Flexible Spending Plans

December 8, 2011

Until recently employers have offered employees benefits in a standard way. All employees received the same benefits in the same way, regardless of what they needed as an individual. This standard method of benefits is much easier for employers to offer; giving them choices is generally too much work. But employees may want something different than what the employer may be offering. There have been recent developments that have opened up with a new approach offering benefits called “flexible benefits”. Some included benefits are flexible spending accounts which include health care and dependent care options. The health care FSA allows employees to use tax free dollars for eligible health care expenses that are not covered by insurance for the employee, their spouse and eligible dependants. The dependent care FSA lets employees use tax free dollars to pay for children and elder care expenses incurred so that employees may work or attend school full time. By offering a flexible spending plan employees can direct a portion of their gross income into an account and take out pre taxed dollars to pay for health care or child care expenses.

A flexible spending plan is good for the employer as well as the employee. Flexible spending accounts allow employees to pay for out of pocket health care and dependent day care expenses with tax free money. Flexible benefits plans are also authorized under section 125 of the Internal Revenue Code. Flexible spending accounts are also covered under ERISA Employee Retirement Income Security Act) Employees deposit a set amount out of their paycheck into the account before any taxes are calculated. Throughout the year, employees are reimbursed from the accounts for eligible health care, dependent day care expenses. The contributions employees make to these accounts are deducted from the pay check before federal income, Social Security

and most state and local income taxes are calculated. This is a win-win situation for both the employer and employee.

Concepts from the Class

Per our discussion in week 3 Professor Kinney gave additional information regarding the Flexible Spending Accounts which included; Cafeteria Plan allows you to contribute a certain amount of your gross income to a designated account before taxes are calculated. These accounts are for your insurance premiums, and medical or dependent care expenses not covered by your insurance. You can be reimbursed throughout the plan year as you incur the expenses. A Cafeteria Plan is a benefit provided by your employer which allows you to contribute a certain amount of your gross income to a designated account or accounts before taxes are calculated. These accounts are generally known as “Flexible Spending Accounts (FSAs)” and are for medical and/ or dependent care expenses not covered by your insurance, from which you can be reimbursed throughout the plan year or claim period as you incur the expenses. An FSA functions like a checking account in that the cafeteria plan administrator actually writes you checks for the medical and dependent care expenses that you submit.

Another concept was stated by a class member, on 11.13.11, Damika Johnson wrote, “I agree empowering employees to choose what a benefit they want or need gives employees a bit of hope for being able to lower their expenses. With flexible plans employees have the opportunity to contribute to the benefit costs through payroll deduction which is a feature that I personally like because it is something that I consider already taken care of. One thing that I didn't know was that it lowers an employee's taxable income at the same time that it raises the amount of take home pay which is an added benefit. I think that employees that are consider ineligible for health care insurance would surely benefit from flexible benefit plans”.

Recommendations

In order to attract and retain high quality employees, organizations need to execute some type of flexible benefits plans. They should continue to try their best to be competitive in the market, not only for compensation but also with providing effective benefits packages to their employees. Giving out flexible benefits shows the employee that the company really cares about their employees. Being flexible will make the employee appreciate their job and the organization more. Often times the benefits are why most employees continue to work with an organization.

References

Putzier, J., & Baker, D. (Eds.). (2011). The Everything HR Kit: a complete guide to attracting, retaining & motivating high-performance employees New York: AMACOM

Kozak, B. (2010) Employee Benefit Plans North Carolina: Carolina Academic Press