Advisor, ZLC Employee Benefits Solutions
We are living in unprecedented times with record unemployment levels and quiet quitting trends, and now the threat of a recession. The risks around employee turnover continue to be high as we see employees leaving organizations for a variety of reasons, some based on their own decision, while others based on the employer’s decision. When employers choose to terminate an employee, such as a termination with cause, most employers simply want to cut ties cleanly and keep it simple. However, in other situations there may exist good reasons for an employer — soon to be ex-employer — to be more proactive and helpful.
Even though employees may leave, they are often still your brand ambassadors, and how you treat them on the way out the door might influence what they say about you in the future, either directly to others or via social media channels. In today’s highly competitive marketplace, departing employees might also return to you one day sooner than expected, particularly if the “grass is not necessarily greener on the other side”.
With all terminations, whether voluntary or not, there may be reasons why an employee wants or needs to continue some type of a benefits program after terminating their employment and thus terminating coverage under your employee benefits program. Here is a list of common benefits employees might consider converting and general rules around the conversion processes:
- Life – All or a portion of an employee’s group life benefit may be converted to an individual policy with your current group benefits carrier. Governed by the national CLHIA guidelines, employees can convert their current amount of life insurance benefit up to a maximum of $200,000. While the cost of the resulting individual policy is subject to the employee’s age, gender, smoking status, amount of coverage being applied for, and type of policy, under this type of conversion process there is no requirement to submit any medical evidence to qualify for coverage. Even if the costs for this policy are high, this could be invaluable to employees with pre-existing medical conditions who might not otherwise qualify for life insurance coverage. The application and first payment must be received by the insurer within 31 days of the group policy termination.
- Long Term Disability (LTD) – While less common, some policies allow employees to convert all or a portion of their group LTD coverage to an individual policy. If an employee is leaving to pursue self-employment or is joining another organization without disability coverage or with insufficient coverage, converting some level of disability coverage could be important to provide them ongoing income protection after they leave. Plan sponsors should refer to their group benefits contract to confirm if this feature is available with their current insurer. If available, the application and first payment must be received by the insurer within 31 days of the group policy termination.
- Extended Health and Dental – Individual policies for these benefits can be purchased from a number of insurers in addition to your current group benefits provider. The term “conversion” is not necessarily accurate because employees can not continue the exact same group coverage that they are leaving. Group insurance is always more robust than individual insurance policies. However, employees can purchase an individual policy without having to provide any form of medical evidence to qualify for coverage and, for those with any pre-existing medical conditions or health issues, this may be very valuable. They can do so by applying for coverage within stated timelines, usually 60 to 90 days, after their group benefits coverage ends. Employees should also know that they do not necessarily have to convert their coverage with the current group benefits insurer, as other insurers are generally willing to respect the same timelines, also without the employee having to provide any type of medical evidence.
- Emergency Out-of-Country Travel – Employees typically have travel coverage under their Extended Health benefits plan. They may have relied on that coverage when travelling outside of Canada and may not have purchased any other individual travel insurance coverage. Employees should be reminded that this coverage terminates and that they should consider a personal travel policy if they are considering any travel after their employment ends.
- Retirement Plan – Where the employer currently provides some type of group retirement plan (i.e., Group RRSP), there might be an opportunity for the departing employee to keep their assets in their former employer’s retirement plan. By doing so they would continue to benefit from generally more favourable investment options and lower investment management fees. Plan sponsors should refer to their group retirement contract or service provider to confirm if this feature is available.
Where an employee is terminated for cause or voluntarily leaves under bad terms, an employer might not want to be very proactive. However, there are many other situations where it might be valuable in the long term to extend support as an employer to your departing employees. At the very least, the conversion provisions above should be available to employees to reference (i.e., plan booklets). In some situations, it may also make sense to run any termination scenario past legal counsel to ensure you are meeting all of your statutory or common law requirements. As well, you might need to get insurer approval to provide continuation of benefits plan coverage beyond any insurer contract provisions.
We would be pleased to discuss your specific situation with you to identify the best strategy for your employee benefits plans. Should you have any questions on the above, please don’t hesitate to contact me or a member of our team.
ZLC Employee Benefits Solutions is one of the fastest growing advisors for employee benefits and group retirement programs in Vancouver and we are fortunate to have the best people, resources, and clients. We provide value by leveraging one of the most skilled benefits teams – collectively over 400 years of experience within our team of 20 employee benefits specialists. We have been working with businesses ranging from 3 to over 75,000 plan members for over 35 years.