We’re eyeballs deep in helping our clients choose their company benefits at Gen Y Planning right now! Why? Because this is one of the ways we save our clients the most money: by revamping their company benefits. Maybe you chose your company benefits a few years ago and haven’t looked at them in awhile. Well, I highly encourage you to pull out that giant booklet and start reading.
Warning: this post could save you thousands of dollars. Why? Because many of these benefits are paid for using pre-tax dollars. That means that the more things you can pay for with pre-tax dollars and the higher your tax bracket, the more money you’ll save. For example if you’re in the 28% tax bracket and you contribute $6,750 to your HSA (the maximum for a family plan) you’ll save $1,890 on your taxes.
November is often open enrollment for many companies. Open enrollment is the only time during the year that you can make changes to your company benefit elections without a qualifying event (getting married, having a baby, a spouse losing a job, divorce). Here is a guide to understanding what type of benefits your company may have to offer:
Health Insurance Options
HDHP + HSA – High-Deductible Health Plan with a Health Savings Account
- For a plan to qualify, it must have a minimum deductible of $1,300 for an individual or $2,600 for a family. In exchange, these plans usually have very low monthly premiums. You must hit the deductible before the plan will pay for covered expenses.
- These are the only plans that allow a person (or family) to contribute to a Health Savings Account (HSA). Because the monthly premiums are so low, some companies will contribute a specific amount to your HSA each year or offer health incentives for completing various health and wellness tasks that can be deposited into your HSA account.
- The maximum contribution for 2017 is $3,400 for an individual or $6,750 for family. This includes any company contributions.
- An HSA can be used to cover most medical, dental, and vision costs. Here is a link for eligible and ineligible expenses for HSA funds: http://www.hsacenter.com/qualified-med-expenses.html
- You will receive a debit card for your HSA account to pay for eligible heath expenses. This makes it extremely easy to access the money in your HSA, when you’re picking up your prescriptions at the pharmacy or paying your therapist.
- Contributing to an HSA gives you a triple tax benefit. Funds contributed to your company HSA are contributed before tax, grow tax free, and when taken out to pay for qualified medical expenses are income tax free! In addition, unused funds get rolled over each year. Many people don’t know that you can also invest the money in your HSA. Even if you leave your employer, you get to take the HSA with you!
- I typically recommend HDHP/HSA policies for those that are young, relatively healthy and don’t anticipate a lot of health expenses for the year.
PPO – Preferred Provider Organization
- A type of health plan that contracts with hospitals and doctors to create a network of participating providers. You pay less if you use providers within the plan’s network. You can use providers out of the network for an additional cost.
- Usually has higher premiums, but lower deductibles. Again, you must hit the deductible before the plan pays for covered expenses, but because the deductibles are much lower, you will likely satisfy this requirement much quicker.
- This type plan may make more sense if you go to the doctor regularly and expect a lot of medical expenses in the upcoming year (for example if you are expecting a baby. However, double check your out of pocket max for this plan versus the HDHP because I’ve found that it might actually be more affordable to have a baby under an HDHP).
HMO – Health Maintenance Organization
- A group of doctors and hospitals that provide healthcare services for a copay rather than deductibles and coinsurance.
- HMOs typically only cover in-network services and will not pay for services provided by out-of-network providers.
- If you are currently enrolled in an HMO and are happy with your providers and the plan has competitive premiums, it may not be worth switching plans. Just remember, that the plan will not cover out-of-network visits, so if you are traveling away from your HMO and need to be seen for anything other than an emergency, you may be paying out of pocket.
FSA – Flexible Spending Account
- This is another way to save pre-tax dollars for medical expenses. The maximum contribution is $2,550 for 2017.
- Do your best to estimate how much you typically spend on medical expenses each year in order to budget how much to contribute to this account. You don’t want to overfund because only $500 from this account can rollover from year to year and it does not move with you if you change employers.
- You will generally use this type of account in combination with a PPO or HMO, whereas a HDHP would be used in combination with an HSA.
- There is no need to have both an HSA and an FSA. If you qualify, you should elect to contribute to an HSA. The rollover provision makes the HSA more beneficial than the FSA. (You technically can have both if you use the FSA only for dental and vision costs, but I’ve found that it adds unnecessary complexity.)
