<i>Dear Workforce</i> How Do I Design A Cafeteria Plan For Health Benefits
February 19, 2004
Dear Self-Help: Since flex plans emerged in the early 1980s, they have become one of the fastest growing ways of providing benefits to employees. A flexible-benefits plan offers employees the opportunity to choose from a variety of health and welfare benefits, such as medical, dental, disability, life insurance, and paid vacation time. With the addition of a 401(k) plan or other deferred compensation arrangement, a flexible compensation plan is created that offers flexibility in both compensation and benefits. Flex plans may be structured in a variety of ways, ranging from simple "premium conversion" programs, which enable employees to pay their share of the cost of benefits with pre-tax dollars, to full flex (or "cafeteria") plans, which offer employees a "menu" of benefits from which to choose. While any size employer can offer a "premium conversion" program, a full flex plan is most appropriate for employers covering at least 1,000 employees. While there are many do-it-yourself resources for designing flex plans, employers may want to hire an experienced professional to help them work through the available options as well as the legal and regulatory requirements. Whichever option you choose, the first step in developing a successful flex plan is to determine your company's needs and goals, as well as the monetary resources that will be available for the project. Setting goals establishes a baseline against which the success of the new plan can be evaluated. Step two involves analyzing the current benefit program in light of the objectives that were set. Detailed demographic information about all employees must be gathered and analyzed, as well as data on the costs and funding of the program. This review should also look at the competitiveness of the program relative to the industry, national or regional norms, or any other measure deemed appropriate. In step three, you assess employees' needs by gathering information about benefit perceptions and attitudes. Typically this is done through surveys or focus groups. Armed with clear objectives, an analysis of the current plan, and employee feedback, development of the preliminary plan design can begin. This step will include the development of options, an aggregate budget, and specific prices for the options being offered. A well-planned communication campaign is necessary to educate employees and shape their perceptions about the plan. There are many more steps in creating a successful flex plan. Explore legal and administrative requirements, enrollment, documentation, and implementation before making the decision to proceed. By offering employees an opportunity to select their own benefits, flex plans meet the needs of workforces that have a lot of variation as far as what employees want in benefits. They also help ensure that you don't spend a ton of money on benefits that employees don't want or don't need. Because of their design flexibility, flex plans can be structured to reduce costs and manage the delivery and utilization of services. SOURCE: Elizabeth A. Dudek, Vice President and Senior Consultant, The Segal Company, Washington, D.C., March 3, 2003. LEARN MORE:Discuss in the Benefits Forum. The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.