Flexible Benefit Plan

Definition - What does Flexible Benefit Plan mean?

A flexible benefit plan is a benefit program that allows employees to choose from a range of benefits, such as life insurance, retirement plans, vacations, child care, and cash. Typically, the program requires a core set of benefits, but it gives employees the opportunity to allocate the remaining benefit dollars however they wish.

A flexible benefit plan is also known as a cafeteria plan or an IRS 125 Plan.

Insuranceopedia explains Flexible Benefit Plan

Through a flexible benefits plan, employers promise to provide their workers with a specific amount as benefits. The workers can then decide how they want their benefit dollars allocated from the available options. Some or all the benefits offered may have tax advantages.

An employer benefits in three main ways by implementing a flexible benefit plan. First, the amount employees defer to the program is not used to calculated taxes; therefore, the employer saves on Medicare, Social Security, and other state-required taxes for employees. Second, a flexible benefit plan allows employers to offer their employees a portion of what would have otherwise been put toward taxes without incurring any costs or payroll taxes. Lastly, as this program is highly desirable, it can act as an effective recruiting tool that helps employers attract experienced and talented professionals. Similarly, it helps promote employee satisfaction and improve worker retention.

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