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By Dyanne Weiss

Voluntary benefits plans aid employers and employees

A menu of benefit options helps companies attract and retain employees. However, employee benefits add considerable expense to a company's labor budget. As a result, many smaller companies just offer medical insurance and little else. But there is a way to enhance the benefits package without affecting the budget: voluntary benefits plans.

Voluntary benefits options have been available for decades, but their popularity has expanded in recent years as employers have cut back on company-paid benefits coverage.

Typical plans

Employers of nearly any size can use voluntary plans to offer their workers additional benefits, beyond medical, at more preferable group insurance rates. Besides being able to offer employees broader benefits, offering voluntary dental insurance, vision care, 401(k) or other retirement savings vehicles, critical illness plans, flexible spending accounts, and other plans help the company save tax money and offer the employees savings too.

Another voluntary approach some companies use is a flat, defined contribution amount that an employee can spend toward the more expensive Preferred Provider Organization (PPO) medical plan. Or the employee might opt for a less expensive Health Maintenance Organization (HMO) plan and use the additional contribution funds to purchase the dental plan.

Paying through payroll deductions

Most employees prefer to purchase their benefits through the workplace and like the convenience of paying through payroll deduction. The added benefit here is that those pre-tax dollars can be used to pay for a cafeteria menu of plans through an employer.

Whether for premium payments or deductions to fund a flexible spending account, retirement savings plan, or health savings account, being able to use pre-tax dollars versus post-tax ones reduces the employee's taxable income amount. That saves both the company and the employee money. For the employer, there is a reduction in Social Security (FICA) and Medicare taxes and in Workers' Compensation insurance costs (which are based on payroll). For the employee, the reduced taxable income means paying less in federal, state and Social Security (FICA) taxes.

Group insurance plans often provide better coverage and rates than what an individual could purchase on their own. This is particularly true for dental insurance, where individual plans typically have a six- to twelve-month waiting period before covering major work and most group plans do not. Additionally, most group plans have a higher annual coverage amount.

Other considerations

Are there downsides? For the employer, more benefits offered means more cost or time for administrating the benefits. For example, there is communicating about the plans, handling enrollment and subsequent changes throughout the year, setting up the payroll deductions, and legal compliance requirements.

Another downside is if too few employees opt in on a plan. Some voluntary plans have a percentage of employees expected to sign up that must be met for the group to be covered.

There are additional types of non-insurance voluntary benefits that have become increasingly popular at larger companies. These include financial counseling, legal services, concierge services, preferred mortgage rates and pet insurance. These types of plans do not offer the pre-tax savings the others do, but are sometimes used to enhance the value of the overall benefits package.

Voluntary benefits allow employers, particularly smaller firms, to deliver a competitive benefits package without overstepping budgetary considerations. This helps them look more attractive to potential hires and helps retain current employees.

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