Many employees consider benefits packages a major incentive for working with a particular company. Anytime those benefits change significantly, whether it’s because a company switches benefits providers or an employee leaves the company, employers or their HR reps should send the affected employees a termination of benefits letter that details what these employees can expect.
Because these benefits often cover an employee’s family as well, a termination of benefits letter should be written with sensitivity and understanding. It should also include helpful information to guide an employee’s next actions to promptly replace their insurance coverage or other important benefits.
A termination of benefits letter is an explanation from an employer to an employee of any major changes to a benefits package that will result in a loss of insurance coverage or certain benefits. This loss of benefits can occur when a company’s benefits package changes, such as when the company switches PEO service providers, or when an employee departs the company.
Stanley Tate, founder of Tate Law, said a termination of benefits letter is necessary to explain precisely which benefits an employee is losing.
“[A] termination of benefits letter is needed to ensure that an employee is made aware of the loss of some benefits,” Tate said. “This could be anything from insurance coverage to travel benefits.”
There is a difference between a termination of benefits letter and a loss of coverage letter: A termination of benefits letter is used when a benefits plan is being scrapped or altered significantly, while a loss of coverage letter is used when a specific type of coverage is no longer provided under a company’s benefits plan.
“A termination of benefits letter is written to employees, informing them that one or more of their current benefit plans, either in its entirety or partially, is no longer available to them,” said Rolf Bax, chief marketing officer at Resume.io. “A loss of coverage letter pertains specifically to healthcare, whereas a loss of benefits applies to a benefits package more broadly.”
For example, Bax said, if an employee’s spouse is no longer covered under a dental healthcare policy because of changes in a benefits plan, an employer should send a detailed loss of coverage letter explaining the reason. If an employee’s entire healthcare plan is no longer supported under the company benefits package, the employer should send a termination of benefits letter.
Termination of benefits letters are an important part of benefits administration and should be sent when your company’s benefits package changes significantly or when an employee departs the company. If a particular type of healthcare coverage changes, send a loss of coverage letter instead.
These are some scenarios that call for a termination of benefits letter:
Naturally, each of these scenarios calls for a different approach to communicating the reason for the termination of benefits. When you fire an employee, it is of utmost importance to document every step of the termination process. While you might want to be concise and direct in this letter, you should thoroughly account for legal considerations associated with termination.
If your company’s benefits package has changed, you have a responsibility to direct the affected employees on how to replace their lost coverage or benefits through the new plan. It might be useful to set up training with the new HR outsourcing company or PEO service provider to help your employees navigate the new benefits package.
There are several scenarios that warrant a termination of benefits letter, such as when you switch PEOs or fire an employee. Develop these letters within the context of the reason for the loss or change of benefits.
The way you write a termination of benefits letter could have a significant impact on employee morale. Changes to benefits, particularly the loss of healthcare coverage, can affect the well-being and security of employees and their families. It is not a matter to take lightly, and your letter’s tone and content should reflect this reality.
“Writing a termination of benefits letter requires incredible tact, and I have always taken a pretty formulaic approach to it, with good results,” Bax said.
A termination of benefits letter should include the following information, according to Bax:
Additionally, Tate said, a termination of benefits letter should be on company letterhead. In addition to being a professional way to deliver unwelcome information, it provides official documentation that your company did its part to inform employees of the benefits changes.
“The tone should be professional, the length concise and the contents clear,” Tate said.
A termination of benefits letter should be clear and direct, and cover the details Bax listed. You could use this sample termination of benefits letter as a template for basic communication to employees:
We regret to inform you that on [date], you will no longer be eligible for [coverage or benefit]. The reason for this termination of benefits is [dismissal/departure/change in service provider].
You can expect additional information to be sent by [communication method] by [date].
We have provided the following resources for you to investigate replacement coverage, but we do not guarantee eligibility. [List resources.]
Failure to complete the following steps could result in total loss of coverage under the benefits in question. [List necessary employee actions.]
For more information, please contact [point of contact’s phone number, email and mailing address].
Especially in the case of employee termination, you should work with legal counsel to ensure your letter covers all the points required under the law. Also consult an HR professional or service provider to determine whether the information in your letter is actionable and clear for an employee to navigate. When you’re changing benefits plans that affect most or all of your employees, be especially considerate of the potential impact on morale when you’re drafting your letter.
This sample can get you started on a letter to your employees. However, it is still best to confer with both legal counsel and HR professionals to make sure your letter meets industry standards and your legal obligations.
Clear, concise and timely termination of benefits letters can limit future legal obligations, mitigate possible damage to your business’s reputation, and save time by avoiding confusion and misunderstandings. Effective termination of benefits letters should include what an employee needs to know and what an employer needs to clarify, including the following information:
Keeping these considerations in mind will help you craft an informative and sensitive termination of benefits letter, thereby keeping your business in line with regulatory requirements and supporting your employees as much as possible.