Benefit Banking

[Guest Patrice]

Sometime ago I heard of a concept called benefit banking wherein a company would offer a dollar amount per year to employees which could vary based on years of service, hours worked, etc. At an open enrollment-like period in the year, employees could elect how to spend their benefit bank, toward health insurance, paid-time off etc.? Has anyone else heard of this type of benefit, have it in place or have any idea if such a plan presents any ERISA related problems?

[Joe Priselac]

This sounds like a Cafeteria Plan under

IRC Section 125.

[Guest G Burns]

Many of the larger Sec.125 Full Cafeteria Plan providers have this available. Humana, the Barrington Group and Benefit Resources (benres.com)are starting points.

[Guest G Burns]

Many of the larger Sec.125 Full Cafeteria Plan providers have this available. Humana, the Barrington Group and Benefit Resources (benres.com)are starting points.

[Greg Judd]

The concept that underlies the 'benefits bank' is what cafeteria plans are "really" all about.

Essentially, the 'points', 'benefits bucks', or whatever they're called by the sponsor under consideration, are the currency used to purchase benefit items in the plan sponsor's 'benefits marketplace'. Basically, the allocation is a way for the employer to allow eligible employees to spend 'their share' of the firm's benefits budget. The plan sponsor controls the 'money supply' via its determination of the formula for allocating points. Sponsors have considerable flexibility in setting up their allocation formula: age, service, family status, are among factors commonly incorporated. Note that the allocation formula can be set up to intentionally stray from the 'true' costs of the benefits offered, to accomplish the sponsor's objectives--historically, to encourage employees to try health plan options with more ambitious care management features, or to give special attention to the availability of health benefits from other sources, such as a spouse's employer.

The approach has been around a long time, but few surveys accurately capture the extent to which it's being used, thanks to the various ways in which employers interpret the meaning of terms like 'cafeteria plan', 'Section 125', and so on. Management of the issues surrounding the allocation formula can get complex, so this approach tends to be used mostly by larger employers.

There are a variety of uses for 'specialty economies' like cafeteria benefits plans. One of the more plausible proposals for Federal election campaign finance reform contains budget distribution concepts that are similar to those described here.