In the past, employee benefits were selected from a “fixed menu” with no choices available. If you were fortunate, your employer provided a pre-determined benefit plan.
Today, things are a little different. Many employers now offer flexible or cafeteria plans, under which you can choose from among a variety of options. Those options often include many different types of benefits, as well as specific choices of a particular benefit.
For example, your employer might present a menu including health benefits, additional life insurance, extra vacation days, or childcare. Then, for the health benefit alone, there might be three to six different plans from which to choose. Or, in variations on the theme, your employer might offer basic benefits plus supplemental benefits based on employee contributions.
Why Varied Choices?
Because employers have found them to be cost-effective. With the growth of two-income families, single-choice plans meant paying for unnecessary benefits. For instance, paying health benefits for an employee who was already covered under a spouse’s plan does not make much fiscal sense for the employer. Cafeteria plans may be cost-effective for employers, but they are also a plus for employees, allowing tailor-made benefits to suit a particular individual or family need.
How to Choose?
Cafeteria plans can present bewildering choices. So, what do you do? If you’re the sole breadwinner in your family, the choice may be relatively easy. Simply look at your most pressing needs and see how they may be adequately met by the various options. If you’re one of two breadwinners, however, you should look at both your employer’s options and the benefits provided to your spouse.
For instance, if your spouse is covered by a comprehensive health plan, you might trade some of the duplicate basic benefits under your own company’s health plan for supplemental dental benefits, childcare, or extra vacation days. One way to eliminate basic benefits from your own health plan is to choose a plan with the highest possible deductible, knowing that your spouse’s comprehensive plan will pay most of the bills. If one employer offers traditional health insurance and your spouse’s employer offers membership in a health maintenance organization (with all-inclusive health care at a fixed, pre-paid fee), you could consider a couple of choices. If you have young children, you might elect the health maintenance organization (HMO) because regular checkups will be covered; under traditional health insurance, bills are often not paid unless the patient is ill. On the other hand, if you might want to consult specialists outside the HMO network, you could elect traditional health insurance under one spouse’s plan and an HMO under the other spouse’s plan.
With cafeteria benefits, it’s truly possible to have the best of all possible worlds.
Your financial professional can help you untangle the options so that you can select the most appropriate plan for you and your family.
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