Health and Welfare Trusts: Composing your Comprehensive, Blended Benefits Plan
While the Private Health Services Plan allots employees health, dental and supplemental health coverage, Pacific First recognizes the definite need for additional insurance and prepaid products in any employee benefit portfolio. That is why, through our intermediary D.D. Anderson Life Insurance Consultants Ltd., we work closely with Canadian insurance companies to provide a complete benefits package, optimal for Canadian employees and their families.
Benefits administered through Health and Welfare Trust
The Health and Welfare Trust allows employers to provide an expansive range of coverage additional to those provided by the PHSP or a group benefits plan. The trust encompasses the best of all benefits in one custom-crafted Blended Plan, ensuring no gaps in coverage are left open.
In providing these benefits through a trust, rather than through conventional insurance contracts, an employer can improve their cash flow and reduce costs without jeopardizing the rights, security or income tax advantages of the company employees.
Employers can deduct contributions to Health and Welfare Trusts in the year the legal obligation to make the payment to the trust arises, so long as they are reasonable and laid out to earn business or property income. Though, generally, none of the receipts from an employer are taxable, the trust will be taxed on any income it generates as a result of investments made in the course of managing the employee benefit programs.
How it Works
- The benefits provided by a Health and Welfare Trust are agreed to be paid in accordance with plan descriptions and governed by a Trust Agreement.
- Pacific First, entering into a contract with the employer to provide administrative and actuarial services, agrees as named trustee to be responsible for receiving the employer's plan contributions and arranging for the provisions of benefits to eligible employees and their dependents.
- The employer makes monthly contributions to the plans, as actuarially determined, to sufficiently cover each eligible employee.
- Eligible claims made by employees and their dependents are submitted to the employer for settlement. Based on information regarding the actual and expected claims, the trustee transfers monies from the trust fund to the company to satisfy the claim.
With the exception of a Private Health Services Plan, a Health and Welfare Trust must cover a minimum of two or more employees. In cases where a partnership seeks to provide health and welfare benefits for both the employees and the partners, two distinctly separate Health and Welfare Trusts (one for the partners and one for the employees) will need to be set up to ensure that the funds of each are, at all times, identifiable, and that cross-subsidization between the plans does not occur.
How is the Health and Welfare Trust different from a PHSP?
Did you know?
Health and Welfare Trusts have been used to effectively manage employer-employee benefits plans in Canada since 1975
While both a PHSP and a Health and Welfare Trust provide employees with additional benefits over conventional contracts, the PHSP solely provides benefits toward hospital, dental and supplemental health services plans with insurance benefits. When an employer decides to increase the scope of coverage available to their staff to include items such as critical illness or travel insurance, an additional agreement will need be made to enter into the Health and Welfare Trust.
This associated agreement is established in order to ensure the supplementary, discretionary benefits agreed to by all parties within the trust are sufficiently provided to the employees. These parties will encompass the employer, employee(s), and Pacific First as the acting as objective trustee.
Health and Welfare Trust: Eligibility and Requirements
- Must be an employer-employee relationship
- Must insure two or more employees
- Must identify the employees who are to be insured and all classes (if more than one)
- Must identify or keep accurate records of employees to be covered under each class
- Limits for each individual will be based on family status
- An initial "Private Health Services Plan" contractual relationship must be made with Pacific First as well as
- a Board of Director's resolution agreeing to the establishment the Health and Welfare Trust with Pacific First named as trustee
- The trustee must be the applicant, owner and beneficiary of any specific policies; under a group policy, the coverage should be provided through certificates indicating the insurance for each employee
- Ownership of policies should be transferred to employees upon termination or retirement
- The trust must include an insurance element
- Employer (incorporated company) contributions to the trust are tax deductible if irrevocable
- Employer's contributions must not exceed the amounts required to provide the benefits, and cannot be contributed on a voluntary or gratuitous basis
- Trust funds cannot revert to the employer, nor can they be used for any purpose other than providing the health and welfare benefits for which the contributions were made
- Employee contributions are not tax deductible
- Benefit payments to employees are tax-free
- "Shareholder benefits" do not qualify as non-taxable benefits
The Role of Trustee:
- Must act as a fiduciary of all plan participants
- Be free to select and negotiate contracts with carriers and vendors of benefits
- Oversee administrative activities, including contributions (premiums, deposits or other considerations) and administer claims, premium payments and trust issues on a day-to-day basis
- Administer and adjudicate hospital, medical and dental claims specific to the contractual agreement indicated
- Should the employer decide not to make contribution payments, the trustee is responsible to make such payments on behalf of the employees. The trustee then has the right to take legal action to recover such costs.
For all additional inquiries or requests, contact Pacific First today.