Flexible Benefit Organizations (FBO's)

[Guest Bob Watkins]

Hi, all. I have an idea that I think will help tie benefits to individuals instead of employers, resulting in more portable and flexible benefit plans. The idea is a modified Cafeteria Plan administered not by employers, but by third parties called Flexible Benefit Organizations (FBO's). You can think of an FBO as a credit union for benefits: employers, instead of offering their own plans, would issue pre-tax benefit credits that could be "spent" at any qualified FBO. When employees change jobs, they wouldn't have to disenroll and reenroll in plans, because their FBO membership would not change -- only the source of their benefit credits. Likewise, independent contractors could collect benefit credits from multiple clients to obtain full-time equivalent benefits.

I'm looking for interested HR professionals to join an electronic discussion group to take the idea apart and see if it's worth pursuing. I've created a personal website and posted a concept paper on it; everyone is welcome to come take a look and let me know what you think. The site is: http://www.flexiblebenefits.org

Once on the site, click on the Library link, then read the abstract or the full paper. Feel free to forward the link to anyone you feel may be interested.

Thanks in advance,

Bob Watkins

[Lisa Hand]

The basic issue is that a cafeteria plan is defined as "written plan under which (A) all particpants are employees, and (B) the participants may choose amoung 2 or more benefits consisting of cash and qualified benefits." It is an employee benefit and the sponsoring organization must be the employer. Additionally, participation in the plan is determined by employment and eligibility status, in direct opposition to portability. A discussion with the IRS on the legality of this idea would be in order prior to any other discussions.

[Kirk Maldonado]

I think you'd be wasting your time talking to the IRS. To be a cafeteria plan, it has to be sponsored by an employer. The IRS does not have the power to amend Section 125.

At a minimum, you would need new legislation. I recommend you direct your efforts toward Capitol Hill.

[Guest Bob Watkins]

Thanks, Lisa and Kirk.

I'd like to clarify my earlier message. I know that what I'm calling an FBO is definitely NOT within the scope of current Section 125 rules. What I'm proposing is a new benefits program that is similar to Section 125 in some ways, and both legislation and IRS rulemaking will be needed to implement such a program.

At this point, I'm just looking for people with more HR expertise than myself (easy to do!) and who are intrigued enough by the concept to want to help refine it.

Let me know what you think of my paper, and feel free to pass the link on to anyone you know who might be interested, okay?

Thanks again!

Bob Watkins