How You Can Maximize Your Employee Benefits

By Egan on August 25, 2021

Open enrollment is here, and reviewing your options when it comes to employee benefits is vital for success in the new year. This may be an intimidating process, or perhaps, something you don’t think about because you are pleased with your benefits from past years. Even if that is the case, it can be helpful to review your benefits because some may have changed slightly from last year.

Before diving in, it is imperative to understand which “type” of employee you are. We generally see folks fall into one of three categories, all of which have an opportunity.

1. Overachiever
   1. This person reads through the benefits manual in full every year and creates spreadsheets to determine which plans best suit them. The problem is that they’ll usually discount or skip certain benefits altogether because one time when they were young someone said, “don’t ever do X” (think FSA’s and their confiscatory policies). There is some opportunity if you fall into this category.
2. Stick-with-what-works
   1. This person – who arguably has the most opportunity – set up their benefits enrollment when they joined the company and they won’t make any changes unless they’re forced to. They often don’t take full advantage of what is offered, including 401(k) participation at a level that maximizes matching funds; Employee Stock Participation Plan (ESPP) involvement is far less likely, and they give no consideration to how new laws/regulations and limits affect their choices and ultimately their life.
3. Unconcerned
   1. This employee is similar to the stick-with-what-works individual, in that they “set it and forget it” with their benefits. Maybe the company has changed what they offer; maybe the company has gone public since they started. This employee doesn’t care what those changes are or how they could benefit unless they’re forced to act on something by an outside force.

Now that you have identified where you fall on the spectrum of employees, here are the main benefit areas we recommend reviewing each year.

Healthcare

For most people, the largest component of their benefits package — and arguably the most important — is health insurance. Especially amidst a pandemic, you’ll want to carefully examine your health insurance options and costs. Many companies change plans and premiums regularly, so your options may not be the same as last year — you may even save money by reviewing your options and going with another plan.

In addition to looking at your own company’s health insurance options, if you are married, you’ll want to look at your spouse’s insurance. It may make more sense this year to go on your spouse’s plan, or have your spouse join yours, depending on what changes have been made.

If you are looking at a high deductible health insurance plan, you will be eligible for a health savings account (HSA) to help offset some of the higher costs of health care. HSAs offer triple tax benefits: all contributions are tax-deductible, contributions grow tax-deferred, and withdrawals are tax-free when used for eligible health care expenses.

A few other things to compare when it comes to your health insurance options include:

• Premiums
  • Note: a lower premium may look like a great savings, but you could end up paying more if the coverage is not what you need or your preferred doctors are out-of-network.
• Deductible
• Co-pays
• Total out-of-pocket limits

Deferred Compensation

One area that is sometimes overlooked by employees during open enrollment is deferred compensation. Deferred compensation can include pensions, retirement plans, and employee stock options. The specifics at each company vary but, generally, there are two types of deferred compensation plans: qualified or non-qualified.

Qualified deferred compensation plans comply with the Employee Retirement Income Security Act (ERISA) and include 401(k) and 403(b) plans. These types of plans are required to have contribution limits and to be nondiscriminatory, open to any employee of the company, and beneficial to all.

A non-qualified compensation plan is a written agreement between employer and employee in which part of the employee’s compensation is withheld by the company, invested, then given to the employee at some point in the future. These types of plans don’t have contribution limits and can be targeted to just certain employees, such as top executives. Keep in mind, if you have a non-qualified compensation plan, your employer may keep the deferred money as part of the company’s funds, which means that money is at risk in the event of a bankruptcy.

Other points to know when it comes to deferred compensation plans include:

• Tax benefits: Deferred compensation plans reduce income in the year an individual puts money into the plan and allows that money to grow without annual tax being assessed on the invested earnings.
• Capital gains: When a deferred compensation plan is offered as an investment account or a stock option, it has the potential to increase capital gains over time.
• Pre-retirement distributions: certain deferred compensation plans allow participants to schedule distributions based on a specific date, also known as an in-service withdrawal.

To learn more about your specific situation when it comes to deferred compensation plans, reach out to a financial advisor.

Stock Compensation

As mentioned in the previous section, stock options are a type of deferred compensation plan. In recent years, they have become quite popular in the business world – especially within tech companies and startups. If your company offers either stock options or restricted stock units (RSUs), it’s important to know the differences between the two before you jump in.

Stock options allow you, as an employee, purchase equity in the company at a determined price within a certain window of time. You by no means have any obligation to purchase the share but are given the chance if you believe in the strength, direction, and well-being of the company. Generally, one stock option contract represents 100 shares of the company that you are buying into.

One of the largest benefits to stock options is that you get to buy them at a specified price that may end up being much less than what the stock is worth on the market when the option actually vests.

Other benefits

After reviewing your healthcare options and deferred compensation plans, there are still a myriad of other benefits you may see during your company’s open enrollment, including but not limited to:

• Short and long-term disability insurance
• Supplemental life insurance
• Legal benefits
• FSA/Dependent care benefits
• Pet insurance

We strongly encourage you to review all benefit options in-depth even if you fall into the personality type of “stick-with-what-works” or “unconcerned”. Push past your boundaries because you may realize there is a benefit that could be significant. And if you have questions or are just looking for a second opinion, don’t hesitate to reach out to us to set up an introductory meeting.