Flexible Benefit Plans for Federal Employees

GAO discussed the potential design of a flexible benefit plan for federal employees to determine the: (1) best time to adopt such a plan; (2) best kind of plan; and (3) resulting cost to the government. GAO found that: (1) although the number of flexible plans is growing, such plans are not yet widespread in the private sector; (2) the plans can encompass benefits such as medical care, accident and life insurance, dependent care, legal services, long-term disability, and savings-plan contributions; (3) the plans can incorporate a core-plus-option design where the employer offers core benefits and the employees could use optional credits to upgrade the core benefits or receive the credits in the form of cash; (4) most flexible benefits plans also contain a flexible spending account that would allow employees to elect tax-free salary reductions to pay for their expenses and from which they would receive reimbursement; (5) if all federal employees chose salary reductions in the amounts that they now contribute toward their health and life insurance, it would result in forgone tax revenues of $320 to $600 million; and (6) although adopting such a plan would result in a considerable tax loss, tax laws permitting this approach have been in effect for several years and federal employees currently partake of similar tax-free benefits.