The final months of the year are a great time to reflect on your accomplishments and plan for the upcoming year. Many employers use this time to evaluate the cost and effectiveness of their employee benefit programs, with the goal of ensuring that they offer the right mix of incentives to attract and retain key talent. Employees, in turn, may be asked to make important elections or decisions that relate to their benefits. Following are some tips to help employees get the most out of their workplace benefits.
For many companies, providing their employees with health insurance represents the cornerstone of their benefits program. Health insurance plans constantly evolve, and the price and coverage may change dramatically from one year to the next. Employees should carefully review their plan each year to ensure that it meets their needs. Here are a few things to focus on.
- Make a note of who will be covered under the plan and their needs. A young, healthy person may benefit from a less expensive plan with higher deductibles or a limited network of providers, while those that utilize medical services more frequently and reliably may instead opt for a plan that offers a larger network and lower deductibles.
- What is covered under the plan? Make note of prescription drug benefits and preventative care that may be provided at low or no cost. Also note any limit on benefits or services that are not covered.
- What are the costs? In addition to the insurance premiums, it is likely that you will be required to meet a deductible and/or offset certain costs through a copayment. Most plans also assign a different cost structure for services that are provided by a specialist, or those providers that are not part of the plan’s network.
- How many options are available? Your spouse or partner may be eligible for coverage with their employer, so a combination of plans may be preferable.
- Be sure that your favorite doctor(s) accept the plan. Medical providers may accept certain plans from an insurer, but not others. When in doubt, confirm with the insurance carrier.
- Remember: unless you qualify for a specific exemption, health insurance is mandatory under The Patient Protection and Affordable Care Act. Those not eligible for employer-provided coverage may research available plans at www.heathcare.gov.
Dental and Vision Insurance:
If offered, review the plan’s network of providers, available services and costs, before you enroll. Determine what is and is not covered- oral surgery, orthodontics and vision correction surgery may not be. Finally, remember that many providers do not accept insurance, so the networks may be limited in size.
Basic coverage is offered and paid for by many employers and limited to a specific amount or a multiple of salary. In addition, employees may be eligible to purchase additional coverage for themselves, a spouse or child. Here are a few things to look for when evaluating your options.
- What type of coverage is offered? Term life insurance is often the default, but some plans provide options for permanent life insurance. This can be very valuable for those with a long-term need for the coverage.
- Is the coverage portable and/or convertible? Some life insurance plans may allow employees to retain the benefit at their own expense after their employment ends. In addition, the plan may allow a term insurance plan to be converted to permanent insurance. If available, it’s important to study the current and future premium costs and any reductions in coverage that may occur.
- Can I get it for less? The insurance costs for a guaranteed-issue employer plan may be more expensive than a comparable plan that requires medical underwriting. For older employees, or those in poor health, this may be the only option available. Younger, healthier workers often find that they can obtain better coverage at a lower cost on their own.
- How much do I need? The answer to this question will vary based on a variety of factors. While the amount of coverage offered may be sufficient for workers with few financial obligations and no dependents, those with small children and significant debts are often left short. The latter, or those planning a family, should consider a plan of insurance that is not tied to their employer and may be modified over time.
- Who is the beneficiary and who should be? Sometimes these are not one and the same. Sad cases abound of employees that failed to change beneficiary designations after a divorce, only to have a former spouse or partner collect a death benefit. Beneficiary designations should be reviewed periodically and updated when necessary. Be certain that the beneficiary is mature, financially astute, and will manage the proceeds responsibly. When in doubt, a trust may be established to receive and manage the proceeds. Finally, a minor should not be named as a primary beneficiary or contingent beneficiary, as most jurisdictions will require the appointment of a guardian to administer the benefits that are paid. Naming a trust for their benefit is a better choice.
The ability to work and earn a living, for most, provides the foundation of our financial well being and is our most valuable asset. The Social Security administration calculates the odds at 1 in 4 that a 20-year-old worker will suffer a disability prior to reaching age 67. Disability insurance is a linchpin of financial security, and frequently offered by employers as part of their benefits package. A basic employer plan, however, may not be enough to provide the income needed to maintain your current lifestyle, and often contains provisions that make the benefit less valuable.
- Consider the amount of coverage offered and whether it is sufficient to replace your current and anticipated future income. In most cases it will not be. Look at it as one component of a comprehensive disability income strategy.
- Is the coverage portable? Most group disability insurance plans are not portable and ends when employment terminates.
