Benefits Open Season

We are fast approaching “Open Season”, that time of year when those working for companies and institutions are asked to select their benefits for the upcoming year.  It can be confusing to sift through all the options and figure out what is really best for you and your family.  Worse yet- you’re likely stuck with your choices for the whole next year.  So it’s important to take a little time and think it through.

Each company’s or institution’s options are a little different, but there are some core ones that tend to be in most plans of the larger employers.  The two we hear most often about are health insurance and retirement plans.  But there can be other types of insurance:  life, disability, long-term care, dental and vision, as well as Flexible Spending accounts:  medical or dependent care.  

Health insurance has always been the 800 pound Gorilla of employer-provided benefits.  The Affordable Care Act may have some impact on that, but for the most part it is still probably the most valued benefit.  It has gotten more complicated over the years as choices have increased.  You’ll often find base plans and “buy-up” plans.  You may now see high-deductible options.  Which do you choose, and do you always choose the same option?  In answer to the second question, not necessarily.  Yours or a family member’s health may have changed.  Maybe you’re expecting a baby this year, and the buy-up plan covers more. Perhaps your financial situation has changed and you can’t risk covering as much, so the slightly higher premium but lower out-of-pocket plan might work better.  Read carefully and crunch a few numbers.  I’ve seen cases where the difference between two options really wasn’t much unless a specific situation or two applied to you.  Buy what best balances known costs now (premiums) with potential costs (deductibles, co-pays, etc.)  if something goes very wrong.

Retirement plans- typically 401k and 403b plans- are another highly valued benefit.  These sometimes aren’t limited to open-enrollment season like the others, but it’s still a good time to review what you’re doing.  Are you participating?  Does the company match some of your contributions?  Are you getting that match?  Have you increased your contributions in the last few years?  Some plans are now being set up to automatically enroll new employees and also to automatically increase the contributions over time.  Remember, a 1% increase in contributions costs you less than 1% (deferred income taxes).

Other insurance options which are important, but often less discussed, include dental, vision, disability, life and long-term care (LTCi).  The first two are usually a good deal if you need those services.  Dental sometimes comes with different plan levels.  The major difference for most people is braces.  Higher plans pay for more.  On the life insurance front, and for the LTCi too, you need to decide whether to join the company group plan or buy them on your own.  The group plan can be good if you’re health isn’t ideal as underwriting is often less stringent, especially on the life insurance front.  But if you are healthy, group rates are often more than private policy rates.  Just be careful, especially now, that you don’t drop your group coverage before you can put private coverage into place.  You could end up completely uninsured.  Disability insurance is usually a little more complicated.  At some employers, long-term coverage is a free benefit; but at others it’s part of the benefits selection process.  Assuming you’re having to choose it (not free), like life insurance, the group version through employers can be better for those in poorer health due to laxer underwriting.  But very healthy people can often do better on their own.  In at least one instance I’ve seen an employer give employees the option to pay the DI premium themselves (firm ran the money through their paycheck (imputed income) rather than the employer.  The benefit of this?  It makes any payments from the policy tax-free.

Then there are the flex-spending accounts.  There are two types- one for healthcare and another for and another for dependent care (child under age 13, any disabled dependent, disabled spouse).  They are similar, but people often avoid these because of their “use it or lose it” provisions.  If there’s money left in the account at the end of the year, it reverts back to the company.  People don’t like that.  But even then you might come out ahead as long as what reverts is less than what you would have paid in state and federal income tax on the money put into the account.  Put $500 into an account with your combined state and federal tax being 20% and as long as you spend more than $400 you’re ahead.  By the way, social security taxes aren’t withheld either (though over time this could slightly lower your social security benefit at retirement).  One major difference between dependent care and healthcare accounts is the rate at which you can spend the contributions.  In the dependent care accounts you can only be reimbursed funds which are in the account (pay as you go).  Assuming you contribute a little each pay period, you may have to build up funds before you can be reimbursed.  Healthcare works a little differently.  Whatever you commit to contributing for the year is fully available as of the first of the year.  So commit to $1,200 for the year ($200/month), and if you have a $1,200 reimbursable expense at the end of January, you can be reimbursed for the whole thing right then.  You’ll spend the rest of the year “paying back” the money the employer essentially fronted you.  What if you leave the employer during the year?  You don’t owe that money to the company.  So see, the company has a little risk too.  There have been some changes in the healthcare rules in recent years.  Over-the-counter medicines are no longer reimbursable.

So don’t just haphazardly pick your benefits options.  Think about what you’ve done and spent in past years. What do you anticipate this year that might be different?  Did you buy private life insurance last year?  Maybe you can drop some or all of  the group.  These benefits are valuable- make the most of them.

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