Whether you’re starting a new job or approaching your employer’s annual enrollment period, are you taking full advantage of your employee benefits?
According to the U.S. Bureau of Labor Statistics, benefits such as health insurance, health care spending or reimbursement accounts, life and disability insurance, retirement plan contributions and paid leave account for approximately 30 percent of employees’ total compensation. For example, if the median full-time salary for registered dietitian nutritionists in 2019 equated to $68,600 per year, then RDNs’ total compensation with employer-provided benefits could be more than $89,000. For NDTRs, the median annualized full-time salary was $45,800, bringing potential total compensation to $59,540 with benefits.
While many benefits are more likely to be top of mind (for example, health insurance or child care), others may feel a little murkier. However, there can be financial gain in the fine print of an employee benefits package — enough to make it worth pulling out the magnifying glass to find the money.
Understand Health, Dental and Vision Insurance Options
Whether your employer offers group health insurance, HSAs, FSAs, HRAs or a combination, review your options and determine which programs are best for you. For group health insurance programs, financial distinctions generally are centered around premiums, deductibles, copayments and coverage (see definitions). Some plans may offer lower monthly premiums but have a higher deductible you must meet through out-of-pocket payments before services are covered. This might be preferred by individuals with fewer overall health care needs. Other plans may have higher monthly premiums but lower copayments or more flexible options in terms of health care providers — which could benefit people with potentially more medical needs.
Coverage: A blanket term that may refer to which health care services your insurance plan will pay for (“covered service”) or which individuals may participate in the health insurance plan (“covered person,” such as spouse/partner or children).
Deductible: The amount you must pay for covered health care services before your insurance plan starts to pay.
Premium: The amount you pay for your health insurance every month.
“If available, you might also consider opening a health savings or reimbursement account,” says certified financial planner Ben Smith, founder of Cove Financial Planning in Milwaukee, Wis. “Make sure to find out if your employer will make matching or other contributions, as well. A lot of people don’t know that their company might contribute money into these accounts each year.”
A flexible spending account (FSA) is an account to which both employees and employers may contribute pre-tax dollars to use for out-of-pocket medical expenses not covered by insurance, such as copayments and deductibles, prescriptions or medical devices. When you have money left in your FSA that is not spent by the end of the benefits year, employers may either extend the time limit to use those funds by two and a half months or roll up to $500 into the next benefits year.
A health savings account (HSA) is a fund to which employees with high-deductible insurance plans may contribute to help offset out-of-pocket medical expenses. Both employees and employers may contribute to an HSA, and leftover dollars may be rolled over year to year. In addition, an HSA may earn interest or other earnings. As owner of the account, the employee must report an HSA on his or her income taxes.
A health reimbursement account (HRA, also known as a “health reimbursement arrangement”) is an employer-funded benefit used to reimburse employees for qualified, out-of-pocket medical expenses. Some employers have HRAs in lieu of traditional group health insurance. In these instances, employees secure and pay for their own health insurance and the employer reimburses them for expenses. Other employers complement their group insurance policies with HRAs, using them to reimburse employees for deductibles and copayments not covered by insurance. Unlike an HSA or FSA, only the employer contributes to an HRA.
Explore Group Life and Disability Income Insurance
At its core, insurance is meant to help manage the unexpected. “Buying life insurance is a lot like wearing a seat belt,” says Smith. You hope you won’t need it, but you (and your family) will be happy and relieved it’s there in case you do. “This is especially true if you have a lot to protect including a spouse, partner or children, or major liabilities like a mortgage or other debt,” Smith says.
Employee life insurance might be paid for by your employer, but if it’s not, you may get the best dollar-for-dollar coverage, and the premium can be deducted from your paycheck.
“The other great thing about group insurance coverage is it typically does not require underwriting,” says Smith. This is when the insurance company conducts a medical assessment and gathers records to determine coverage. The underwriting process can be long and tedious — and is poised to be more complicated with pandemics and geographical weather events. You may be able to avoid the underwriting experience by opting for group coverage through your employer. “This is especially beneficial if you are in poor health, as underwriting may restrict or limit life insurance coverage,” says Smith.
Disability income insurance refers to policies that provide supplemental income if you are unable to work due to illness or accident. Disability income generally pays a percentage of your gross income — usually 45 percent to 65 percent. While no laws require employers to offer this benefit, usually group long-term disability insurance is fully paid for by employers, according to the Insurance Information Institute. However, because it may be several weeks from the filing date of an injury or illness before you are eligible to receive long-term disability payments, your employer also may offer an option for short-term disability to help close the income gap during this time.
“Keep in mind, these [life and disability insurance] benefits may only last during the time you are employed by the company offering them,” says Smith. “So if you switch jobs or retire early, you’ll need to find these benefits elsewhere.”
Retirement Accounts through Former Employers
According to the Bureau of Labor Statistics, the average American worker holds 12 different jobs during his or her lifetime. Odds are that at some point (or many) during your career, you might have a new employer.
