Employee benefits can be an expensive aspect of running a business, and with health care costs on the rise, it’s probably only going to get worse.
While many businesses choose one plan and offer it on a take-it-or-leave-it basis to the employees, there are flexible plans that create options for employees and some cost savings for employers.
“Flexible benefits can be defined as being anything from a full cafeteria plan where you select from a menu of benefits to a flexible spending account where you defer some pretax salary for things that aren’t covered by the medical plan,” says Barry Rosenfeld, a consultant with Apex Management Group, a Princeton, N.J.-based health care actuarial and benefits consulting firm. “There’s not a lot of financial advantage unless you use the concept of flexibility to mask attempts to share some of the health care costs with the employees.”
Instead of having one plan, an employer could offer a flexible benefits plan that allows employees to choose-for a price-different options.
“There’s a slight financial gain possible, but it’s not too significant for a small company,” notes Rosenfeld. “It basically reduces the employers FICA tax obligation.”
Even if the cost savings are small, the flexible benefits option can be used in recruitment. Just being able to say your business offers a selection of health plans and benefits can enhance your hiring efforts. While some potential employees may do the math and figure out that they’ll end up paying for the majority of any benefits they choose, just having the options available may be enough to get someone in the door so you can present the benefits of working for your company.
When a flexible benefits plan is installed, it can create additional paperwork headaches. Before, there would have been only one plan with a certain set of rules and paperwork, but a flex plan may have several health plans, along with dental coverage, optical coverage, extra vacation days or even a cashing-out option. This creates a records and tax burden that may be easier to outsource.
“As a small employer, do you want to be responsible for keeping track of records and of plan changes?” says Rosenfeld. “Administrative issues may make flexible benefits not an option for some employers. There are organizations you can outsource the activities to, but is it worth paying someone to do it for you?”
The more employees you have, the more likely it is for flexible benefits to be a viable option, but it really depends on the complexity of the plan design, the employer and the ability to automate some functions.
“I suspect that at the low end of the size group, you would find more companies paying for administrative services, either through the insurance broker or the plan administrator, rather than doing it internally,” says Rosenfeld. “If you want to keep the entire effort in house, then you’ll have to research the topics, learn the regulations and tax and state issues. In terms of developing a plan, you should work with a broker or consultant to help you with your strategy.
“You have to be careful when designing a plan that you are not giving out too much incentive to choose a particular benefit that may cost you money. Don’t allow individuals to select individual items that will benefit them but hurt the program.”
Other issues to be aware of include being careful not to overly complicate the program, making sure it’s communicated properly so people understand the options and what it will cost and making sure you are not replacing a plan-even if it only has one option-that people like for a flexible plan that might cost them more money but keep your costs the same.
“Most small companies tend not to have the sophistication internally to create a flexible benefits plan,” says Rosenfeld. “Don’t hesitate to get help from a broker or consultant to get your strategic issues worked out.”
