Asked by Trinity McClendon on Jul 27, 2024
Verified
What are flexible benefit plans? Explain their advantages and disadvantages.
Flexible Benefit Plans
An employee benefits program that allows employees to choose from a variety of pre-tax benefits to construct a benefits package that best meets their needs.
- Examine the financial impact associated with various employee benefit schemes on employers.
- Utilize understanding of diverse employee benefit schemes, encompassing benefits that support families and health care choices.
Verified Answer
TN
Trâm Nguy?nJul 31, 2024
Final Answer :
Organizations can address differences in employees' needs and empower their employees by offering flexible benefits plans in place of a single package for all employees. These plans, often called cafeteria-style plans, offer employees a set of alternatives from which they can choose the types and amounts of benefits they want. The plans vary. Some impose minimum levels for certain benefits, such as health care coverage; some allow better employees to receive money in exchange for choosing a "light" package; and some let employees pay extra for the privilege of receiving more benefits. For example, some plans let employees give up vacation days for more pay or to purchase extra vacation days in exchange for a reduction in pay.
Cafeteria-style plans have a number of advantages. The selection process can make employees more aware of the value of the benefits, particularly when the plan assigns each employee a sum of money to allocate to benefits. Also, the individual choice in a cafeteria plan enables each employee to match his/her needs to the company's benefits, increasing the plan's actual value to the employee. And because employees would not select benefits they do not want, the company avoids the cost of providing employees with benefits they do not value. Another way to control costs is to give employees incentives to choose lower-cost options.
Cafeteria-style plans also have several disadvantages. One drawback is that they have a higher administrative cost, especially in the design and start-up stages. Another possible drawback is that employee selection of benefits will increase rather than decrease costs because employees will select the kinds of benefits they expect to need the most. For example, an employee expecting to need dental work is more likely to sign up for a dental plan. The heavy use of the dental coverage would then drive up the employer's premiums for that coverage. Costs can also be difficult to estimate when employees select their benefits.
Cafeteria-style plans have a number of advantages. The selection process can make employees more aware of the value of the benefits, particularly when the plan assigns each employee a sum of money to allocate to benefits. Also, the individual choice in a cafeteria plan enables each employee to match his/her needs to the company's benefits, increasing the plan's actual value to the employee. And because employees would not select benefits they do not want, the company avoids the cost of providing employees with benefits they do not value. Another way to control costs is to give employees incentives to choose lower-cost options.
Cafeteria-style plans also have several disadvantages. One drawback is that they have a higher administrative cost, especially in the design and start-up stages. Another possible drawback is that employee selection of benefits will increase rather than decrease costs because employees will select the kinds of benefits they expect to need the most. For example, an employee expecting to need dental work is more likely to sign up for a dental plan. The heavy use of the dental coverage would then drive up the employer's premiums for that coverage. Costs can also be difficult to estimate when employees select their benefits.
Learning Objectives
- Examine the financial impact associated with various employee benefit schemes on employers.
- Utilize understanding of diverse employee benefit schemes, encompassing benefits that support families and health care choices.