Health Insurance for Restaurant Owners

By Tessa Bahoosh|Jun 25, 2024|5:25 pm CDT

We discussed how restaurant employers can rise above the pack with top-notch benefits—while also cutting costs and simplifying administrative work. Our conversation covered how to attract applicants with key benefits, how to offer health insurance through individual coverage health reimbursement arrangements (ICHRA), and the pros and cons of pooled employer plans (also known as PEP 401ks).

Trends in Restaurant Benefits

Restaurant hiring is competitive, and employees are in a strong position to ask for more. Because of this, employers have a key opportunity to rise above the pack by offering benefits that make workers want to join their team and stick around.

Offering competitive benefits is vital, but it can also be challenging. Partially because of high cost and administrative burden, some employers are changing their approach to benefits. Many businesses are replacing traditional health insurance plans with ICHRAs—allowing them to lower spend and provide more options. Similarly, PEP 401ks have become an attractive option for employers who are looking to offer retirement benefits while also reducing costs and fiduciary liability.

In this blog, we’ll review the details of these plans, tips to succeed, and the PEP and ICHRA pros and cons you need to know before choosing your benefit offerings.

Understanding Pooled Employer Plans (PEP)

Offering retirement assistance is a huge way to attract and retain talent. But sponsoring a retirement plan can be a demanding process. As the plan sponsor, you are responsible for selecting a vendor and advisor, paying for the plan’s setup and upkeep, and handling ongoing administrative tasks.

You also must meet certain fiduciary responsibilities—meaning, essentially, that you have to make sure the plan is as good as it can be. This may involve reviewing investments, evaluating investment options, and making sure the fees associated with the plan remain reasonable.

Sponsoring a 401k is often more involved than a single employer can sustain. But that’s where your other option comes in—the pooled employer plan.

What Are Pooled Employer Plans?

A PEP 401k, or pooled employer plan, is a special type of retirement plan established in the SECURE Act.

In a traditional 401k, an individual business would fully sponsor a plan which employees could then access. But in a PEP, a third party like Fourth acts as the sponsor. This third party (known as the pooled plan provider, or PPP) will handle most administrative duties and take on legal responsibility for the retirement plan.

Since multiple businesses can access this same plan, they are effectively pooling resources—and, therefore, accessing a better plan than any of them may be able to afford alone.

Pros of Pooled Employer Plans

There are substantial benefits to a PEP 401k over a single-employer plan. While a traditional 401k can be costly to sponsor and challenging to manage, a PEP both reduces administrative pressure and offers a cost-effective solution.

Affordability

A PEP may also be much more affordable than a single-employer plan, since you are pooling resources and do not need to pay for setup, which can be thousands of dollars. As a result, you can offer your employees better benefits at a lower cost.

Compliance and Lessened Liability

The PEP is externally managed by a team of benefit experts, guaranteeing that it’s fully compliant. If any issues do occur with the plan, your liability will be reduced, as you are not the direct sponsor.

Reduced Administrative and Fiduciary Responsibility

With a PEP, you no longer need to sign tax forms or find answers to employee questions—all education and administrative work is redirected back to the plan sponsor. A PEP is a great option if you would like to provide competitive benefits while limiting your fiduciary or legal responsibility.

Cons of Pooled Employer Plans

While PEPs allow you to get out of the weeds on a daily basis, it’s also important to know that you will still have a small amount of fiduciary responsibility. Once a year, you will receive a notice from the plan sponsor explaining what they are doing to ensure the plan is the best it can be. You will need to review this notice—but if you have any questions about it, the team at Fourth can guide you through.

The best way to ensure your PEP works for your business is by partnering with a benefit sponsor that already caters to your business needs. Fourth’s PEO, for instance, is designed specifically for the hospitality and restaurant business, and our retirement options have been tailored for this group. If you are a Fourth customer, you are able to join the retirement plan we offer—and provide excellent benefits without the administrative hassle of sponsoring a new plan.

Understanding Individual Coverage Health Reimbursement Arrangement (ICHRA)

For many employers, offering traditional health insurance to employees introduces just as many problems as it solves. Without adequate control over the plan offerings, it can be difficult to predict long-term spending. As a result, employers may need to eventually drop or downgrade benefits, which is a huge blow to employee morale.

