While there are many choices to ponder when it comes to selecting or changing benefits, grandfathering doesn’t tend to come to mind (despite its importance). What are grandfathered benefits and should you consider it in your business?

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What Is Grandfathering?

Grandfathering occurs when an employee of tenure is locked into a certain level or type of benefit that is no longer offered to new hires. Although a fairly common /occurrence, it is not practiced everywhere. There are instances when a company is legally required to do so, as in cases of:

  • executive employment agreements
  • collective bargaining agreements
  • governmental employers with a  constitutional obligation to protect benefit levels for current employees

Should Companies Grandfather Benefits?

Companies should carefully consider the benefits and downsides before grandfathering. Each instance comes with its own challenges so it should be done on a case-by-case basis. Each situation has its own circumstantial pros and cons.

Benefits of Grandfathering

  • Helps employees. This depends on the quality of the plans offered to the tenured employee and what is not being offered by the company. If the older plan is more comprehensive, has lower premiums, etc., it can definitely be of value to the employee to continue with their grandfathered plan.
  • Contributes to retention. If the grandfathered plan benefits the employee, it can contribute to their continued loyalty to the company.
  • Increases employee satisfaction. When the company goes through the processes to ensure a tenured employee is taken care of through their grandfathered plan, employee satisfaction can increase.

Downsides of Grandfathering

  • Increases administrative workload. Having instances of grandfathering adds administrative complexity. Additional special paperwork, filing all legally required documentation, and creating/reviewing grandfathering policies (just to name a few complexities) all get added to the administrative workload.
  • Presents an opportunity for discriminatory concerns. This can arise in cases when an employee believes they didn’t receive the same treatment as another employee who received a grandfathered benefit when they did not.
  • Grandfathering works in both directions. Grandfathering isn’t always in favor of the tenured employee. Sometimes a newer employee is being offered a benefit that is more comprehensive than the benefit of the employee of tenure. This can become a point of contention and have a negative impact on employee loyalty.
  • Grandfathered plans might not provide as many benefits and protections. If the policy occurs prior to March 23, 2010, it is not legally required to fulfill all the requirements of the Affordable Care Act (ACA). This means certain grandfathered plans may exclude things like pre-existing conditions, non-discriminatory premiums (higher premiums due to health status or gender), and preventative services.

Situations of Grandfathering Benefits in Companies

If your company chooses to allow grandfathering benefits, consider the situational circumstances surrounding these instances. For instance, a business might allow grandfathering for an employee moving into a new position within the company but might not allow it if an employee leaves the company and comes back. When writing your policy, keep these situations clearly defined. Here are a handful of examples:

Company-Wide Plan Change

When a company decides to adjust plan coverage, they can allow current employees to retain their pre-adjustment plans whereas new employees would only have the option of the adjusted plan.

Positional Change

Some employment levels or positions have access to additional benefits such as 401k matching. When an employee moves from a position where that benefit was available to them to an ineligible position, the company can choose to grandfather the employee’s active benefits. For example, if an employee in upper management makes a move to a lower position to prepare for a higher position being opened to them, a company may allow the employee’s current benefits to be grandfathered so they don’t lose any benefits while filling the transitional position.

Role Elimination

When an upper role is to be eliminated, the employee occupying that role may be moved to a role that absorbs the responsibilities of the eliminated position. If the employee being moved to a different role had benefits that are not normally available to the new role, a business can opt into letting the employee keep their current benefits.

What to Consider When Creating a Grandfathering Policy

If your company does decide to allow for grandfathering of benefits, you’ll need to have a policy in place to cover all your bases. This will keep any discriminatory issues at bay and eliminate gray areas surrounding your company’s grandfathering details. When putting together a grandfathering policy, here are some things to consider:

What Benefits?

Which benefits will grandfathering be allowed? All of them? Some of them? Will grandfathering be allowed on a certain level of a benefit and not allowed on the same benefit at a different level? Give as many details and be as specific and as possible.

Under What Circumstances?

What happens if your company makes changes to existing benefits? Will employees holding that benefit keep the grandfathered plan? When someone gets a promotion, do they gain access to additional benefits or do their current benefits carry over?

Who Does it Apply to?

Will grandfathering be allowed for some positions but not others? Be sure to include clauses such as non-discrimination and inclusion.

Get it Reviewed

Always have your policies reviewed by a board as well as a lawyer to ensure legal compliance and completion.

Questions You’ve Asked Us About Grandfathering

Yes. If you want to spare yourself the potential administrative headaches, you can offer something else that an employee would be satisfied with. For example, offer a one-time monetary bonus or an enhancement to another benefit that you’d offer to all employees.
Grandfathering policies are fairly common, but grandfathering as a practice is not the general rule.
Kayla Farber
Kayla Farber

Kayla is the Chief Innovation Officer at Hero Culture, where the passion is to create company cultures of retention using the power of personality.

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