It’s that time of year when goblins ring your doorbell and employer benefit enrollment information pings your mailbox. Employers use these benefits to entice us to join and remain at their companies, but personally owned options may be a better choice. Do you know if your benefits are a trick or a treat? Sometimes, you need to pull off the mask and find out!
Retirement Savings Plan
Employer retirement savings plans, such as a 401(k), are almost always a treat. You receive a tax deduction on your contribution, the money grows tax-deferred and your employer may even match your contribution up to a certain percentage. Free money anyone? What’s not to like!
Just make sure your investments are diversified and not concentrated in one security or sector, such as your company stock. The account is in your name, so once you leave your employer you can roll the account to an IRA or your new employer’s retirement plan. Some matching contributions are subject to a vesting schedule. If you depart before you’re fully vested, be prepared to leave some of that match behind.
Employer-provided health insurance plans can be tricky, but usually they’re a treat. Review all available options to determine which plan best meets your needs. You should also review your partner’s health coverage to see if his/her employer’s coverage is better or less expensive than your coverage.
Many employers switched to high-deductible health plans with a health savings account (HSA) feature. The treat this coverage offers is lower premiums and the ability to pay for medical expenses with tax-free dollars. The tricky part is the high deductible. With the exception of covered wellness visits, you’ll pay out of pocket for your medical costs until you meet the deductible. That can be $6,000 or more!
If you leave your employer, you’re eligible for COBRA insurance. COBRA lets you stay on your former employer’s health plan for 18 months. When you elect COBRA, you become responsible for the full cost of the monthly premium – your employer no longer contributes.
What happens to your medical coverage if you become sick and take a leave of absence? If the Family Medical and Leave Act (FMLA) applies in your situation, your employer is required to continue to offer you health insurance until FMLA coverage is exhausted. Employers vary on how much, if any, of the premium they will continue to pay. Moreover, since your leave is usually unpaid, you will need to pay your portion of the premiums out of your checking account. When FMLA coverage ends, you typically have the option to elect COBRA.
Many employers offer life insurance, which is often a paid benefit, in the amount of one times your salary. You may have the option to purchase additional coverage with your employer. The treat with this coverage is that there’s typically no medical underwriting, and the pricing can be reasonable. However, the tricky part is that most employer life insurance pricing is based on age-bands. Coverage is reasonable when you are in the 25-30 age bracket, but maybe not so much if you’re in the 60-65 age bracket. When you purchase your own level-term coverage, separate from what your employer offers, the premium never changes. And, if you leave your employer, you’re still covered by your own policy!
What happens to your employer life insurance benefits if you become sick and take a leave of absence? Or, what if you can’t return to work? Some policies allow you to convert your employer group coverage to individual coverage, but beware, your premiums will be much more expensive. You’ll need to contact the life insurance company that issued the group coverage to determine if your policy is convertible.
Disability coverage is an often overlooked, but important, type of insurance. The average worker has a 30 percent chance of being disabled during his/her career. Could you live on your existing investments if you are unable to work? Some employers offer group disability insurance which often pays 60 to 70 percent of your current work income. That’s a treat! Be sure you understand the policy provisions, including the definition of disability (very tricky), the elimination and benefit periods, and inflation protection. Not all employers offer disability insurance. So, if you have it and then change jobs, you might need to purchase an individual policy, and that can be expensive.
When that benefit packet hits your inbox, don’t automatically enroll in what you had last year. Your needs change as do the benefit plans. Take full advantage of employer benefits, but don’t overlook a need to supplement with personally owned coverage where necessary. Benefits should be a treat basket, not a bag full of tricks!
Meredith Carbrey, CFP, is a Senior Wealth Advisor with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at bedelfinancial.com or email Meredith.