Voluntary Benefit Programs and Flexible Benefit Plans: Two Vehicles for Offering Choice to Employees

Posted by on Aug 24, 2012 in Broker Development, Employee Benefit Program | 0 comments

Voluntary Benefit Programs and Flexible Benefit Plans: Two Vehicles for Offering Choice to Employees

 

The American work force today looks much different than it did just a few decades ago, and projections indicate that it will continue to change. According to the Department of Labor’s Bureau of Labor Statistics (BLS), in the decade 2000-2010, the following changes will take place-

• While the median age of the work force will rise due to the aging of the baby boomers, the “youth labor force,” defined as workers ages 16-24, will grow more rapidly than the overall labor force.

• Women’s share of the labor force will increase, as will the participation rate of women in nearly all age groups.

• The Asian labor force will grow by 44%, the Hispanic labor force by 36%, the Black labor force by 21%, and the White labor force by 9%.

The growing diversity of the work force, along with increases in the number of dual-income households and single-parent households, can render one-size-fits-all benefit packages obsolete. Inflexible benefit packages can force employees into benefit plans that they consider unnecessary. A married employee may not need the employer-sponsored medical plan if covered under a spouse’s plan (but might appreciate the ability to contribute to a dependent care spending account). The 20-year-old single and childless employee may see no need for one-times-salary life insurance coverage (but might like a bit of tuition assistance).

As these examples illustrate, today’s employees want–and need–choice. A survey conducted late last year by MetLife reflects this desire. Three in five employees surveyed expressed an interest in their employers offering a wider array of voluntary benefit products. Voluntary benefits, along with flexible benefit plans (also known as cafeteria plans), are two popular vehicles for offering choice to employees. This article briefly discusses the differences and similarities between the two.

Cafeteria plans, as described by the tax code, are a means for offering employees benefit choices in a tax-preferred way. Qualified benefit choices in a cafeteria plan can include accident and health coverage (e.g., major medical, dental, vision), short- and long-term disability benefits, AD&D, group-term life, child or dependent care assistance, and adoption assistance. Employee-funded flexible spending accounts for health care expenses and dependent care expenses also are considered cafeteria plan benefits.

Typically, an employer pays some of the cost of the benefits offered through a cafeteria plan (just as it typically makes some contribution to employee health insurance), and employees pay their share with pre-tax dollars. Many times, the major impetus in implementing a cafeteria plan is to enable employees to take advantage of the tax break of pre-tax premium payments.

Voluntary benefit programs alone do not offer a tax-break, but they can encompass a wider array of benefit options, and do offer employees convenience and value. Typically, employees pay the entire premium for their benefit selections in a voluntary benefit program. However, because the benefits are offered in a group format, premiums are less than they would be for similar products in the individual market. Employees also save time not having to shop for products on their own and enjoy the convenience of paying for their selections through payroll deduction.

The possibilities for voluntary benefit offerings are almost endless, but current popular choices include group auto insurance, group homeowner’s insurance, group legal, supplemental life coverage (including group universal products), long-term care, disability, vision, dental, and hearing. Other possibilities include pet insurance, mortgages and loans, relocation assistance, and discount purchasing programs.

As a broker of cafeteria and voluntary benefit programs we provide the communications packages and delivery vehicles necessary to support the programs. Thus, employees get the choice they need, while the sponsoring employer enjoys greater appreciation from its workers at little additional cost.