It may be easier than you think to eliminate a major reason employees sue.

How? Well, roughly 75% of employee lawsuits happen because of accidental disconnects between an employer’s internal policies and procedures, and what’s written in the plan documents.

Here are two areas where some the costliest errors lurk, and three steps your fim can take to catch and correct the mistakes before you’re ever sued.

1. Policy/coverage discrepancies

Many firms’ written benefits policies and plan documents are like siblings who start to drift apart as they grow up.

In the benefits realm, however, the plan sponsor has the “parental” power – and legal responsibility – to make sure written policies and plan documents remain close as they grow and change.

As a routine practice, firms should make sure changes in their benefits policies are also written into the formal plan documents, according to benefits attorney William Wright.

If push comes to shove in court, any inconsistency with plan documents can prove fatal for the company. Example: Senior management passes a new rule that employees must work 30 hours a week to be eligible for the health plan.

Benefits and HR then write the new coverage policy into employees’ benefits  handbooks and hold meetings with employees to explain the change.

Now suppose an employee drops to part-time status. Are you legally protected if the employee challenges the loss of benefits?

Not necessarily. For the policy in  the handbook to stand up in court, the plan documents must also say there’s a 30-hour-a-week eligibility requirement.

Same thing goes for disputes over run-out coverage.  Suppose it’s your firm’s policy to carry over coverage for a terminated employee during the COBRA election period, but the requirement was never written into the plan document.

A few weeks later, the employee has a major health claim. The TPA denies it, saying coverage had expired. Reason: The plan document says “active employees” are covered, but doesn’t specify that the insurer pay claims until the end of the month.

The likely result: The ex-employee sues, saying the company is liable for the mistake.

2. Coordination of benefits

Watch out for cases where an employee’s claim may be covered under two or more policies (e.g., your firm’s plan and one from a spouse’s employer).

Make sure there’s a clear-cut coordination-of-benefits policy in all of your plan documents. Usually, if a plan contains no instructions for coordination of benefits, it’s expected to pay first. Two key areas to check:

1. Make sure there’s a statement that says only the amount actually paid by each plan will be charged against the maximum benefit, and
2. Be certain that the order of benefits determination spells out which plan pays first for a covered child if the employee is divorced from his or her spouse.

Likewise, if your firm offers domestic partner coverage, make sure there’s a coordination-of-benefits statement for dependent and non-dependent partners.

Three best practices

On an ongoing basis, you can cut your lawsuit risk by 75% if you:

• gather all materials related to specific plans into a binder, including renewal letters from vendors and materials distributed to employees
• perform a yearly self-audit, checking to see if plan-document wording matches your current policies, and
• pay special attention to keeping benefits descriptions up to date.

Reminder: If you don’t have a formal plan document, your contract with the vendor legally serves as the “control document” for the plan. By law, all employees must have access to the plan document and be notified in writing of any alterations, including minor ones.

Tags: Compliance