- How is the term “disability” defined? The terms and conditions of the policy will dictate when benefits are paid, so it’s important to understand them. A strict definition of disability- for instance, the inability to perform the duties of your job- is preferable to a more liberal one, such as the inability to perform any occupation that you are qualified for by education and training. Also, be cognizant of how the definition may change over time- e.g., after a specified number of years.
- How long are benefits paid and when does payment begin? Plans may pay benefits until the beneficiary attains a prescribed age- e.g., Social Security Full Retirement Age, or a maximum number of years. Benefits are often subject to a waiting period. Be sure you are familiar with both, and whether your firm has a short-term disability plan that begins paying sooner.
- Are there any offsets or restrictions? Plans may limit benefits for certain disabilities to a period of two years, and are often reduced if the recipient is eligible for Social Security disability benefits. Further restrictions may apply if salary continuation or worker’s compensation benefits are paid.
- Is the benefit subject to income tax? Disability insurance plan benefits that are paid for by the employee with after-tax dollars will be received income tax free, while those benefits paid for by the employer are fully taxable. Some companies will allow their employees to pay for the coverage in part or full.
- What other plan options are available? In addition to the basic long-term disability plan, some employers may offer supplemental coverage that employees pay for via payroll deductions. These plans are generally subject to medical underwriting and are designed to replace a higher percent of income. As with the basic plan, be sure to understand what you are buying and how it integrates with other coverage.
- How stable is your employment? Late career employees in stable professions may find that employer-sponsored plans meet their needs. Younger and more mobile workers should consider a personally-owned plan that is not tied to their employer.
Bottom Line: the likelihood of becoming disabled is high and the costs can be devastating. Having a good plan in place is critical. Understand how the contract(s) work and balance the lower cost of employer sponsored coverage with the flexibility and more favorable terms available in an individually owned disability income insurance policy.
Defined Contribution Retirement Plans- 401 (k), 403 (b) etc.
Retirement plans can be a very effective way to accumulate money for retirement. Here are a few suggestions on how to get the most out of your retirement plan.
- Ask yourself whether you are saving enough to meet your retirement goals. If, like many Americans, you feel you are not, it is important to address the shortfall as early as possible. This topic was addressed in an earlier blog post- How To Rescue Your Retirement Plan From a Shortfall.
- Are you deferring enough to fully capture your employer’s matching contribution? Can you afford to defer more? Familiarize yourself with the current IRS Section 415 (d) employee deferral limits and ask your payroll provider whether these can be adjusted automatically when future increases are announced.
- Is your asset allocation appropriate for your age and retirement goals? Younger workers have a higher capacity for risk, but older workers will still need to keep a meaningful portion of their assets invested in equities to protect against inflation.
- What investment options are available and how much do they cost. Be conscious of fees and avoid investing in multiple funds with similar investment objectives.
- Are you restricted in the frequency or number of changes you can make to your asset allocation, and does the plan periodically rebalance the investments?
- Is there more than one type of plan available? Roth 401 (k) plans are becoming increasingly popular and offer the opportunity to accumulate after-tax retirement savings that are eligible to be withdrawn income tax free.
- Do you have a mix of retirement accounts with different tax treatment- i.e., taxable, tax-deferred and tax-free? If the bulk of your savings is in tax-deferred retirement plans, now might be a good time to begin thinking about tax diversification.
Group Legal Plan benefits may be beneficial if you have a specific need for services. Check the group’s list of providers to ensure that the network contains competent attorneys that specialize in the area(s) of the law that you need assistance.
Commuter benefits are designed to offset the cost of commuting and your employer may pay for some or all of the cost. Any portion paid for by the employee may generally be funded on a pre-tax basis, thus reducing taxable income for the employee and payroll taxes for the employer.
Automobile or homeowners insurance programs may be available through your employer at discounted rates. Before enrolling, compare the rates and discounts to see how they stack up. Insurers may offer loyalty credits and discounts that make switching coverage less attractive.
Long term care insurance plans are offered by some larger employers and the federal government. Private employer group long-term care plans utilize individual long-term care insurance policies that are then bundled together with a group discount. Participants must be healthy enough to qualify for coverage and the plan may offer somewhat limited benefits. Still, for those that qualify, the coverage and pricing may be compelling- particularly for women whose rates tend to be higher.
Employee benefits are the building blocks of a successful financial plan. Evaluate them with your financial planning objectives in mind and be prepared to look at alternative options if they don’t meet your needs.
John Male, CFP®
The Gassman Financial Group
G&G Planning Concepts, Inc.
The Retirement Maven ™
9 East 40th Street, Suite 1500
New York, NY 10016
Tel: 212-221-7067 Ext. 17