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Small Business Employee Benefits and HR Blog

10 Defined Contribution Facts All Brokers Need to Know

Over the last few years it has become clear that individual health insurance is rapidly expanding. This has become even more apparent with the recent announcement that 8 million Americans enrolled under the Affordable Care Act.

3469305764_3e732b4ca8_mBut, with the number of individual health insurance plans on the rise, how can employers continue to contribute to employees health benefits? They can talk to their broker about setting up a "Pure" Defined Contribution Health Plan. And, brokers can take advantage of this market shift by offering Defined Contribution solutions.

This article provides 10 facts that brokers can use to understand Defined Contribution and determine if a client is an ideal fit.

1. Defined Contribution Is a Formal Benefits Package

Like any other benefits package, Defined Contribution is designed to address the health care needs of the employer and employees. The main difference is that employees take more control with a Defined Contribution Health Plan, and the employer offers a contribution to employees' healthcare rather than a 'Defined Benefit'.

2. Defined Contribution Allows Your Client to Reimburse for Individual Health Insurance Premiums

With a "Pure" Defined Contribution Health Plan (no group health plan in place), the employer reimburses employees for the monthly health insurance premiums. The employee pays for his or her individual health insurance plan, and the employee is reimbursed as a tax-free line item on their next paycheck.

As a broker, your role is to sell current and future employees individual health insurance policies. For brokers, Defined Contribution acts as a source of recurring policy sales lead generation.

3. Defined Contribution Allows Your Client to Set and Control the Cost, and There are No Minimum Participation Requirements

A Defined Contribution Health Plan is a great option for companies that have shopped or employed a group health insurance plan, but found it to be too expensive. With Defined Contribution, employers are able to set and control the cost of the benefits they offer to employees.

4. Defined Contribution Works for Companies of All Sizes

While a Defined Contribution Health Plan is an ideal fit for small businesses (<50 FTE’s), this type of alternative works for companies of all sizes. In fact, there are Fortune 500 companies offering this type of solution.

5. Defined Contribution Enables Your Client’s Employees to Access Premium Tax Credits

Depending on an employee’s salary, he or she may be eligible for federal premium tax credits if they purchase a plan offered through their state's Health Insurance Marketplace.

6. Defined Contribution Works with Employees in One State, or with Employees in Multiple States

Having employees in multiple states does not effect a Defined Contribution Health Plan. Employers can offer identical benefit amounts to employees in multiple states, or offer different benefit amounts based on employee classes for different geographic locations.

7. Defined Contribution Can Help Solve Your Client’s Employee Retention and Recruiting Issues

Recruiting and employee retention is becoming a hot topic for many small businesses. For small businesses with recruiting and retention challenges, defined contribution can be a cost-effective solution to address these issues. Read more about why Defined Contribution helps recruit and retain the best employees.

8. Defined Contribution Helps You to Retain Long-Term Clients

Often times brokers find themselves in a difficult situation where their clients, or prospective clients, can no longer afford the costs of group health insurance. This can threaten the business relationship that a broker has with his or her client. Defined Contribution offers brokers another option for acquiring and retaining clients. 

9. Defined Contribution Software Keeps Your Client Compliant

Using a software that is tailored specifically to Defined Contribution allows employees to submit their health insurance premium expenses and be reimbursed during the next payroll. Most importantly, using a software platform ensures compliance for your client with the ACA and various federal regulations governing this type of health plan.

10. Defined Contribution Software Integrates with Existing Payroll Systems

Nowadays, people want seamless, integrated technology. Defined Contribution Software can integrate with existing payroll systems and provides a user friendly experience.

Read more about the Ideal Companies for "Pure" Defined Contribution Solutions.