Many successful businesses are increasing the use of voluntary benefit plans to assist employees in obtaining additional benefits on a group basis, at generally lower costs. The employer generally offers these plans at a discount, in addition to “core” benefit plans (e.g., health and 401(k) plans), which are usually co-funded by both the employer and the employee. When employees respond to these programs with enthusiasm, employee job satisfaction and retention may increase.
Voluntary Benefits-What’s All the Noise About?
Voluntary benefit plans are entirely funded by the employee, generally through payroll deductions. The employer offers an endorsement of the policy (e.g., a group discount auto insurance plan offered to employees); therefore, the employer does not incur any cost (although regulatory requirements inherent to qualified plans may need to be met). Typically, employers offer a menu of benefit options to employees (in addition to existing employer-sponsored fully or partially funded plans), and they pay for whichever benefit(s) appeal to the employees. Because benefits are offered in a group setting, costs are generally more affordable than if the employee were to purchase similar benefits individually.
Voluntary benefit plans typically focus on insurance programs, including: life (supplemental, term, and dependent plans), disability, dental, long-term care, vision care, and auto insurance. Other voluntary benefits can include discounted movie passes and fitness club memberships. Some of these plan offerings, such as dental insurance, are only available under group purchase arrangements, making these voluntary benefit plans popular with employees.
Employee satisfaction receives a boost because voluntary benefit plans generally provide access to affordable benefits, in addition to those already offered by the employer (e.g., health insurance or a 401(k) plan). However, keep in mind that when developing a voluntary benefit package, or assessing the value of a current package, it is helpful for the employer to have an open discussion with employees on the issue, in order to determine which benefits they are likely to purchase.
Consider a Statement of Benefits
Employees are well aware of the rising costs of benefits, but how many employers actually communicate these costs to their employees in a clear, constructive manner?
Some employers prepare a Statement of Benefits for each employee, which includes an annual breakdown of costs for health benefits, unemployment insurance, paid vacation, sick leave, workers compensation, Social Security contributions, and any other “perks.” The primary aim should be to communicate what employer-sponsored benefits exist, how much they cost the employer, and what additional voluntary benefits are available.
A Smash Hit
By providing employees with the ability to understand and purchase additional, affordable benefits, employers can play an important role in helping employees improve their personal financial picture.
Once this understanding is reached, the return—employee appreciation and loyalty—can outweigh the necessary preparation and communication associated with offering a voluntary benefit plan.
As always, you can consult with me to discuss your personal situation.
Look for future posts on financial planning and check out my recent post about active vs passive investing.
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