On top of that, inflexible plans may not suit employees’ needs, resulting in minimal use. That means businesses are spending money needlessly, and the employee isn’t getting access to the right healthcare.

An Individual Coverage Health Reimbursement Account, or ICHRA, may solve this. Let’s take a closer look.

What Is an Individual Coverage Health Reimbursement Account (ICHRA)?

An Individual Coverage Health Reimbursement Account, or ICHRA, is a special fund set up by employers to help workers pay for health insurance. Unlike traditional group health plans where all employees get the same few coverage options, an ICHRA gives employees the freedom to choose their own insurance plan.

Pros of ICHRA

Cost-Effectiveness

Like a PEP, an ICHRA can be a more cost-effective way to offer benefits. In fact, 45% of employers who use an ICHRA see a reduced premium.

Satisfying Legal Obligations and Compliance

ICHRAs also help you satisfy your obligations as an employer. These are insured plans, meaning there is no claims liability that could hurt your business. ICHRA plans are also fully compliant to help you satisfy your employer mandate without worry.

No Participation Requirements

While some healthcare insurance plans require a certain percentage of your workforce to participate, ICHRAs have no participation requirements. If only a small percentage of your workforce participates, that’s completely fine.

Flexibility

ICHRAs also offer the flexibility to allocate funds with certain parameters, like geographic location. You have the ability to allocate a different amount of funds for workers in certain areas, without violating non-discrimination laws.

Cons of ICHRA

To participate in an ICHRA, employees must already be insured. Unfortunately, ICHRAs are not available to workers who are enrolled in a spouse’s insurance. ICHRAs are best for team members who qualify for Medicare or who plan to enroll in individual health insurance.

It’s also worth noting that affordable ICHRAs don’t give employers the option to opt out of reimbursements and instead get tax credits. If you’re looking forward to that particular tax credit, you may be disappointed—although you will likely still see savings in other ways.

What to Ask Yourself While Choosing an ICHRA

There are plenty of ICHRA vendors to consider. Here are a few questions to ask yourself as you evaluate these vendors.

Feasibility

• Can you afford this ICHRA?
• Is investing in this ICHRA compatible with your long-term budget goals?
• Is it customizable?
• Can it solve your specific benefit problems?

Implementation and Education

• Is this vendor familiar with your industry and specific needs?
• Does this ICHRA come with adequate educational material and training sessions?
• Will you have a dedicated implementation team to guide you through the process?

Software

• Is the software easy to navigate and user friendly?
• Can employers clearly see and review their healthcare options?
• Are there any confusing areas in the platform that would require more clarification before implementing?

Enrollment Support

• Is there a support team to help employers make enrollment decisions?
• Are there adequate materials available to help employers understand their plan options?

Customer Success

• Will the team offer quick assistance if employees need help finding their membership card?
• Is it easy to get help with login information?
• Is there enough support to answer daily questions that might pop up on the employer or employee side?

Payroll Deductions

• Does this ICHRA require employees to request a reimbursement, or does it allow them to set up payroll dedications?
• Will this vendor help you set up these deductions on the payroll side?

Setting up an ICHRA can be an amazing way to provide value to your workforce while also protecting your time and resources. With an ICHRA, your business can control cost, minimize budgeting surprises, offer your employees more choice, and ensure that your workers have access to the care they need. Just be sure you’re selecting the vendor that’s right for you—one that understands your business and is committed to being there with you, every step of the way.

Conclusion

Providing competitive health and retirement benefits can be a daunting task. But as the restaurant industry continues to grow and the demand for workers stays elevated, it’s also critically important to lean into these differentiators.

Although managing benefits in the restaurant space can be a challenge, new and progressive benefit types offer a solution. With pooled and partially outsourced plans like ICHRAs and PEP 401ks, it’s entirely possible to offer your workers top-tier benefits—and to build a stronger business while you’re at it.

Missed our benefits webinar? You can access the full talk on our resource page. Tune into Fourth’s monthly webinars for more insights and tips on managing restaurant HR, payroll, and benefits effectively.

For more information about PEPs, ICHRAs, and other key benefits, reach out to Fourth’s SVP of Benefits, Gary Cona, at gary.cona@fourth.com.