Limbering Up On Flexible Benefits

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Your article on flexible benefits ("Beyond the Fringes," March) was, unfortunately, misleading and harmful to the reputations of Peat Marwick and other human resources consulting firms.

As the author noted, there are a number of firms working with clients to implement flexible-benefits and compensation programs. None of these firms begins to approach a market share of even 25%, never mind the 65% level noted in the article.

Moreover, the article encourages employers to consider the implementation of flexible-spending or reimbursement, accounts at a time when such arrangements appear to be illegal. In addition, the author only briefly addresses cafeteria-type plans, and then inaccurately.

Cafeteria-type plans are not easy to design. However, properly designed plans eliminate problems with adverse selection. In fact, data now available on one such program, in place for five years, demonstrates that these plans can be both the most cost-effective vehicle for providing benefits and an excellent approach to enhancing employee satisfaction.

Flexible compensation is probably the most significant concept to emerge in the field of employee benefits and compensation in the past 30 years. It gives employers, regardless of their size, the ability to better manage their costs while still providing a broad spectrum of benefits; it enables employees to select personally those benefits that they actually need or want. Misleading articles, such as the one in your March issue, do a disservice to employers and employees by confusing the issue and discouraging readers from open-minded consideration of the role of flexible compensation as a creative instrument of personnel strategy.

EDITOR-NOTE:

INC. replies: Our information as to market shares within the flexible-benefits consulting field came from four resources -- Hewitt Associates and three of its major competitors. Mr. Dreher is correct in pointing out that the Internal Revenue Service -- in a move that stunned most observers -- termed flexible-spending, or reimbursement, accounts "invalid." Unfortunately, that move came after our March issue had gone to press. We stand by our description of cafeteria-benefits plans. We sought not to condemn or demean those plans, but to point out the relative administrative ease and flexibility of reimbursement-account plans.