Flexible Benefit Plan
What Does Flexible Benefit Plan Mean?
A flexible benefit plan is a benefits program that allows employees to select from a variety of options, such as life insurance, retirement plans, vacation time, childcare, and cash. While the program usually includes a core set of required benefits, it gives employees the freedom to allocate the remaining benefit dollars according to their preferences.
A flexible benefit plan is also referred to as a cafeteria plan or an IRS 125 Plan.
Insuranceopedia Explains Flexible Benefit Plan
Through a flexible benefits plan, employers commit to providing their employees with a specified amount of benefits. Employees can then decide how they want to allocate these benefit dollars among the available options. Some or all of the benefits offered may come with tax advantages.
Employers benefit from implementing a flexible benefits plan in three key ways. First, the amount employees defer to the program is not used to calculate taxes, allowing the employer to save on Medicare, Social Security, and other state-mandated taxes. Second, a flexible benefits plan enables employers to offer employees a portion of what would otherwise be allocated to taxes without incurring additional costs or payroll taxes. Lastly, because this program is highly attractive to employees, it serves as an effective recruitment tool for attracting experienced and talented professionals. Additionally, it promotes employee satisfaction and helps improve worker retention.
