Fall… the season of Pumpkin Spice Lattes, woolly socks, orange leaves and — for many of us — open enrollment. Yep, it’s time again to figure out if you want to make any changes to your company’s employee benefit plan. But no matter what time of year your enrollment period rolls around, here are some things to keep in mind.
First off, this should go without saying: Generally, you’ll receive an email about open enrollment by your company’s human resources or benefits department. Take this notification seriously, since, according to the U.S. Bureau of Labor Statistics, employee benefits account for around 30.4% of compensation.
Health insurance is perhaps the most familiar and costly employee benefit. With many changes going on in the healthcare landscape, it is important that you take some time to look at your situation make the right choices from the options offered.
You will want to consider whether the doctors and other healthcare providers you use are covered in a given network. What are the deductibles under the various options? Of the services you and your family use most, what’s covered and what isn’t?
Options such as a PPO, HMO or high-deductible plan may be among the options offered. Everything can have its place; it will depend upon your situation and your needs.
FSA or HSA?
There are a couple of ways to cover qualified medical and dental expenses with pre-tax dollars.
The flexible spending account (FSA) allows you to have money withheld from your paycheck on a pre-tax basis and then use this money to cover qualified medical expenses during the year. Items covered are mostly medical and dental expenses, including deductibles, prescription drug costs and a host of others.
The FSA has a “use it or lose it” clause. This money cannot be carried over to the following year if unused. When going with this option, you will need to do some planning to ensure you don’t waste any funds here. Near the end of the year, vision providers and others will typically run ads to target those with remaining FSA dollars.
A health savings account (HSA) is available only in conjunction with a high-deductible health insurance plan. These plans require a minimum deductible of $1,300 for an individual and $2,600 for a family.
The HSA is similar to the FSA in that pre-tax money deducted from your paycheck can be used for qualified medical expenses. The differences include the fact that unused money can be carried over from one year to the next. In fact, HSA money can be invested in long-term investment vehicles in much the same way an IRA can.
Ideally, you can pay for out-of-pocket medical expenses from other sources and allow the HSA funds to accrue to cover qualified medical expenses in retirement. According to Fidelity, the average couple aged 65 will spend $260,000 on medical costs in retirement, and this amount is not decreasing.
The limits on HSA contributions for 2018 are $3,450 for individuals and $6,900 for families. Those over 55 can add an extra $1,000. In addition, some employers may make contributions to your account as well.
Disability insurance is essentially “lifestyle insurance.” This coverage provides income in the event you suffer a disability and are unable to work. This coverage is often considered more important than life insurance in that you are more likely to become disabled than you are to die.
Plans and coverage levels vary, but a typical benefit is 60% of your salary. Your company might offer long-term and short-term coverage, each with different requirements to be met prior to collecting a benefit.
Group disability insurance offered via your employer is generally cheaper than buying it privately, and there are no health questions to be answered. On the other hand, those with high incomes should check to see if there are income caps on the amount of coverage, and those who earn a substantial amount of their income from bonuses or commissions should check to see how much of that type of income is covered.
Group life insurance has its pros and cons. On the plus side, there are usually no health questionnaires that are common with private life insurance.
On the con side, the coverage can be expensive or limited in terms of the death benefit, and it may or may not be portable if you leave your job.
Employers often use the open enrollment period to roll out any changes to their 401(k) and other plans.
These might include changes in any match offered, new investment options or other aspects of the plan.
While making changes to your investment options or contribution levels is not restricted to this once-per-year period, be on the lookout for any changes in your 401(k) that might be announced during this time period.
What to do if you think changes to your plan don’t quite pass the “sniff test”? For free, the Blooom app can give you the lowdown on the health of your 401(k). And Personal Capital gives its users access to a handy “Fee Analyzer” tool. (If you need more help in determining if your company’s 401(k) sucks or not, check out our handy guide.)
Other Benefits and Considerations
The full menu of benefits offered by employers varies from company to company.
Dental benefits are common, and there may be benefits such as child care, transportation, parking and a number of others available to you. Some will be at no cost; others will require you to pay for them.
In making your decision, evaluate your needs, your situation and the cost and scope of the benefits offered.
Open enrollment is also a good time to take a look at your family situation in determining who needs to be covered and factoring in any changes.
Major changes like marriage, divorce, death of a spouse and the birth or adoption of a child should be considered. While changes like these can be adjusted for if they occur during the year, you should take your current family into account when making benefit choices. Do you have young adult children who are younger than 26 and need coverage? They can be included in your health insurance if needed.
Your employee benefits account for a significant percentage of your compensation. Benefits such as health insurance can mean the difference between receiving the care you need at a price you can afford and forgoing that care or having the cost ruin you financially.
Take the time to really understand all of the options available to you from your employer. Making the right choices can have a positive impact on your overall financial picture.