Open Enrollment for 2020 Benefits
It’s about that time! Human Resource Departments are getting ready to roll out the relatively small window of time you are given to verify and/or choose your employee benefits for 2020. Please don’t just check the boxes without delving into the different options your employer offers and how those benefits should coordinate with the rest of your financial plan.
We share with our clients continuously that financial planning is a process, not a one-time decision and then forget it. Financial planning is also not only about your investments but is a comprehensive approach to determining how to use all your resources to achieve your unique goals and objectives in the most efficient way possible. With that in mind, your employee benefits play an integral part in your overall plan.
According to the U.S. Department of Labor, benefits combined can be worth as much as 30 percent of your total compensation package. Therefore, it is important that we take time to navigate what is offered and find out what benefits we may not be taking full advantage of while the employee benefit window is open.
It may go without saying – but we will reiterate it anyway – take advantage of the Retirement Plans offered. Whether it is a 401(k), 403 (b), SEP, SIMPLE or other tax-advantaged retirement vehicle, find out the level of employer match or contribution and put it to work for you. This is free money your employer has made available to you that should not be left on the table if at all possible. Too many people are not contributing enough to get the full match; and if they are, they still may not be contributing enough to reach their retirement goals. If you cannot afford to save at the rate necessary to meet the company match or your goals, try starting where you can and then increasing your contribution by a percentage point each year or according to your salary increase. You may be surprised how quickly you can arrive at a goal that you once thought was not feasible. Your plan may have a contribution rate escalator that will even do this for you.
One sometimes underutilized benefit is a high-deductible health plan with a Health Savings Account (HSA). Although it may not be the optimal choice for those who have chronic health conditions or high medical expenses each year, for those who often just have routine medical costs it can make a lot of sense. In addition to lower premiums, you get the tax benefit of pre-tax contributions and your employer may make contributions for you. If you are age 65 or older, you can withdraw the invested funds for any reason without penalty, only paying income tax on the amount distributed for non-medical expenses. If you use if for qualified medical expenses, including long-term care costs and long-term care insurance premiums, it will also be tax-free. The current contribution limit for a single is $3500/year or $7000/year for family. If you are 55 or older anytime in 2019, you can contribute an extra $1000.
A third employee benefit to take note of is Group Long-Term Disability Insurance. It is more likely you will become disabled than to pass away before you retire. There is also a greater chance that the financial impact on your loved ones will be more because of the long-term medical expenses. Group long-term insurance provided by your employer usually does not require qualification and is relatively cheap compared to private insurance, although many do not take advantage of this benefit. Review your employer provided coverage to see the amount provided and if it is portable if you terminate employment. The majority are not portable, and some may not provide enough money to cover all your necessary expenses. It then might be advantageous to consider purchasing an outside supplemental policy while you can qualify even if it means paying the premiums yourself. We review our clients’ situations and goals and advise accordingly.
One final benefit worth mentioning is Employer Stock Purchase Plans. These tax-efficient plans can provide you with a discount off the purchase of your company’s stock. Employees can contribute to the plan through payroll deductions which build up between the offering date and the purchase date. Although it is not advisable to have too high a concentration of one stock in your portfolio, you can earn the amount of the discount without the stock appreciating and it can be a means of not only being an employee but also a stockholder owning shares of the business.
We did not even mention deferred compensation plans, FSAs, group life insurance and other employee benefits that might be an option in your benefit package. With enrollment right around the corner, take advantage of your employee benefits and let us know if you would like assistance in choosing what is best for you.