Are your benefits as flexible as they could be? 

For some, the perfect benefits program is one in which the employer sets a budget for benefits and gives each employee a set amount of money to purchase employer-sponsored benefits or take as extra taxable pay. There are a few hurdles complicating the path to this scenario –  some well-established compliance issues for starters. And for many employers there would always be the fear that someone chooses extra pay and ends up in the hospital with no health insurance. Fortunately, the flexible benefits concept is nothing if not flexible! There are many practical ways you can make your benefit program flex to meet the diverse needs of today’s workforce.

Considering full flex? A look at both sides

Section 125 cafeteria plans are used to facilitate pre-tax employee contributions towards paying group health plan premiums and making 401(k) retirement plan contributions. Since their genesis in the late 1970s, cafeteria plans have evolved to include additional features and options such as health flexible spending arrangements (FSAs) and health savings accounts (HSAs), allowing employees to set aside pre-tax dollars to pay for eligible medical expenses.

What we’re calling “full flex” builds on the cafeteria plan.  Under a full flex scenario, an employer provides employees with a discrete pool of funds to be used toward benefits they elect – like health coverage, dependent care, and other Section 125 qualified benefits – with remaining dollars taken as taxable cash or assigned to post-tax benefits. More employers have been exploring this concept recently as they grapple with balancing the needs and wants of a diverse workforce with the need for a more predictable benefits budget.

Notwithstanding the upsides, our recent National Survey of Employer-Sponsored Health Plans found that only about 6% of employers currently provide employees with a separate set of dollars to use toward benefits. With health benefit cost per employee now topping $15,000 annually, balancing choice and flexibility is proving to be a challenge for employers seeking to differentiate beyond cash compensation to influence a positive employee experience and demonstrate employer investment.

And then there are those compliance issues to consider. If an employer provides employees with funds they can use to purchase benefits from a menu of options, any dollars that are not restricted exclusively to health benefits are ignored when determining if employer coverage is affordable under the Affordable Care Act’s employer shared-responsibility rules.  In addition, cafeteria plans and their underlying pre-tax benefit options are subject to various nondiscrimination standards that may be challenging to meet with an increased array of flexible options.

Flexibility with or without “full flex”

So, how can you infuse your benefit program with more flexibility and personalization – even if you aren’t prepared to offer flex credits? Here are some of the most popular approaches, encompassing both health and financial needs:

• A range of medical plan options at various price points and actuarial values gives employees the chance to pick a plan based on their health needs and financial circumstances. Affordability concerns can be addressed with purposeful network structures and plan designs; some newer medical plan options prioritize physician performance and outcomes over access to the broadest possible provider network. Relatively few large employers (7%) offer employees cash to waive medical coverage, a practice that does not appear to affect opt-out rates.
• A range of voluntary benefits. Ranging from hospital indemnity plans to legal services to pet insurance, voluntary benefits are a way to offer employees options for meeting specific needs and financial security goals, including protection from certain major medical expenses. Even though these benefits generally are (and in many cases must be) paid for with post-tax dollars, they are popular with employees – according to our 2023 National Survey, on average 40% of employees elect one or more voluntary benefit when offered.
• Employer-paid Lifestyle Spending Accounts offer a way to assist employees with a broad range of expenses, which might include fitness and wellness activities, financial planning, tuition/student loan repayment, elder care, or pet care. They can also be targeted for very specific expenses, such as surrogacy or home office equipment. LSAs typically reimburse expenses on a taxable basis and should not be designed to include expenses that otherwise could be covered or reimbursed on a tax-free basis.  
• The option to buy or sell vacation days, offered by 10% of large employers, helps promote the theme of flexibility in that employees can curate their own vacation experience and leverage earned income for other priorities in a given year. This option is often provided through a cafeteria plan structure to avoid complicated taxation issues, but brings other compliance challenges.
• Student loan matching payments. Starting with plan years beginning in 2024, sponsors of 401(k), 403(b), governmental 457(b) and savings incentive match plans for employees (SIMPLE plans) will be able to match employees’ qualifying student loan payments as if those payments were elective contributions to any of these plans.
• Pension-linked emergency savings accounts (PLESAs). Employers can offer non-highly compensated employees an easy way to save for emergencies using a Roth-based account linked to their defined contribution (DC) retirement plans.  Only the employee may directly contribute to the PLESA, but if the employer offers matching contributions to the associated DC plan, they must match the employee’s PLESA contributions at the same rate. Participants can make full or partial withdrawals from the PLESA with no penalty at least monthly.
• Increased access to retirement savings. DC plans can offer distributions with no early withdrawal penalty  in case of a personal emergency, domestic abuse or terminal illness.

Another way to infuse personalization into employer benefit plans is to provide support for a range of specific health needs. From family forming benefits to new mental health care options to programs focused on cardiometabolic conditions and cancer, employers are offering more specialized solutions. A focus on the health plan – whether by making healthcare more affordable or by addressing specific healthcare needs – does not go unnoticed by employees. Our most recent Inside Employees’ Minds research indicates that healthcare benefits are the #2 reason that employees join or stay with an organization, after compensation. Ensuring that employees understand the healthcare benefits available to them and helping them navigate to the right support may be one of the best ways to personalize your benefits.

Financial benefits such as a student loan match or emergency savings accounts are also important, as workers in our recent survey indicated that meeting monthly expenses and being able to save for retirement are top concerns. Resources that assist with budgeting and financial planning are much appreciated by employees.

Depending on how you choose to add flexibility, you may need to navigate the complexities of benefit administration and payroll systems, participant communications, and compliance. But the value added to your program could make it well worth the effort. So, the question is: Are you providing truly meaningful options to your employees now, or could you do more? If you don’t know, asking them is a good place to start.