Dramatic headlines about natural disasters remind us that they are a fact of life. We hope to be prepared, but the scope can be overwhelming as we've seen from
Developing and regularly updating a
One aspect of that preparation that is often overlooked involves employee benefit plans, which can be leveraged so companies can provide essential support during challenging times. Benefit advisers can play a role in helping clients spotlight their value.
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Employers that consider their benefit programs before disaster strikes can take steps to make them more accessible to employees when events actually occur. That will permit employees to get the resources they need to recover quickly. In addition, implementing comprehensive disaster support through employee benefits also can lead to other positive outcomes. They include increased employee productivity and loyalty, enhanced company reputation and employee morale. Other bright spots include potential tax benefits for both employers and employees, and improved overall organizational resilience.
There are multiple issues to consider when employers face disasters. One is establishing a comprehensive communication plan, which will keep employees informed before, during and after a disaster. This includes providing information on healthcare coverage, employee assistance programs and disaster-response procedures. Communicating those plans to employees in advance and providing a way to access that information quickly will let them utilize these benefits when they need them most and when they may not be able to communicate directly with their employer. This also reinforces that their employer cares about its employees and can increase employee loyalty.
Addressing basic needs
Advisers who work with employer plans often know the details better than their clients. As such, they should be prepared to help employers make plan design decisions and how best to effectively communicate those options. It's best to start with the basics, which include health benefits, temporary housing, meals (albeit meals and housing may not be a part of the benefit plan) and potential tax consequences associated with that assistance.
Healthcare and access to insurance can be disrupted during natural disasters. Carriers often waive some of the care management requirements such as preauthorization or HMO provider limitations in the face of a disaster. However, there is no requirement that they do so (other than actual emergency care). Advisers can work with insurance or stop-loss carriers in advance to obtain an assurance that such limitations can or will be waived if plan participants must obtain care for themselves and family members during a disaster.
In the event of a widespread disaster such as a hurricane or flood, some employers may be able to provide housing for employees and their families. Employers will need to consider the options available – from short-term rentals or hotels outside the disaster area to even rudimentary options like tents on site. Setting up these options in the aftermath of the disaster will be difficult or often impossible. Employers should consider finding options in advance for areas outside the disaster area and seeking contractual arrangements that they can dial up in the event of an emergency.
As with housing, food is one of the basics for human survival. Being able to provide meals is essential for the employers' "first responders" who are tasked with securing or getting operations back on track. If the infrastructure is badly damaged in the area, employers will need to find other options. As with temporary housing, finding the suppliers and contracting with them in advance will ensure the employers' first responders and other essential employees have a way to get access to meals quickly and easily.
The general rules under the Internal Revenue Code (IRC) stipulate that any amount provided to an employee by an employer is going to be treated as taxable income for the employee. There are exceptions, but they need to be explicitly provided in the IRC. Even with temporary housing and emergency meals, the rules will apply unless there is an exception (such as being for the convenience of the employer). Planning ahead and working with the employer's tax adviser in advance will help ensure that employers do not inadvertently hit some tax tripwire that could otherwise be avoided.
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Continued sources of income
Employers need to determine if and how employees will continue to be paid in the event of a disaster. Many employers may continue to pay employee salaries during the initial phases of the disaster and doing so provides important financial stability during uncertain times. However, if the business is disrupted, that might be financially unfeasible for employers, so alternative options should be considered and plans set in place if the situation necessitates it.
One such option is qualified disaster mitigation payments. If properly designed and documented, they can provide tax-free funds for reasonable personal, family or living expenses, funeral costs, or even the repair or rehabilitation of a personal residence. They must meet the exception under the IRC for a qualified disaster, but most disasters would meet the guidelines.
Rules for 401(k) plans can limit access to those funds. However, there have always been methods that can be included in the plan designs to provide access to employees who needed to use those funds before retirement. Hardship withdrawals were permitted in limited circumstances, but loans of up to $50,000 or 50% of the participant's account (whichever was less) were permitted. Recent legislation has made 401(k) plan access even more available in the event of a disaster. Keep in mind that since a retirement plan has to be amended to make funds available, employers that consider this option need to make plan amendments in advance of any disaster.
Here are three other key areas to consider:
1. Pension-linked emergency savings accounts
These are separate accounts in the retirement plan to permit non-highly compensated employees to build up funds to be accessible in the event of an emergency. There are many limitations to the program and it does need to be incorporated into the plan document. However, up to $2,500 can be contributed and matched by the employer in an after-tax account. That amount can then be accessed by the employee in the event of a personal emergency (up to $1,000) or qualified disaster (and a few other situations, including domestic abuse, adoption or birth of a child and qualified medical expenses).
2. Qualified disaster recovery distribution
This permits up to $22,000 to be withdrawn penalty-free (although not tax-free) to pay expenses incurred to a principal place of abode in a Federal Emergency Management Agency (FEMA)-declared disaster area within 179 days or whichever is later, the first day of the incident or the FEMA declaration.
3. Increased loan availability
The normal plan loan limits can be doubled to the lesser of $100,000 or 100% of the account balance in the event of a federally declared disaster.
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Extended leave options
An employer's normal leave policy already will be in place, but it may not be sufficient depending on the severity of the disaster and the impact on the employees. Allowing flexibility in paid time off usage is common during emergencies. Employers also should be aware of Family and Medical Leave Act (FMLA) requirements for employees needing time off due to disaster-related health conditions.
Implementing leave-sharing or leave-donation programs allows employees to support colleagues who may need extra time off in the aftermath of a disaster. These programs can be structured to provide tax benefits for both the company and participating employees. However, like many of the other options that might be available to the employer, to be tax-free the leave-sharing programs must be properly designed and documented and must be considered in advance of any disaster.
Forward-thinking employers, with the help of their benefit advisers, can use their employee benefit plans to prepare for potential disasters. By preparing in advance, the employer can make the policies more attractive to employees by mitigating tax implications and, more importantly, communicating to employees what assistance is available and ultimately show that it cares enough to help maximize employee well-being.
