Is flex for our company? Does it work better than the traditional one-size-fits-all approach? Many plan sponsors have mulled over these questions for the last two decades. The answers, unfortunately, are mixed.
For employees, flex means choice and flexibility; for employers, it means meeting the needs of a diverse workforce and stabilizing the costs of the benefits program. However, it can also generate a more complex administrative workload and create communication challenges for the plan sponsor.
Family-owned Longo Brothers Fruit Markets Inc. was up for the flex challenge. As with many companies, Longo’s existing plan design had not changed since its initial inception more than 20 years ago. Over the past 54 years, Longo’s has expanded significantly—including the September opening of its newest flagship store in Toronto—having amassed 23 stores with more than 4,000 employees. With the significant growth of the company, Anthony Longo, president and CEO, and Joey Longo, chief operating officer, questioned whether the company’s existing plan offerings were still the best way to provide competitive and meaningful coverage to such a diverse workforce and its families. They also wanted to ensure that Longo’s is recognized as one of the Top 50 Best Employers in Canada.
According to the consulting firm The Williamson Group, “Longo’s focus and commitment to developing a plan that was first and foremost a fit to their unique culture, and their scrutiny of how the plan would impact their team members, was remarkable. It is easy to see why Longo’s has been such a huge success. They leave no stone unturned and have a road map with clear direction to their future path.”
Working with The Williamson Group, Longo’s steering committee—including the director of HR, the manager of compensation and total rewards, the wellness manager and the chief financial officer—determined what the company’s benefits program should look like and, equally important, how it would connect to the overall total rewards philosophy. The committee determined the new plan should be:
• a cultural fit to the organization;
• flexible in addressing team member needs;
• innovative in instilling wellness through team member education and ownership;
• competitive and consistent with industry benchmarks; and
• economically sustainable over the long term.
The next stage involved an honest evaluation of how well the existing plan was meeting these five key criteria. Unfortunately, it was meeting neither the needs of the organization nor its plan members. A flexible benefits offering, then, looked like a plausible solution.
The committee determined the type of flex plan—a modular flex plan (see “What is Flex?” p. 57), which would be easy to understand and provide the flexibility and long-term sustainable costs to its plan members. The plan would also help minimize employer administrative complexity and costs.
A Longo’s survey revealed that there was a great deal of consistency to the top five benefits that both the company and its employees valued. The new plan offering allowed for a more comprehensive plan while remaining cost-neutral to the company’s existing costs and consistent with the five key criteria.
Longo’s also wanted wellness to be at the core of the offering. The reason was simple: employees who choose to participate in wellness initiatives will reap the physical and monetary rewards, compared with those who make unhealthy lifestyle choices. This wellness offering comes in many forms and features, including education, communication, employee and family assistance plan, medical second opinion services, health risk appraisals, healthcare spending accounts and healthcare system navigation programs. (Longo’s will conduct a study in the next few years to measure the program results.)
| What is Flex? Almost all benefits plans have some type of flex built into them. Flex, by definition, allows employees to have some choice in the benefits they select, specific to their own individual needs. However, in traditional benefits plans, flex is typically limited to allowing employees to take additional life insurance, accidental death and dismemberment, and critical illness benefits at costs that are related to their age, gender and smoking status. These benefits are available only with proof of good medical health. True flex benefits, however, offer a much wider range of choice, extending to health, dental and, in some cases, disability benefits. Currently, there are three types of flex benefits plans an employer can choose from. Cafeteria Style Flex offers an extensive choice in all benefits with very few mandatory benefits. Modular Flex consists of a more limited choice. Health and dental benefits are packaged together and employees choose the module of health and dental that best suits their needs. Core Plus has some mandatory coverage called the “core.” This usually comprises the catastrophic benefits an employer wants to ensure its employees are covered for. The employer also offers extensive choice on the remaining coverage an employee can elect to take. In the flex arena, an employer typically fixes how much it will contribute toward the cost of benefits and prices out all the choices. In the event an employee’s choices are more than what the employer has allocated (usually called flex credits), the employee is required to pay the difference through payroll deduction. If the choices elected are less than the flex credits allocated, the difference is often put into a healthcare spending account or directed toward RRSP contributions. |
The steering committee agreed that the new proposed flex plan met these objectives. Now all it had to do was convince plan members. Would Longo’s employees agree that this new plan offering was consistent with the objectives? To help determine this, the committee set up focus groups from a diverse cross-section of the employee base. In this process, 10 groups evaluated the new plan. In a confidential survey, the groups relayed their positive thoughts on the new modular flex plan and the core benefits offerings.
With the plan offering revisions completed and the final modular flex plan created, Longo’s communicated the new plan to its full-time employees. Ongoing communication and education will be essential ingredients so that plan members make good decisions on which module best fits their lifestyle and needs. Developing a comprehensive project management plan with tight time frames and strict adherence to these deadlines for each step will be essential to meet the plan’s final rollout date on March 1, 2011.
The key to rolling out a successful flex plan starts with the leaders of the company. It’s all about philosophy. And it was clear from the start that Longo’s understood what it wanted for its plan members. Looking forward, the company will need to evaluate the process and gather plan member feedback on a regular basis to ensure that the plan continues to provide value to both Longo’s and, more importantly, its plan members.
Question Period
As a plan sponsor, you will need to answer a number of questions before you can decide whether a flexible benefits plan is right for your employees. Following is a sample of questions.
1. How diverse is the demographics of your employee workforce?
2. How much discretionary income would a typical employee have available?
3. How paternalistic is your company culture?
4. What is the capacity of your organization’s HR resources?
5. What additional funds do you want to allocate to administrative costs?
6. How well do you know the needs and wants of your employees?
7. How important is it for you to fix your costs or predict future costs?
8. Are you large enough to attract insurance carrier interest in providing reasonable costs to deliver a flex benefits program?
9. Are you prepared for the possibility that the cost to provide extensive benefits to high-end users could be significantly more expensive than what it would cost inside a traditional plan (due to anti-selection where only employees who need the coverage elect it so it is no longer subsidized by low-end users)?
10. How easy will it be to communicate effectively to your employees all of the choices available and how to choose?
11. Is your company prepared for the consequences that will inevitably occur when some employees make “bad” choices?
12. What lifestyle changes will qualify an employee to change his or her choice of benefits?
13. In multi-location, multi-shift employer work environments, how will you reach all employees?
14. Will you have a language or comprehension challenge within your employee group?
15. How technologically savvy is your workforce?
Bill Brown is senior vice-president of The Williamson Group.