Don’t Neglect These 5 Benefit Issues Facing Higher Education Institutions | Bradley Arant Boult Cummings LLP

All employers face compliance challenges and risks associated with providing benefits to their employees. However, these risks and challenges can vary greatly by industry. Employers (and their consultants) who understand the issues unique to their industry are better equipped to avoid potential mistakes. In this article, we discuss five benefit issues that uniquely affect higher education institutions.

1. Policy and Communication

While higher education institutions are ultimately governed by boards, as is typical of most employers, the decision-making process for these institutions is often anything but typical. Specifically, in higher education institutions, employees outside the usual decision-making domain of benefits managers and senior management, such as tenured professors, may be more likely to have a voice and opinion on any benefit changes that are being considered. As a result, greater planning, collaboration and communication may be required to ensure that any changes are smooth and well received. For example, if an institution intends to make a significant change to its retirement plan, the institution might consider contacting faculty leadership in advance to explain why the change is being made and how it might be beneficial. So, once the change has been made, it can be useful for the summary of material changes to be accompanied by an explanatory cover letter or to be presented in a very user-friendly format.

2. ACA and Academic Year Agreements

If certain faculty positions are subject to contracts that expire at the end of each school year, a faculty member who is rehired for the following school year may be considered a new employee for many purposes. However, for purposes of complying with the shared employer responsibility requirements of the Affordable Care Act (ACA), the higher education institution generally must treat the employee as a permanent employee and may not impose another waiting period on your medical plan. While most employers may treat rehired employees as new employees for this purpose after an absence of 13 weeks, educational organizations are subject to a special rule requiring an absence of 26 weeks.

3. Student Employees

Student employees are usually employed for a very limited time and are usually covered by the parent’s medical plan. For this reason, most higher education institutions exclude student employees from some or all benefits. With regard to medical plans, higher education institutions may conflict with the ACA’s shared employer liability requirements if student employees are excluded from coverage without exception. Specifically, unless the student employee position is subsidized through a state or federal study program, the student employee’s hours of service must be counted in determining their status as a full-time employee for ACA purposes. With respect to 403(b) retirement plans, exclusion of student employees is permitted due to an exception to the “universal availability rule,” which generally requires that all employees be permitted to make elective deferred contributions. However, any exclusion of student employees must still be specified in the plan document.

4.457(b) Plans

Eligible 457(b) plans can be a valuable benefit and are only available to certain employers, including most higher education institutions. The administration of these plans can, however, present some unique challenges. For example, if a higher education institution’s 457(b) plan allows for special upgrade contributions, plan participants may contribute up to twice the annual limit during the three-year period prior to the year in which a participant reaches normal retirement age. However, special recovery contributions are available only to the extent that the participant has not deferred up to the contribution limit in all previous years of participation. Thus, determining a participant’s special recovery contribution threshold can be complex and requires careful analysis of historical data that may not be readily available.

5. Medical Benefits for Retirees

Higher education institutions tend to be more forgiving than other employers and therefore more likely to offer medical benefits to retirees. Depending on how these benefits are structured, they can be very expensive. To ensure flexibility, institutions should ensure that plan documents governing any retiree medical benefits clearly state the institution’s right to change or cancel benefits. In addition, any communication to employees or retirees about benefits must avoid any suggestion that benefits are permanent, perpetual or guaranteed.

Don’t Neglect These 5 Benefit Issues Facing Higher Education Institutions | Bradley Arant Boult Cummings LLP

Leave a Reply

Your email address will not be published.

Scroll to top