Flex benefits plans can save money
Until recently, flexible benefit programs have been much less popular among public sector employers than among their private sector counterparts. Essentially, a flexible benefits plan, as defined in Section 125 of the IRS Code, is a tax-efficient benefits delivery vehicle that can take a variety of forms.
The payment of employee premiums on a pre-tax basis is one of the simplest forms. A more complex version is a credit-based program in which employers allocate benefit dollars, or flex “credits,” to employees who, in turn, use the credits either to purchase benefits or receive additional compensation.
Typical pre-tax components of a public sector flex plan include medical, dental and vision care, health care spending accounts, dependent care spending accounts, life/accidental death and dismemberment coverage, disability coverage and vacation. In general, flex plans offer numerous advantages to public sector employers, including: * significant savings in Social Security, Medicare and pension contributions – savings that can be used in part to pay for implementing the flex plan; * budget-driven credits and benefits pricing. A global budget is converted into a per-employee credit allocation that becomes the basis of employer funding adjustments in subsequent years. This can be advantageous in a collective bargaining environment, where employee compensation often is negotiated independently of benefits; * a new awareness among employees of the cost of benefits – a shift in the perception of benefits from entitlements to an important component of compensation; * a better reflection of cost differences for coverage of single employees and employees with dependents; * a vehicle to offer a variety of benefits that can satisfy a diverse workforce; and * accommodation of work/life benefits that are typically low in cost and high in perceived value, such as specialized dependent care services (e.g., backup child care), flexible work schedules, paid time off, and fitness, financial or legal counseling.
Beyond the evolving philosophical and practical acceptance of flex plans, a number of other factors also have contributed to the public sector’s increased interest. For example, advances in technology – software, interactive voice systems and intranets – make flex plans easier and less expensive to administer.
On the legislative front, Congress is seemingly resigned to retaining the provisions of Section 125, which provides a legal framework for flex plans. Moreover, there are indications that medical costs, which have moderated in recent years, may be on the rise because of cost-shifting by providers who will be hard-hit by Medicare and Medicaid cutbacks. Both of those factors strengthen the case for flex.
Deciding to offer a flex plan is one thing. Designing the plan, garnering support and implementing it are the crucial steps that follow.
Plan designs should be consistent with organizational vision statements, values and principles, and they should fall within budgetary parameters. They also should effectively manage adverse selection, which often occurs when large numbers of younger and healthier employees enroll in managed care organizations, leaving older and less healthy employees in the indemnity plan and pushing up its costs. The extent to which certain benefits are self-funded, as opposed to insured, affects plan design and pricing, as does the state of payroll/human resources information systems.
Finally, an effective communications campaign is crucial. Newsletters, e-mail, an enrollment kit and a highlights brochure can enhance employees’ understanding and acceptance of the new program.