- Termination of benefits letters are used to inform employees that certain benefits will no longer apply to them under the company's benefits package.
- A loss of benefits can be due to a change in company benefits packages, during a switch to a new PEO service provider or when an employee departs the company.
- A termination of benefits letter should include the date for when benefits will be terminated, what this means for an employee and their dependents, a list of available resources, and a point of contact for further information.
- This article is for business owners who are terminating an employee or switching HR service providers and anticipate significant changes to employee benefits packages as a result.
Many employees consider benefits packages a major incentive for working with a particular company. Anytime those benefits change significantly, whether it's due to a company switching benefits providers or an employee leaving the company, employers or their HR reps should send the affected employees a termination of benefits letter, explaining in detail the impact an employee 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 that can guide an employee's next actions to promptly replace their insurance coverage or other important benefits.
What is a termination of benefits letter?
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 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 to an employee precisely which benefits they are losing.
"[A] termination of benefits letter is needed to ensure that an employee is made aware of the loss of some benefits," Tate told Business News Daily. "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. One is used when a benefits plan is being scrapped or altered significantly, while the other 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 human resources 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.
Key takeaway: As an employer, you should send a termination of benefits letter when your company's benefits package changes significantly or when an employee departs the company. If a particular type of insurance coverage changes, send a loss of coverage letter instead.
When is a termination of benefits letter needed?
These are some scenarios that call for a termination of benefits letter:
- When a company alters its benefits package
- When a company changes HR or PEO service providers and offers a different benefits package as a result
- When an employee departs a company for a new opportunity
- When an employee is terminated
Naturally, each of these scenarios calls for a different approach in communicating the reason for termination of benefits. When you fire an employee, it is of the 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 all your 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 or PEO service provider to help your employees navigate the new benefits package.
Key takeaway: There are several scenarios that warrant a termination of benefits letter, such as when you switch PEOs or fire an employee. Develop these letters in context of the reason for the loss or change of benefits.
How to write a termination of benefits letter
The way you write a termination of benefits letter could have a significant impact on morale and productivity. If employees are in the dark on how to navigate a new benefits plan, their productivity is likely to suffer. Changes to benefits, particularly the loss of healthcare coverage, can be significant events that impact the well-being and security of employees and their families. It is not a matter to take lightly, and your letter should reflect this in tone as well as content.
"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.
According to Bax, a termination of benefits letter should include the following information:
- Date of benefits termination
- Implications of benefits termination
- Available resources and options
- Consequences for failure to meet time-sensitive requirements
- Point of contact for more information
Additionally, Tate said, a termination of benefits letter should be sent on company letterhead in writing. Not only is this a professional way to deliver what is often unwelcome information, but 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.
Key takeaway: Your benefits termination letter should maintain a professional but sensitive tone, providing information such as the effective date, resources to replace coverage, and where employees can send questions.
Benefits termination letter sample
A termination of benefits letter should be clear and to the point, covering each of the details Bax listed. You could use this example termination of benefits letter as a template for basic communication to employees:
Dear [employee],
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].
Sincerely, [employer]
Especially in the case of employee termination, work with legal counsel to make sure 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 changing benefits plans that affect most or all of your employees, be especially considerate of the potential impact on morale and productivity in drafting your letter.
More sample termination of benefits letters
These sites offer more examples of termination of benefits letters:
Key takeaway: These samples 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.