GovernmentExecutive.com

On May 21, I held a hearing of the House Government Reform Subcommittee on Civil Service, Census, and Agency Organization entitled, "Cafeteria Benefit Plans: More Value for Federal Employees?" I held the hearing because I think Congress must carefully examine the promise offered by cafeteria plans and other flexible benefit arrangements for the federal workforce. I am now more convinced than ever that cafeteria plans would give federal employees much-desired flexibility and improve the federal government's ability to compete with other employers for well-qualified employees.

I think it is important at the outset to properly define what exactly a cafeteria, or flex plan, is. It is an approach to compensation where employees may choose from an array of benefits. As one of our witnesses, David Wilson, the president of the FlexBen Corp., described it, a cafeteria plan "is the milk truck, not the milk." Employers and employees have wide latitude in designing cafeteria plans to fit their particular situation. Types of benefits offered under such arrangements may include accident and health benefits, group-term life insurance, dependent care assistance, group legal services, elective vacation days and health care "flexible spending accounts."

There are a number of advantages to consider with flex plans. First and foremost, they meet the needs of a diverse workforce. The federal workforce is roughly 1.9 million people strong, not counting postal workers. It goes without saying that a workforce this large is extremely diverse. The needs of individual employees also change through their careers.

Secondly, flex plans allow employees to select from a variety of benefits and choose how benefit dollars are allocated. In short, flex plans give employees more decision-making power and a higher return on their benefit dollar. For example, if an employee is covered by a spouse's medical plan, he or she may decide to opt out of medical insurance and purchase additional life insurance. Or if an employee has a change in family status (such as getting married or having a baby), the employee can choose a different set of benefits.

Through Flexible Spending Accounts, some employees may use pre-tax dollars for dental and vision care, as well as to pay for medical costs not covered by their health insurance. Others may want to use such accounts to defray the costs of caring for elderly parents. "One-size-fits-all" benefits simply do not offer the same opportunity to tailor benefits to an individual's needs.

Finally, flex plans benefit employers by making it easier for them to attract and retain quality employees. Other employers and their advisors have already recognized this. Leslie Schneider, a senior benefits consultant at the Hay Group, told the subcommittee: "In the 2001 Hay Benefits Report, 87 percent of employers surveyed offered some form of flex. Once an employee has experienced the choice, flexibility and tax savings of a flex plan, their expectations to continue participating in a flex plan are raised when they go job hunting. Not offering such a plan can be a negative to employees considering employment with a given organization."

Likewise, Marjorie Young, commissioner of the Georgia Merit System, explained that the state has "found generally in the recruitment process that potential employees consider cafeteria plans a necessity when determining whether they would consider pursuing employment with that entity."

In fact, the judicial branch of the federal government implemented a cafeteria plan several years ago precisely because it was concerned that it would otherwise not be competitive in today's labor market. Judge Dennis Jacobs of the United States Court of Appeals for the Second Circuit described the judiciary's highly successful program for the subcommittee.

More than 38 million U.S. workers had access to cafeteria plans offering benefits on a pretax basis in 1998-99. In 1999, such plans were available to more than one out of four private employees, and 1998 data from the Bureau of Labor Statistics show that more than half of the employees of state and local governments were covered by cafeteria plans. Today, cafeteria plans have become particularly popular among larger private employers. If the federal government is to remain competitive in this environment, cafeteria plans are likely to be a key part of its overall compensation strategy.

For that to happen, however, careful and clear communications with employees and their representatives will be required. It became clear in the hearing that some employees fear cafeteria plans largely because they do not understand them. For example, as was reflected in the GovExec.com article on our hearing, some believe flexible spending accounts will reduce federal employees' pensions, life insurance and disability insurance. This is simply not true. The Office of Personnel Management has verified that flexible spending accounts will not affect these benefits.

Likewise, some employees believe that cafeteria plans would inevitably shift a larger burden of the cost of health insurance to employees. Again, this is wrong. The experts who testified at our hearing unanimously told the subcommittee that cafeteria plans can be designed to maintain the current premium-sharing arrangement in the Federal Employees Health Benefits Program. And it would make little sense to adopt cafeteria plans as a recruiting tool while simultaneously degrading the value of one of the most important and successful benefits the government now offers.

I look forward to working with other interested members of Congress, the Bush administration and employees and their representatives as we continue to examine the many benefits flex plans offer. As employees learn more about them, I believe they will find cafeteria plans increasingly attractive.

Post a Comment

To post a comment, you must provide a name and a valid e-mail address. Messages must be limited to 400 words. By using this Service you agree not to post material that is obscene, harassing, defamatory, or otherwise objectionable. Although Government Executive does not monitor comments posted to this site (and has no obligation to), it reserves the right to delete, edit, or move any material that it deems to be in violation of this rule.