About this time each year, Human Resource departments across the country are buzzing with activity around the next year’s employee benefits.
From an employee perspective, often that means that you’re given a small window of time to verify your benefits for the coming year. It’s easy to check off the boxes that keep everything as-is without regard to new or different options and the coordination of these benefits with the rest of your financial plan.
Please don’t rush through the process this year. Your decisions may have impact far longer than the coming year!
Employee Benefits can be a broad topic. They can include:
Family Medical Leave
Group Life Insurance
Group Disability Insurance
Short term disability
Long term disability
Employee Stock Option Plan
This isn’t a comprehensive list of all potential employee benefits, but should cover the majority of common options.
First of all, some of the decisions are made for you already. Typically, a business will have standardized policies regarding paid leave and base levels of provided life insurance, for example.
As for healthcare, I get a lot of questions about HSAs (health savings accounts), so let’s cover a few basics about them.
To be eligible to use an HSA, you must opt into a high deductible health care plan. If you choose a high deductible plan, in 2017 you can contribute up to $3,400 (individual) or $6,750 (family) pre-tax into an HSA (don't worry if you don't use it all - the balance will be available for future health care needs)! Also, you are allowed to contribute $1,000 more if you are 55+. While premiums are lower in a high deductible health care plan, they typically have higher out of pocket expenses associated with them (up to $6,550 for an individual, or $13,100 for a family).
When is it advantageous to opt into a high deductible plan and HSA?
That depends on your (and your family’s) health and cash flow. If you tend to only need preventive health care and don’t have a lot of annual expenses, a high deductible plan with an HSA account can be useful because any unused HSA funds can remain available for future use! However, if you tend to need a lot of medical care or could not currently cover the max out of pocket expenses from savings or cash flow, you may decide that higher premiums and lower out of pocket limits are more manageable for you and your family.
Retirement plans are also top of mind for many people. These may include 401(k), 403(b), SEP, SIMPLE, and other kinds of tax advantaged retirement accounts. While each of these types can be slightly different, there are a few similarities. First, they each offer some level of employer match and/or contributions (aka FREE MONEY!). Please take advantage of maximizing your benefit available from your employer match or contributions! If you don’t, you’re leaving money on the table. Consider increasing your contributions each year along with your pay increases. Even a 1-2% higher contribution can make a big difference over time.
Also, they have to offer diversified investment options. Many plans have adopted target date retirement funds as choices within their plans. If you are unsure of where to start, they can be a great way to become diversified with little effort. If you have several options, or have enough in the plan to want more than a target date fund, ask your financial planner for help determining the proper allocation.
Many plans have started to offer the Roth option. If you’re considering it, keep in mind employer contributions/matches will continue being placed into the traditional account, while your contributions will be placed into the Roth account. Generally speaking, the younger you are, and the lower tax bracket you are, the more advantageous the Roth account can be since you’ll be paying taxes now for tax-free growth and income later. Again, to be sure, please contact your financial planner, since everyone’s personal financial life is different!
Life Insurance and Disability Insurance is one of the most misunderstood parts of employee benefits. Many companies provide a limited amount of group life and/or disability insurance to their employees. During open enrollment, employees often have the opportunity to purchase additional coverage for themselves and their family members. Sometimes, it may also include Long Term Care insurance.
While insurance coverage is an important part of any financial plan, it is important to understand the differences between a policy that is available under a group plan versus one that is purchased individually based on underwriting health and risk screening.
Group insurance policies are often not portable, meaning your group coverage doesn’t continue beyond your employment. Please read your coverage carefully or ask your HR representative for help understanding the nuances of your benefits.
If it is important for your financial plan to have certain levels of insurance in place, it is important to evaluate the best kind of policy to meet the need. Keep in mind, if your health or risk ratings change during your employment, insurance may become more expensive or unavailable later.
These are all reasons I encourage my clients to keep me informed when they receive open enrollment documents. It may seem like an easy task to re-enroll as-is from last year, but your decisions can have a long lasting impact. Please see your financial planner if you have any questions about your benefits.
All written content is for information purposes only. Opinions expressed herein are solely those of Bridge Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant, or legal counsel prior to implementation.