With group health insurance premiums continuing to escalate and the workforce continuing to change, employers must become more creative in their benefits offerings. Employers are increasingly taking advantage of Internal Revenue Code provisions that help both them and their employees better manage costs. Cafeteria benefit plans, also referred to as flexible spending accounts (FSA's), provide another win/win situation for employers and employees:

• Employees an opportunity to choose between tax-free benefits and taxable benefits. They can pay for such things as insurance premiums, health care expenses (IRC section 105), and dependent care expenses (IRC section 129) on a pre-tax basis (IRC section 125), thereby usually lowering their taxable wages and probably increasing their take-home pay.
• If employees' taxable wages are decreased, the employer's salary base is decreased, and the employer pays less in FICA taxes.

When employees pay for their benefits with pre-tax dollars, they usually save money on state (in most states), federal income and Social Security taxes. This can add up to as much as 30 percent or more in tax savings, depending on the employee's tax bracket.

There is some risk associated with participating in FSA's. For the employee participant, the "use-it-or-lose-it" rule requires that any monies remaining in the employee's FSA account at the end of the plan year be forfeited, if not claimed by the end of the grace period. The company may use forfeiture dollars to pay for administration of the FSA plan, or it can split the money between the participants on a uniform basis.

For the employer, the risk is with the reimbursement methodology for Health Care FSA participants. According to the Uniform Coverage Rule, participants in a Health Care Flexible Spending Account may be reimbursed the entire amount of their annual election after they have contributed their first payroll-deducted funds to the account. Unlike the Dependent Care FSA, Health Care FSA participants do not have to wait until they have enough money in their account to receive reimbursements.

If the participant receives their total election before the end of the plan year and terminates his or her employment, the company loses the amount of the difference between the funds contributed and the funds reimbursed to the employee.

CBG helps employers and employees understand that choice, by far, is the most valuable aspect of a flexible benefits plan. We work with employers to help them implement Flexible Benefit Plans. These FSA plans are supported through an administration arrangement with Ceridian Benefit Services, the country's largest administrator for Flexible Spending Accounts, COBRA, and Section 125 plans. Ceridian provides high-quality flexible benefits administration to thousands of employers across the U.S.