Dependent Care FSA
- This benefit lets you contribute pre-tax for childcare expenses. The maximum for 2017 is $5,000 per family. This means that you’ll get to pay for the first $5,000 of daycare costs using pre-tax dollars.
- You can also use this money for summer day camps or before/after school programs so be sure to see if the program you’re considering accepts funds from a Dependent Care FSA.
**When choosing a health insurance plan, make sure to look at the out of pocket maximums. This is especially important if you are expecting a lot of medical expenses for the year.
LTD – Long Term Disability Insurance
- Your biggest and most important asset is your ability to earn income. It is very important to make sure this is properly protected with Long Term Disability (LTD) insurance.
- A base amount of LTD insurance is typically provided by your company, but you may have to elect to ENROLL in this benefit. Don’t miss out on this company paid benefit!
- Take a look at the stipulations of the plan. For example, it may provide a benefit of 60% of your base salary after a 180-day elimination period.
- If this is company paid, the benefits would be taxable to you if you ever received LTD payments.
- You may have the option to purchase supplemental LTD insurance. Speak with your financial planner to discuss if this would be a good option for you.
- Often, I recommend my clients take advantage of as much LTD as they can get through their employer since a group plan is much more affordable than buying an individual policy. However, group plans generally have a much broader definition of disability, such as “any occupation” versus “own occupation” so you might also purchase a supplemental individual policy outside of your employer plan (especially if you’re a doctor, dentist, or in a highly specialized field).
STD – Short Term Disability Insurance
- This is also typically a company paid benefit and often comes into play for maternity leave as well.
- Take a look at the plan details and be sure to enroll if necessary. The plan may cover something like 70% of your weekly salary for 25 weeks.
- There are usually separate rules for using STD for maternity leave.
Group Term Life Insurance
- Companies often provide a set amount of group term life insurance to their employees with the option to purchase additional coverage. For example, your employer might offer 1.5x your base salary in life insurance with the option to purchase up to 8x your base salary.
- Coverage in excess of $50,000 is considered a taxable benefit.
- If you don’t have anyone dependent on your income (i.e. a spouse or children) then you probably don’t have much of a need for life insurance. If you do have dependents then you’ll need additional life insurance.
- I typically recommend purchasing a separate term life insurance policy outside of your employer so that if you lose your job, you don’t also lose your life insurance. If you’re young and healthy you can often get an attractive rate on 20 or 30-year term life insurance.
- As a rule of thumb, you’ll want around 7-10x your annual salary in life insurance. However, that amount may be low or high depending on what you want to happen if you were to pass away (i.e. paying off a mortgage, paying for college for 3 children, etc.).
- Here’s an insurance calculator from Low Load Insurance Services that I use with many of my clients: https://llis.com/advisors/insurance-calculator.
- If you are unable to purchase private individual term life insurance (you are overseas, in poor health, or are expecting a child for example), then purchasing supplemental life insurance through your employer may be a good idea. You generally can get around $250,000 without having to go through a medical exam so that might be a good plan if you’re in poor health and are worried that you may not qualify.
- Many of you will have a 401(k), 403(b), TSP, or SIMPLE IRA which are just a few employer sponsored retirement plans. Many of your employers offer a company match.
- Make sure you have elected to contribute enough to your company’s retirement account to receive the company match if there is one. THIS IS FREE MONEY!
- Ask your Human Resources department if you don’t understand how your company match works. Some will say: “we match 100% of the first 2% plus 50% of the next 4%.” This means: you have to contribute 6% to receive a 3% match from your company.
- Some companies offer a profit sharing plan and will make a contribution to your retirement account on the company’s behalf.
- Pensions still exist but unless you’re a teacher, firefighter, or a cop, these tend to be rare. If you have a pension from an old company, find out if you can do a rollover into your IRA so you have more flexibility with the investment options.
- If you want more info on how to save for your future and maximize your retirement accounts, then check out our course, Smart and Easy Retirement Planning for Millennials. This course also provides education on Employee Stock Purchase Plans (ESPPs), HSAs, and IRAs.
