January 5, 2011

Aiding school district budgets by using 'cafeteria-style' benefits

News and Information

School districts should consider restructuring the way they supply benefits for teachers, according to a new fiscal analysis by the UWs Center on Reinventing Public Education.

Nationwide, school districts are facing depressed revenues and budget cuts even while the cost of teacher benefits grows at a faster rate than salaries or total expenditures. Higher benefits costs mean less money for salaries other programs, the brief states, and such escalating costs and unpredictability pose enormous challenges.

Many districts provide a one-size-fits-all benefits package, creating a “use it or lose it” system where teachers have no incentives not to take advantage of all benefits. An alternative way of structuring benefits packages is through “cafeteria plans,” which offer employees a range of options to choose from, up to a pre-set total cost to the district. Unused benefits are awarded to the employee in the form of increased wages.

“Through customizable employee benefits, districts maximize what each employee values while also bringing some predictability and stability to budgeting,” write authors Noah Wepman, Marguerite Roza, and Cristina Sepe.

Their analysis considers a hypothetical cafeteria plan with a set worth and a menu of options that allows teachers to create benefits packages based on their preferences. For example, a second-year teacher without a family might make different choices regarding health insurance, life insurance, and sick days than a 15-year veteran with a family.

The brief describes how a district might structure cafeteria plans, each with different implications for predictability and stability of costs.

With federal recovery funds depleted, state budgets constrained, and projected increases in benefits costs, “many districts will be faced with unpalatable tradeoffs between constraining wages, reducing benefits, or increasing employee contributions,” the brief states.

Rather than have district leaders make these desicions for their personnel, cafeteria plans enable individual employees to make their own tradeoffs, ensuring that funds are used in ways that work to retain valuable educators.

The brief, The Promise of Cafeteria-Style Benefits for Districts and Teachers, can be downloaded at www.crpe.org. Its part of the Schools in Crisis: Making Ends Meet series.