Companies of all sizes, no matter how big or small, are likely to provide some form of company benefits. However, not all benefits best fit the employee’s needs, so it is important to understand how to integrate benefits within an overall financial plan.
For the employee, the first considerations are about Medical Insurance:
- Are you offered a plan, and is it subsidized by the employer?
- Does your spouse’s employer also offer a plan?
- Do you have any possibility of getting an exchange-based medical plan and premium tax credits?
- Do you have the option of a High Deductible Health Plan with a Health Savings Account? Is it more logical to get premium savings and accumulate these savings in a tax free Health Savings Account that is yours forever?
[note: In making decisions about medical insurance, the most common mistake is to psychologically reject the High Deductible Health Plan and the Health Saving account believing that a low deductible plan saves you from future catastrophic medical bills.]
To get the most out of your employer’s medical insurance benefit, these are just a few of the questions to consider.
The employee’s next benefit questions are about the 401K, 403B or another form of employer savings plan:
- How much must I contribute to get the maximum match from my employer?
What is the maximum amount I can put into the savings plan based on my age and position in the company?
- What are the investment options and what are the fees associated with the plan?
- How should I invest my contributions?
- Do they offer both a Traditional Pretax Savings Plan and the Post tax Roth feature of the savings plan? If I have both to which one or what combination of the two should I contribute?
[note: The most common mistake employees make is failing to vocalize any disapproval of high fees or lack of a Roth feature in your employer savings plan. The Post tax Roth is usually the best option for young workers.]
In reviewing options note that high fees can truly eat away at lifetime assets for retirement, so research thoroughly to get the most out of the employer savings plan.
While most employers offer some form of Medical Insurance and Employer savings plan, far fewer offer any form of Long Term Disability and even less have Short Term Disability, so ask:
- Does your employer offer disability insurance and, if so, is it only if out of work for years [known as long term disability] or does it cover only the first 90-180 days of disability [known as short term disability]?
- How many days must you be out of work to make a claim?
- What is the definition of disability? [ remember the legal language of the contract determines if you qualify as disabled]
- Can you be partially disabled and still collect something to bring your income back to the pre-disability amount?
- Does your disability plan allow for money to continue to be accumulated in an
- Employer Savings Plan or Pension Plan?
- How much of your pay is insured?
[note: The most common mistake is to allow your employer to pay your premium income tax free. If the employer pays the premium income tax free to you, then if benefits are ever received they are taxable as ordinary income. If the employer pays the premium which is taxed to you as wages, then the benefits received would be tax free.]
Among the considerations around Short and Long Term Disability Insurance, every employee should insist that employer paid disability insurance premiums be taxed to the employee as wages, so that if any benefit is received in future years they will be tax free.
Group Term Life Insurance is the next consideration. Supplemental Group Term Life is probably the most misunderstood of all the benefits because many believe that the company is subsidizing the premiums. Most companies give some amount of Group Term Life Insurance to you for free and in the typical large company the amount is one times your salary. The free part is a nice benefit, but the part you pay for, the Supplemental Group Term Life, is questionable for most healthy employees. Additionally, your Group Term Life is only available as long as you are an employee. Yes, the policy can be kept and converted to a personal policy if you leave your employer, but the cost is so absurd that only the terminally ill would even consider the concept. If your Group Life is needed for family risk management in the event of death, then having your policy tied to your employment is not logical unless you own the company.
The biggest reason Supplemental Group Life Insurance is not a good deal is because a non-smoking healthy individual can purchase a personally-owned policy at substantially more favorable terms. Many a client has come to do a Financial Physical only to discover the $300,000 of Supplemental Group Term Life is costing them about double the cost of a private term life policy over the next 20 years. (A plan may have seemed cheap at $30 per pay, but the real metric is cost per thousand of insurance, over the life of the policy.) Supplemental Group Term Life premiums increase every year your age is divisible by 5. One of the most dubious Group Life policies is the US Government’s FEGLI (the only exception is someone 60 or older who has been buying FEGLI group life for their entire federal career). Talk with your Consulate Advisor if you feel that Supplemental Group Term Life is a benefit you need to review, for there are many issues that need to be addressed before cancelling.
Finally, in discussing benefits plans, you need to consider junk benefits such as Accidental Death, Hospital Insurance, Cancer Insurance and other types of insurance ‘gambling’ policies. I use the word gambling for these kinds of policies because they have no true risk management purpose, rather, they merely deal with a general fear as opposed to the policies above which all deal with a broad risk such as Death, Disability or Medical expenses. When broad risk is isolated into a specific kind of disability, a specific kind of death or a specific kind of medical expense, the policy is now gambling that this will occur and if so ‘you or your heirs will get proceeds’. If you desire to spend any amounts of your pay on these policies, then it should be considered a personal choice with no true benefit unless the situation occurs. For example, Accidental Death only pays if you die in an accident, but how does the insurance company define an accident? If you have a horrific accident and end up in shock trauma fighting for life for 30 days, then you die on day 31, does your death fit within the coverage period? Probably not, since most accidental death policies only pay if death occurs in a specific time frame. On top of that, if after the accident you die within the timeframe, but due to pneumonia or MRSA infection, then you would receive no accidental death payment even though the accident caused you to be vulnerable to the disease. In our view, companies would be wise to eliminate junk benefits from their employee benefit lineup.
For many employees fall is the season when their employer is in open enrollment. So, as an employee, if you need help understanding and making decisions about your company benefits, call or email your Consulate Advisor to assist you in the selection process. This is what a Professional Personal Financial Management company does as a comprehensive advisor. As a Personal Financial Management client you pay for the service if you use it or not, so it is our pleasure to help lessen the worry or burden of benefits decisions for you.