a 10 per cent decrease in total remuneration, the change could be constructive dismissal — but then you can also mitigate against that risk by providing a notice of the change.”
There has to be an adequate notice of the change, said Wieler. In the case of retiree benefits, for example, an employee may postpone retirement for five years to receive retiree benefits, so it would be a big issue if the employer ended that benefit.
“So definitely putting the wording in place in the employment contract that states ‘the employer reserves the right to change, reduce or terminate or coverage in the future’ would greatly protect the employer — but it’s not airtight.”
An employer could also be accused of breaching an employment contract if it includes “any details of benefits coverage without a clause stating the organization could change, reduce or terminate the coverage in the future,” said Wieler. “Employees can say, ‘I don’t accept the change, this is a breach of contract,’ and that could be another lawsuit.”
The post-retirement benefits side can also be challenging because there are longer-service people approaching retirement who might be entitled to two years’ notice if they were terminated, said Wolpert, “so in a lot of cases, employers will give as much as two years’ notice when changing post-retirement benefits, especially for certain groups of employees.”
There are also issues when changing benefits for people who already retired, he said.
“That’s where a lot of litigation has been, to see whether the employer reserved its rights to amend or terminate those plans… even after retirement.”
Communication around these kinds of changes is essential, as many employees are living paycheque to paycheque. And ideally they should be given as much warning as possible, said Kehrer.
“For (paramedical), if it’s going to impact claims and you’re going to have a rash of claims, you might want to give less of a time frame. But it is good to give at least a 30-day notice of ‘This is what’s taking place,’ and be able to answer questions, having either the benefits consultant assist in the answering of those questions or the HR team, arming them with the tools needed to reduce the concern that an employee may have.”
And if executives are given retention bonuses adding up to $2.3 million — as was the case with Postmedia in November 2016 — the optics are not good, said Wieler.
“Communication is so very important, especially in tough times, and anytime they can be transparent, upfront, honest and just get ahead of it, that’s what we would recommend.”
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