Be sure to look through your company’s benefit plan to see if there are any other interesting benefits that may be worth signing up for. Some include:
- Hyatt Legal Plan – for a low price you can have access to a network of attorneys that can help you with minor defenses and document preparation. This is an excellent idea if you haven’t already prepared your estate planning documents. I highly recommend you take advantage of this benefit to put your basic estate planning documents in place.
- Commuter Benefits – some companies will reimburse you for common commuter expenses such as tolls, parking, metro cards, bus passes, etc.
- Wellness Programs – you may be offered a monetary incentive for completing health and wellness type activities. Again, this is free money! Your company might offer on-site fitness classes or discounts on memberships to local gyms. You might also get free or discounted flu shots at employee health fairs or at retailers like CVS, Walgreens, and supermarket pharmacies.
- Discounted Property and Casualty Insurance – there may be a group discount if you sign up for either property or casualty insurance through your employer.
- Employee Stock Purchase Plan (ESPP) – If you work for a publically traded company, you may be able to purchase company stock at a discount of 10% or 15%. These purchases are generally made in bulk with other employees a few select times per year, which is how you’re able to get a discount. If you sign up for this benefit, a portion of every paycheck will be set aside for this stock purchase. Make sure you consult with your CPA before selling this stock since there is special tax considerations.
- Store Discounts – If you work for a retail company often times you’ll receive a 10-50% off of purchases at that store. Make sure you don’t buy things you wouldn’t already use, but it can be an incredible benefit if you shop at the store frequently.
- Tuition Reimbursement – If you’re planning on completing a degree relevant to your current job or going back to school for a graduate degree, some employers will help cover the costs. Many employers will cover up to $5,250 per year. Keep in mind, this is the Federal amount that you can receive from your employer before paying taxes on this benefit. If your employer pays more than that in education assistance in a single year, you must generally pay the tax on the amount above $5,250.
- Continuing Education & Professional Development – CE can be costly to keep up certain certifications but many employers will help cover the costs. Find out if your employer will help foot the bill.
- Paid Vacation & Sick Time – Americans are some of the most likely people to let unused vacation days go to waste. Find out if you can carry over unused sick days and vacation days from one year to the next. Often times, you’re given a certain amount of vacation days (i.e. 2-4 weeks) or Paid Time Off (PTO) per year. In some cases, they carry over to the next year. Some companies even allow you to buy additional PTO. If you have this option, I think it’s a wonderful benefit to take advantage of, just don’t let those extra days go to waste!
- Charitable Matching and Volunteer Days Off – Many fortune 500 companies will offer to match any charitable contributions that you make each year up to a set dollar amount (usually around $1,000). Some companies even allow a certain number of paid volunteer days off each year and an incentive to do so.
- Paid Parental Leave – Gone are the days where paid time off after having a baby was only (sometimes) offered to the mother. Many companies are now embracing the idea of paid “parental” leave, meaning any new parent from birth, adoption or surrogacy can be eligible for paid time off.
- Childcare or Childcare Assistance – Some employers may offer reimbursements for child care to a certain amount or even offer backup child care services on site.
- Identity Theft Monitoring – If you have ever been a victim of identity theft in the past, it may be worth your time to pay for this service. Otherwise, you can monitor your own accounts and be sure to check your credit report regularly.
Benefits to Skip
Although your company may offer a wide range of benefits, there are certain benefits that I do not often recommend to clients:
- Pet Insurance – While the idea of pet insurance may seem tempting, it often doesn’t make sense financially. The monthly premiums and copays often exceed the price of the occasional visit to the vet.
- Spousal Life Insurance Coverage – If your spouse is covered by a life insurance policy through their own employer, additional life insurance coverage may not be necessary.
- Term Life Insurance for Children – The instance is so rare that a client would need life insurance for their children that I usually don’t recommend this benefit. These policies usually only cover a small amount ($10,000 for example) that I would prefer you add a little extra padding to your emergency fund.
- Supplemental AD&D – A base level of Accidental Death & Dismemberment insurance is usually provided by your employer. The base amount is usually sufficient that I suggest you ditch any additional amount.
If this post was extremely overwhelming for you and you’d rather work with a financial planner to help you sort through this process, we’d love to help! You can apply to become a client of Gen Y Planning and a member of my team will reach out to you with the next steps.