The WorldatWork Handbook of Compensation, Benefits & Total Rewards: A Comprehensive Guide for HR Professionals

Chapter 21. Implementing Flexible Benefits

Flexible benefits plans can be used as a valuable tool to help employers meet the unique needs of an increasingly diverse work force through greater choice and flexibility in benefits options, while effectively managing plan costs.

The number of flexible benefits plans has increased so dramatically since the early 1980s that “flex plans” have become an industry standard. These programs tend to have two common links: employee choice and tax advantages, as allowed by Section 125 of the Internal Revenue Code.

Section 125 refers to flexible benefits plans as “cafeteria plans” and defines them as plans that allow a choice of at least one nontaxable benefit, such as life insurance, disability insurance, and health care, and at least one taxable benefit, such as cash.

Implementing a flexible benefits plan typically involves action in the following areas:

• Benefits plan design.

• The pricing of benefits (or cost to both employer and employees).

• Employee communication.

• Internal or external benefits administration.

• Internal legal/accounting issues.

These implementation factors will vary depending on the type of flexible benefits plan involved.

Types of Flexible Benefits Plans

There are four basic types of flexible benefits plans:

1. Pretax premium plans (aka premium conversion or premium-only plans).

2. Flexible spending accounts.

3. Simple choice plans (aka modular plans).

4. Comprehensive flexible benefits plans (aka full flexible).

Pretax Premium Plans

This most elementary type ...