What's the Benefit of Those Employee Benefits?

What's the Benefit of Those Employee Benefits?
by Kate Lyons
September 16, 2016
For our series, Money Talks, we’ve partnered with Kate Lyons of Holberg Financial to answer all the tricky questions about budgets, salaries, 401ks, 403bs...well, you get the idea. Today, we talk employee benefits. 
We all know employee benefits matter, but does that mean you can actually explain them?
So you got the job—yay! All you can think about is starting your new position (and your new salary), and then the HR department starts handing you packets about medical insurance, life insurance, HSAs, 401ks... What do you do with all of that?

For a lot of us, we gloss over the small print and struggle through the choices. Sometimes there’s an HR person to help us through, but often times we’re on our own. Sometimes, we don't even open all the envelopes. Well, it's time to get a working knowledge of some of the most common company benefits. Trust us, it's not as terrible as it seems. 

(Just a quick note: benefits vary by company size—employers with over 50 employees are held to different, more stringent standards than smaller employers. The following should give you a general guideline, regardless of your company culture.)

Retirement options

One benefit you’re most likely familiar with is your retirement plan (even if the plan itself is confusing). They feel so ubiquitous that we often forget that they fall into the “benefits” category. But according to the PEW Charitable Trust, only 58% of Americans have access to work retirement plans. Not so common after all. 

If you're lucky enough to have a retirement plan provided by your company, it may be called any number of names, but the most common are 401ks (for-profit companies), 403bs (non-profits and some schools), or some type of pension (government jobs and some schools).

One of the best parts about work retirement plans is that many companies will “match” your contribution up to some amount. This literally means that they are willing to give you extra money if you save for retirement. Of all benefits out there, getting an employer to match your retirement contributions is one the best things in the world. Get this: if you have a dollar-for-dollar match up to 5% of your salary, that means that you will retire with just over $600,000 more than if you didn’t have a match at work (assumes you have an annual salary of $40,000). So that match? Worth it. It’s the closest thing to free money you’ll ever get.

If you're part of the 42% of us who don’t have retirement plans at work, you should consider opening and saving via an Individual Retirement Account (IRA). We won’t go into detail about those here, but you definitely want to make sure you’re saving for the super long run now rather than later—those years will slip by quicker than you know.

Medical Insurance

Employers with over 50 employees are required to offer health insurance to their full-time employees. For large companies, those plans may be run internally. But employers with fewer than 50 employees might also offer plans through state exchanges. There are a few items worth mentioning that hopefully demystify the health insurance registration process and make long-term financial sense!

The first issue to think about when choosing health insurance is how often you plan on using it. Do you frequent specialists? Take an expensive medication? Have a pre-existing condition? If so, a plan with a lower deductible might make sense. Typically, these will be more expensive on a monthly basis but will hopefully save money over time as you use the plan more.  

Co-pays

What you pay out of pocket for a visit. For example, if you have a $10 co-pay and a visit to your doctor costs $100 total, you’ll pay $10 and the insurance company will cover the remaining $90.

Deductibles

What you pay out of pocket for expenses before insurance kicks in. Often times, many types of appointments are covered by insurance before reaching your deductible but it’s worth checking with your plan administrator to ask for specifics. Deductibles generally range from $1,000 to $2,500.

Networks

To save money, many insurance companies have groups of pre-vetted/trusted doctors which they consider “in-network.” In-network doctors will generally be cheaper to visit because they offer discounts to patients. You can find out the doctors in your network by using the insurance website or a service like ZocDoc.

Dental and Vision

Most employers offer free or very affordable dental and vision plans. These are generally straightforward and there aren’t usually a ton of options.

Life Insurance

Many large employers offer a basic term life insurance policy as a basic benefit. You’ll be automatically enrolled and asked to identify beneficiaries. If you would like more coverage than the company automatically gives you, you can sign up for supplemental life insurance that will be a small amount each month. If you don’t have kids yet, usually the basic plan will be enough coverage. Here are some of the difference life insurance formats:

Term

A lower monthly premium gets you covered by life insurance as long as you (or your company) is paying the premium. Outside of employer plans, people usually get term insurance when they have children to help in case of an emergency.

Whole

A much higher monthly premium that you pay for over a defined amount of time which accumulates a cash balance (it can even be used as a loan if needed). This is not typically offered by employers so individuals find plans and sign up on their own. If you’re thinking about getting a whole life insurance policy, know that they will factor in your health, age, and other factors so it can be beneficial to consider sooner rather than later, but do your homework because there are a whole lot of insurance salespeople out there dying to sell you insurance (as the old adage goes: caveat emptor or “buyer beware”) so be on your guard. Don’t blindly take the first insurance that is pitched to you—there might be better choices out there.

Health Savings Accounts

While they might seem like fringe or less important benefits, health savings accounts are awesome in helping you to really maximize your financial life. Most people have some type of health care cost in the course of the given year whether it is getting a cast for that twisted ankle playing co-ed soccer or just regular routine checkups, prescriptions, and other health care costs that you expect you'll need. Either way, all you have to do is estimate roughly how much you think you might spend, and then spread that out as monthly savings to either your Health Savings Account (HSA) or your Flex Spending Account (FSA).

Say you normally spend $500/year in doctors visits, check-ups, and prescriptions and you think you might have some other costs, maybe $250 or so. You could set aside $62.50 of your budget each month to help cover these costs. But why even bother? HSAs and FSAs will do that for you as they're tax-deductible accounts, which saves you moola when tax season rolls around (#winning.)

Just read the fine print because most FSA accounts do not rollover. That means any extra money in your account vanishes at the end of the year faster than Houdini from his stage. If you do have money leftover, there are various ways to spend it before it's gone—on things like prescription sunglasses depending on your plan. Unlike the FSA, the HSA money won’t magically disappear each year, but the HSA is only available to those who enroll in high-deductible health plans (HDHPs), so really think about what you expect from your healthcare costs, and do some independent research to make sure you’re picking a health care plan and a health savings account that best works for you (here’s a solid article about HSAs and FSAs from Forbes to keep you learning).

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These benefits are only a handful of examples of what exists out there and if you work at a place that really goes out of their way to invest in you, you might have some meals provided at work (saves on food costs), day care options, gym memberships, dry cleaning services, flex scheduling, additional vacation days, and things like education and/or professional development reimbursements. Whatever you have available to you, take advantage of them! That’s why they exist and don’t be afraid to seek out help and information in understanding all of these benefits because your employer set them up to be used and to be useful after all, so we might as well benefit from all those benefits!
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