“When you have a retirement plan such as a 401(k) or 403(b) through a prior employer, you usually have three options for what to do with it: You can leave the retirement plan where it is, move it to your new retirement plan with your new employer or roll over your retirement plan into an IRA,” says Smith. “Consider the pros and cons of each option to determine what makes the most sense in your situation.”
Option 1: Leaving the 401(k) or 403(b) account where it is
- There is no extra work to consolidate the account into your new plan.
- The more retirement accounts you have, the more you need to keep track of when making investment and eventual withdrawal decisions.
- There are potentially higher investment costs with a 401(k) or 403(b) than with an IRA.
- Investment options may be more limited than with an IRA.
Option 2: Moving the funds into your 401(k) or 403(b) through your new employer
- Consolidating multiple 401(k)s or 403(b)s can make investment management easier with fewer accounts to keep track of.
- It takes some up-front effort to consolidate accounts.
Option 3: Roll over to an IRA
- IRAs offer more investment options than employer-sponsored plans.
- There may be potentially lower investment and management costs with an IRA.
- It takes some up-front effort to transfer the funds into an IRA.
- There may be unfavorable divorce and bankruptcy rules among IRAs vs. employer-sponsored plans.
- In a dire emergency, there are loan options with 401(k)s that are not available with IRAs.
“Many investors choose to roll over their old retirement plans into a personally owned IRA for investment selection and costrelated reasons,” says Smith. “Also consider the fact that making tax-saving decisions, such as Roth IRA conversions, is often easier to do with IRAs.” (For more information on different retirement account options, see Thrive: Saving for Retirement.)
Optimize Your Current Retirement Plan
Depending on whether you’re in full-on saving mode or paying down debt (student loans, credit cards, mortgage, etc.), you may want to look at the amount you are contributing to retirement. For example, if your employer makes matching contributions to your 401(k), try to contribute enough to take advantage of your employer match.
You also may have options to contribute to a tax-deferred retirement plan, such as a Traditional 401(k), or an after-tax plan, such as a Roth 401(k). The two options relate to when you want to be taxed: now or later. “Simply put, if you believe your income is higher now than it will be in retirement, consider saving into your tax-deferred Traditional 401(k) or 403(b) because your tax rate will likely be lower in retirement when your income is lower,” says Smith. “On the other hand, if you believe your income will be higher in retirement than it is today — which may be the case for many savers early in their career — consider saving into the after-tax Roth 401(k) account. You’ll be taxed on the contribution today at a potentially lower rate.”
“Many investors will benefit from saving money into both tax-deferred and tax-free accounts in order to diversify savings from a tax perspective,” Smith adds.
In addition to the amount you contribute and the type of plan you choose, most retirement savings programs allow employees to customize their investment approach to be more aggressive, moderate or conservative. Your asset allocation (how you diversify your portfolio across funds) should take in the following considerations:
- Minimum Retirement Needs: How much money do you actually need to retire? One common recommendation is to set a goal for retirement savings, social security, pensions and any other income sources that equals about 80 percent of what your income is right before you retire. This may skew up or down depending on your situation, but having a target amount for your retirement account will help you determine the path for reaching that goal.
- Age: If you have a few decades of career ahead of you, which means you have time to recoup any potential losses from natural dips in the market, you might be comfortable with some more aggressive funds. If you are closing in on your last few years before retirement, consider skewing a little more conservative to protect your hard-earned savings.
- Risk Tolerance: This is personal. As anyone who’s been awake for the last nine months knows, stress can take serious physical and mental tolls on the body and spirit. If you know you are going to be anxious about your employer-sponsored retirement plan in a volatile market, adjust your approach to be more conservative and work with an advisor on a holistic financial plan that helps you meet your goals.
(For more information on striking a balance between investing, building cash reserves and paying down debt, see Thrive: Let’s Talk About Debt.)
Factor in Perks and Fringe Benefits
In addition to benefits that have obvious financial implications, employers may offer perks that can offer cumulative advantages to your bottom line. For example, if on-site child care is offered through work, that could be one less expense for your family. Another perk could be pre-tax paycheck deductions for tolls or public transportation expenses. Discounts for gym memberships or car insurance, tuition reimbursement, flexible schedules and telecommuting options are all incentives that employers may offer in exchange for talent, and that you might explore as an employee.
“So many things can change,” says Smith, “and working through your financial plan will result in confident decisions.” If you don’t work with a financial planner, learn how you can benefit from a comprehensive plan and investment strategy, and review these 8 Questions to Ask a Financial Advisor. “If you already have a financial plan, reach out to your advisor to make sure you are on the same page about the important changes in your life.”
Follow and tweet Ben on Twitter at @BenSmithPlanner.
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What are the differences between HSAs, HRAs and FSAs? Blue Cross Blue Shield Healthcare Network of Michigan website. Accessed September 8, 2020.
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