Flexible Benefit Plans - Meaning & Definition

Published by MBA Skool Team, Last Updated: May 28, 2015

What is Flexible Benefit Plans?

Flexible Benefit Plans allow the employees to select the plans or benefits they need from a bucket of plans or benefits provided by the employer. Flexible benefit plans allow employees to choose their package of benefits out of health insurance, retirement benefits, and reimbursements for out-of-pocket health expenses of self or dependents.

Flexible benefit plans are beneficial to both the employer and the employee as the employer can save payroll taxes while the employee can save Federal and State income taxes. This is because the employees contribute to these benefits in a similar manner as co-pay i.e. the contribution is deducted from their pre-tax income. The employer’s contribution is reduced and the employee’s taxable income is also reduced. Along with the benefits received in return of this contribution, because of the lower taxable income, the employee’s take-home salary also increases which is an added benefit.

Because of the rising cost of healthcare, employees expect to receive health insurance benefits as a result of employment. Flexible benefit plan reduces the benefit-pay burden on employers while giving the employees a choice of selecting their own benefit plans. Cafeteria plan and flexible spending account are some of the types of flexible benefit plans.


a) Flexible spending account

This is a type of a reimbursement account in which the employee signs an agreement like Health Reimbursement Arrangement with the employer. This agreement directs the employers set aside a fixed amount of money for employee healthcare expenses. Health Savings Account and Parking and Transit plans are some of the types of flexible spending accounts.

b) Cafeteria Plan

Cafeteria plan allows employees to choose from a set of taxable and non-taxable benefits. Taxable benefits include cash and stock whereas non-taxable benefits include health insurance, vacation days, and non-insured benefits like disability, dental care, vision coverage, etc. There are a number of restrictions set on these plans by the IRS so to ensure fairness and limit the number of changes an employee can make to the plan.


Hence, this concludes the definition of Flexible Benefit Plans along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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