Termination of Benefits Letter Writing Guide (With Examples)

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 loss of benefits 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 precisely which benefits an employee is losing.

“[A] termination of benefits letter is needed to ensure that an employee is made aware of the loss of some benefits,” Tate said. “This could be anything from insurance coverage to travel benefits.”

Termination of benefits letter vs. loss of coverage letter

There is a difference between a termination of benefits letter and a loss of coverage letter: A termination of benefits letter is used when a benefits plan is being scrapped or altered significantly, while a loss of coverage letter 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 marketing 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.

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 professional employer organization (PEO) service providers and offers a different benefits package as a result.
• When an employee departs a company voluntarily.
• When an employee is terminated.

Naturally, each of these scenarios calls for a different approach to communicating the reason for the termination of benefits. When you fire an employee, it is of 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 the 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 outsourcing company or PEO service provider to help your employees navigate the new benefits package.

How to write a termination of benefits letter

The way you write a termination of benefits letter could have a significant impact on employee morale. Changes to benefits, particularly the loss of healthcare coverage, can affect the well-being and security of employees and their families. It is not a matter to take lightly, and your letter’s tone and content should reflect this reality.

“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.

A termination of benefits letter should include the following information, according to Bax:

• 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 on company letterhead. In addition to being a professional way to deliver unwelcome information, 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.

Benefits termination letter sample

A termination of benefits letter should be clear and direct, and cover the details Bax listed. You could use this sample 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, you should work with legal counsel to ensure 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 you’re changing benefits plans that affect most or all of your employees, be especially considerate of the potential impact on morale when you’re drafting your letter.

Why termination of benefits letters are important 

Clear, concise and timely termination of benefits letters can limit future legal obligations, mitigate possible damage to your business’s reputation, and save time by avoiding confusion and misunderstandings. Effective termination of benefits letters should include what an employee needs to know and what an employer needs to clarify, including the following information: 

• Context for the loss or change in benefits. For example, include whether the termination of benefits is due to a change in PEOs or the termination of employment.
• Key information related to the termination. For example, include the effective date, resources to replace coverage and where the employee can send questions.
• Sensitive and professional language and tone. This will signal respect for the employee and serve as a model for future employer-employee interactions.

Keeping these considerations in mind will help you craft an informative and sensitive termination of benefits letter, thereby keeping your business in line with regulatory requirements and supporting your employees as much as possible.