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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
Benefits & Compensation
Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
Exchange ideas about health plans, retirement, work/life benefits, and employee assistance.
Someone in the forums, I forget who, has repeatedly suggested Cafeteria 125 plans are dead--or almost so. Is this in the fact the case, and if the poster is out there, what does he or she mean by it?
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Forums » Topic Forums » Benefits & Compensation » Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 7/19/2009 2:19 AM EDT
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Posts: 49
First: 7/18/2009 Last: 8/17/2011 |
Someone in the forums, I forget who, has repeatedly suggested Cafeteria 125 plans are dead--or almost so. Is this in the fact the case, and if the poster is out there, what does he or she mean by it? I'm perplexed.
Providing flexibility in benefits seems a great way to enhance recruitment and retention, e.g. allowing younger, single employees without children to purchase additional vacation days and elect not to purchase life insurance (when you're young and childless, who are your beneficiaries?); or allowing older employees to purchase additional life insurance to the exclusion of some other benefits. The point is that these plans provide employee choice--to choose what benefits are most important to them. I think it's a brilliant idea, but I am concerned about cafeteria plans being described as "dead". Are there other ways, outside of a formal 125 Cafeteria plan, to allow employees to purchase additional vacation days? This could be the recruiting and retention edge one needs, especially if one's company doesn't offer much vacation time out of the gate, or even after many years of service. Younger talent, especially the more technical and in demand, can be harder to recruit and retain with the customary 2 weeks vacation a year or less. I love the fact that Cafeteria plans give a hiring manager another tool in his or her tool belt. Why would anyone want to take this option away? Or elect not to consider it? I must be missing the "cons" of such plans. Thanks. Mike |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 7/19/2009 11:57 AM EDT
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Posts: 464
First: 6/30/2004 Last: 11/22/2010 |
Our plan is alive and well, but does not allow for any additional vacation days to be purchased, nor does it allow us to buy vacation days back.
Ours is basic, it allows pre-tax treatment for optional employee benefits, such as dependent health care coverage, dental, vision, and a few others. LTD and STD also available, but we chose not to do them pre-tax. That way any benefit payments are not taxable upon receipt. |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 7/19/2009 3:02 PM EDT
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Posts: 49
First: 7/18/2009 Last: 8/17/2011 |
Thanks Marc.
I'm interested in hearing more about vacation day purchasing and vacation day buy back. How does this work outside of a cafeteria plan and how common is this arrangement? Does it run afoul of any state or federal labor laws? |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 7/20/2009 7:34 PM EDT
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Posts: 1047
First: 4/11/2002 Last: 9/14/2011 |
I'm the poster that considers cafeteria plans dead, at least for all but the largest employers. From 1999 to 2008 average employee benefit costs have increased over 120%. Employers haven't remotely increased the allotment to their cafeteria plans by this amount. So whatever an employer allots for a cafeteria plan these days, 100% of it goes towards the cost of health insurance, for the most part.
This undermines any other insurances that an employer may be offering that require an employee contribution and have participation requirements, most notably dental and vision insurance. If an employee's total cafeteria allotment goes towards medical insurance, employees perceive these insurances as 100% pay all and participation takes a hit. Furthermore, the employees most likely to sign up for dental and vision insurance are the ones that need it, i.e. adverse selection. Carriers then suffer poor claims experience that lead to high renewal increases and eventually prices the insurance out. If an employer came to me today and wanted to implement a cafeteria plan, I would highly recommend them not doing so. I would focus on what their goals and objectives were and design a program structure to support it outside of a cafeteria plan. To answer your question about vacation days, you can create an election form by employee (since the cost of each additional vacation day is typically factored by multiplying his or her hourly wage x and then equally deduct this cost over the entire year. I would have to check with a Section 125 expert to see how this can be done on a before tax basis. |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 7/20/2009 11:48 PM EDT
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Posts: 49
First: 7/18/2009 Last: 8/17/2011 |
Thanks Mrroberts7. Can you recommend an article that goes into more detail about this? I'd like to learn more.
This is a bit of an offshoot here, but how might Obama's healthcare plan affect HR professionals in general and Cafeteria plans in particular? Is there another forum thread where this is already being discussed? I think it's wise to be forward-thinking. Others might not care to cross that bridge until they come to it. /> To answer your question about vacation /> days, you can create an election form by /> employee (since the cost of each /> additional vacation day is typically /> factored by multiplying his or her hourly /> wage x and then equally deduct this cost /> over the entire year. I would have to /> check with a Section 125 expert to see how /> this can be done on a before tax basis. Hmmmm. When you say hourly, are you referring only to non-exempts? Or is using an "hourly" wage a convenient fiction of sorts in performing these types of calculations? And is Section 125 not exclusively related to Cafeteria plans? Sounds like it has to do with tax code generally for pre-tax benefits. Good stuff. Thanks again for your reply. |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 7/21/2009 6:52 AM EDT
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Posts: 1047
First: 4/11/2002 Last: 9/14/2011 |
I don't have a specific article on the topic of cafeteria plans. My explanation was based on my experience.
As far as national healthcare reform goes, I'll believe it when I see it. The bill that is being pass around is beyond laughable. And yes, I was referring to an hourly configuration as a matter of convenience. Whether someone is exempt or non-exempt and paid on a salary basis or an hourly basis, an employer should assess the proper value of taking additional time off in increments of 8 hours. |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 7/22/2009 11:31 PM EDT
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Posts: 49
First: 7/18/2009 Last: 8/17/2011 |
Thanks Mrroberts.
Has anyone heard of a plan where employees buy and sell vacation days from *each other*? Came across this in one place--don't recall where--and have never seen it mentioned elsewhere. |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 7/23/2009 5:06 AM EDT
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Posts: 1047
First: 4/11/2002 Last: 9/14/2011 |
I would highly NOT recommend a policy like that. Employees should take vacation to rest, relax, reduce stress, etc. Studies have been shown in instances where employees do not use enough vacation, burnout occurs a lot more frequently. |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 8/11/2009 11:31 AM EDT
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Posts: 21
First: 9/21/2007 Last: 12/16/2010 |
In reference to the buying and selling of days, in WI all companies are required to pay all vacation benefits not used unless agreed upon in wrighting by the employee (ie. signed handbook with a use-it-or-lose-it policy).
An easy way to initiate a "sell-back" program is to simply tell employees any unused PTO/Vacation time is refunded back at the end of the year. We also allow unpaid leaves with approval. This would technically be considered a PTO buy program since they're "paying" with what they would have made that day in wages. This kind of leave has to be only after all your PTO/Vacation time is used up and we are not dire need of the employee's services (ie. we can do without them for a day/week). |
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Other ways to offer purchase of vacation days? Are Cafeteria 125 plans really dead or dying?
posted at 9/4/2009 9:42 AM EDT
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Posts: 1
First: 9/4/2009 Last: 9/4/2009 |
If vacation purchase plan is not on a pre-tax basis, what is the taxation when the employee is "paid" for the vacation purchase time they take? Whether they are using one day of the vacation purchase or are being refunded for any unused time at the end of the year. |
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