Flexible Benefits Plans: Frills without Unnecessary Extras

By Tane, Lance D. | American Banker, March 15, 1985 | Go to article overview

Flexible Benefits Plans: Frills without Unnecessary Extras


Tane, Lance D., American Banker


The banking industry, in the throes of structural change, is finding great appeal in the concept of flexible benefits. As banks become aware that "flex" plans can meet important financial and human resource objectives, these innovative programs are spreading rapidly. As a result, banks of all sizes are now seeking more information about how flex works.

We hear such questions as: How do you know when a flex plan is right fo your bank? How do you convince top management? How do you structure a plan? How do you communicate the flex concept to employees? How complex is administration? How costly is it to put a flex plan in place? And how will proposals to tax benefits affect flex plans?

With flexible benefits, employees receive an annual allowance of benefit credits, determined by a formula based on factors such as age, pay, family status, and normal vacation entitlement. Employees choose the options they want from a "menu" of benefits and add up the price tags. If the sum of the price tags is greater than the benefit allowance, the employee contributes the difference through a pretax salary deduction. If the sum is smaller, the difference is added to salary and taxed.

Because they can pick options to suit their individual needs, and because tax savings are often possible, employees perceive greater value in their benefits. Many younger people, for instance, gladly trade most of their life insurance for other benefits they want. Women who are covered by their spouses' medical plans usually prefer to save benefit credits by choosing minimum medical coverage. Banks that have implemented flex plans find that 80% to 95% of participants elect to rearrange their benefit packages when given a chance.

At the same time, a flex plan gives management an opportunity to redefine its financial commitment to the benefit program. Instead of promising to provide a market basket of specific benefits regardless of future costs, management commits only to an overall level of expenditure.

In effect, management regains control over benefit costs, while employee satisfaction increases. The key trade-off is individual choice.

These are among the ways flexible benefits respond to today's banking needs:

* In a diverse employee population, particularly one with large numbers of women and younger people, a flex plan offers an ideal way to meet individual needs.

* When a bank wants to strengthen its efforts to recruit new talent, a flex plan can enhance a bank's reputation as a progressive employer.

* In a merger, a flex plan provides an innovative way to integrate a variety of benefits into a uniform program.

* To give management greater control over rising benefit expenditures, a flex plan can fulfill alternate strategies: improve the benefits package at a lower cost than with a conventional fixed benefit plan; generate more mileage from current benefit expenditures; or reduce benefit levels without diminishing the value of the employee's benefit package.

Despite all the apparent advantages of flexible benefits, top management is usually wary of employee response, administrative complexity, and cost justification. These and other concerns can best be addressed through a detailed feasibility study, exploring basic issues, such as:

* What a flexible benefit plan can look like, in the context of existing benefits, corporate needs, and human resource objectives.

* How employees will feel about the program and understand it.

* How much the program will cost to implement and operate, and how much additional staff will be required.

* The effect of the flex plan on total benefit expenditures.

In the course of the feasibility study, a project team defines the organization's benefit philosophy, reviews the existing program and practices, and develops a general design for the flexible benefit plan. …

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