Have HR and benefit professionals who work for midsize employers lost their hunger for cafeteria plans in austere times? It seems that the answer depends on semantics and plan design nuances.
Several producers in the San Diego metropolitan area recently provided considerable food for thought after noticing substantive changes across their client base. To wit: Goodbye to the traditional bundle of pretax dollars used for core and ancillary benefits, as well as retirement savings, dependent care and cash — and hello to a defined contribution approach steeped in online administration for more aggressive cost controls that still preserve freedom of choice.
“I don’t have a single employer offering a cafeteria plan,” Linda Keller, executive vice president for consulting and account management for Intercare Insurance Solutions LLC, told the San Diego Business Journal. “They fell out of favor because of the complexities and extra cost to administer.”
James Morrison, who runs James M. Morrison Insurance Services, was quoted in that same report as saying: “If you have an employee who has insurance through a spouse, they can buy supplemental, pay into retirement or even cash out, and suddenly the benefits have turned into a paperwork nightmare. The cafeteria plans reminded people that benefits are an efficient option while payroll is not.”
In search of simplicity
But don’t think for a moment that cafeteria plans, also known as Section 125 plans or flexible benefit plans, are headed for the employee benefits trash heap, counters David M. Carver, executive director of the Employers Council on Flexible Compensation. He says a simpler, no-nonsense version has supplanted the high-end schemes of days old featuring a credit-based formula that rewarded people with more years of service and manipulated price tags.
“Now what employers are essentially saying is they don’t need the complexity and are giving everybody a fixed dollar amount” toward a menu of benefits from which employees can select something that meets their needs, he says.
Doug Griffith, president of myCafeteriaPlan, a division of BusinessPlans, Inc., adds that “cafeteria plans can mean anything from a simple premium-only arrangement wherein employee contributions are made on a pretax basis to a full-fledged smorgasbord of benefits where the employee picks and chooses the benefits based on their individual needs.”
Regardless of the plan design, he says the key objectives are to give employees more control over their benefits and save them tax dollars. “Unless our legislators decide to take that away, I think we will see employees enjoying the benefits of cafeteria plans for many years to come,” according to Griffith.
Cafeteria plans no longer try to mask contributions or tailor annual amounts to different types of employees, Carver explains. Gone also are the days when life insurance contributions were made on a sliding scale based on age because, as he points out, “that is how the premiums would be distributed and charged.” The focus is clearly on determining the most effective way to finance employees’ rising out-of-pocket expenses when there are limited benefit dollars.
He says employees are expected to understand the tradeoffs between high deductible health plans versus an HMO based on the anticipated utilization of those medical services, as well as earmarking any available funds for a flexible spending account.
While the term cafeteria plan may mean different things to different people, there appears to be widespread agreement on the value of offering employees an ability to pay for their contributions on a pretax basis, which Morrison says “is usually a win-win situation for all parties.”
— Shutan is a freelance writer based in Los Angeles.
