Open enrollment excitement!
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Making the optimal employee benefit elections can mean protecting your family in case something unexpected happens; improving your overall long-term financial security; and saving you money!
Health Insurance
A very common employee benefit is health insurance. If there are multiple plan options, how does one choose the best? In general, low healthcare users who don’t see the doctor often, don’t take costly prescriptions, and don’t anticipate expensive procedures can save money by choosing a high-deductible health plan (HDHP). Frequent healthcare users can benefit financially from choosing a low deductible plan, like a PPO (preferred provider organization).
HDHPs come with higher deductibles, lower premiums, and a health savings account (HSA) component. Lower premiums, along with receipt of any employer HSA contributions, can make this the more inexpensive option. PPO plans include lower deductibles and higher premiums, with no HSA component. However, if larger health care expenses are expected, often paying the higher premiums can mean less out-of-pocket medical expenses, making this a more beneficial option.
An entire article could be written on selecting a health insurance plan alone! Consider anticipated healthcare usage, in-network vs. out-of-network care providers, any known prescriptions, and employer HSA contributions when comparing health insurance options during this open enrollment period. It just could save you some money!
Disability Insurance
If short-term and/or long-term disability insurance coverage is offered as an employee benefit, consider yourself lucky! According to the Social Security Administration, 25% of 20-year-olds in the U.S. can expect to take disability-related leave before retirement.
Disability insurance covers a portion (typically 50% – 70%) of income if the insured becomes ill or injured and unable to work for a period. Electing the maximum amount of disability coverage available is likely a no-brainer, especially if dependents are counting on your income. This important coverage is often much more cost-effective when offered as a group benefit versus purchasing individual coverage, making it an even easier decision to elect coverage during open enrollment.
Life Insurance
Often, employers offer a certain life insurance death benefit to employees at no cost, and employees can choose to pay for additional coverage. Group life insurance can be an easy and inexpensive way to obtain life insurance coverage.
If you have dependents and have purchased no additional life insurance outside your employer, take advantage of this benefit during open enrollment. Determining the appropriate amount can be tricky (and, again, an entire article can be written on this topic alone!), but in general, having enough life insurance to pay off any debts (mortgage, home equity loan, car loan, credit card debt, etc.), at minimum, is recommended.
Consider purchasing level-term life insurance outside of your employer, as well. If you switch jobs in the future, you are subject to the life insurance coverage that your new employer offers. Term life insurance remains in place regardless of employment changes. A level-term life insurance policy has steady premiums over the life of the policy, meaning the premiums will never increase. Group life insurance coverage is often subject to age-banded premiums, meaning your premiums will increase as you age.
Retirement Plans
Ever heard of free money? Make sure you aren’t missing out on any from your employer in the form of an employer 401(k) or 403(b) matching contribution. Employers often offer a matching contribution, typically 3% or more, if the employee contributes a certain percentage. If the employee doesn’t contribute, the employee misses out on the employer’s contribution (free money!). At a minimum, make sure you are contributing enough to maximize your employer-matching contribution.
Many employers offer an automatic contribution increase program for 401(k) or 403(b) savings accounts. These programs automatically increase annual contributions by a small margin (usually 1%) to increase overall savings. Since expenses tend to increase over working years, so should retirement savings to account for expanding lifestyles.
Dependent Care FSA
Do you have kids in daycare? If your employer offers a dependent care flexible spending account (FSA), make sure you are taking advantage! A dependent care FSA allows yearly pre-tax contributions of up to $5,000 (per single filer or MFJ filers). Once eligible daycare or nanny expenses are incurred, reimbursement from the account can be submitted tax-free. Contributing and receiving reimbursement from this type of account means a discount on daycare expenses.
Before enrolling in a dependent care FSA, be sure to determine the eligible expenses and use-it-or-lose-it provisions associated with the plan. Often, you need to get reimbursement from the dependent care FSA for the year the expenses were incurred, or you lose the money you contributed.
Summary
The benefits discussed in this article are important but not an all-encompassing list of the employee benefit options that could be available. Take time to understand available options and determine how they can benefit your situation each year. If you have specific questions regarding your benefits, contact your financial advisor for help!
Abby Presley, CFP, is a Wealth Advisor with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.bedelfinancial.com or email Abby at AVanDerHeyden@bedelfinancial.com.