While salary is one of the most important employee benefits to consider for any job, it certainly isn’t everything. Whether you’re evaluating job offers or simply reviewing options at your current workplace, understanding everything available to you is the key to properly evaluating a job opportunity and ensuring that you don’t leave anything on the table.
Though many of our clients and readers are well-versed in their own benefits options, it can be challenging to consider all angles of a benefits package at the early stages of your career, or conversely, difficult to re-assess as life progresses and your needs change. To clear up confusion, we’ve created this guide to serve as a summary of the most common benefits provided by employers, with some helpful hints to help you navigate the world of employee benefits as you review your options.
Employer-Provided Insurance Coverage
What to consider:
- Dental & Vision
- Disability – short and long-term
- Life/long-term care
Health insurance is one of the most essential components of total compensation, and you’ll want to closely examine this as a potential or current employee of a company. Within the offered health insurance plan(s), there could be a variety of available options for you to choose from. It’s critical to evaluate and understand the difference between each option so you can pick the one that best fits your needs. To effectively review your choices, you’ll first need to understand some of the acronyms you’re most likely to encounter.
HMO vs. PPO
Your employer will likely offer one of two types of insurance plans: Health Maintenance Organization (HMO) or Preferred Provider Organization (PPO) plans. HMOs tend to be more affordable, but you’ll usually get less coverage and face more restrictions. PPOs are more flexible and provide greater coverage but typically come with a higher price tag and a deductible, or a specified amount that you must pay before the insurance will cover a claim.
|Access to a network of doctors, hospitals, and other healthcare providers||Yes||Yes|
|Ability to see the doctor you want without a Primary Care Physician (PCP) to authorize treatment||Yes|
|Referral from a Primary Care Physician (PCP) not needed to see a specialist||Yes|
|Low or no deductible and generally lower premiums||Yes|
|Coverage for medical expenses outside the plan’s network||Possibly|
HSA vs. FSA
If one of your health insurance choices is a high-deductible health plan (HDHP), you may have the option to contribute to a health savings account (HSA). Your company may also offer the option of a flexible spending account (FSA). Both HSAs and FSAs allow employees with employer-offered health insurance to set aside money for health care costs referred to as “qualified expenses,” including deductibles, copayments & coinsurance, and monthly prescription costs. See the chart below for distinctions between the two. For a more detailed explanation and strategies for using an HSA, please see our previous post on the topic here.
|Health Savings Account (HSA)||Flexible Spending Account (FSA)|
|Eligibility requirements||Must have high-deductible health plan (HDHP)||No eligibility requirements|
|Changing contribution amounts||Can change amount any time during the year||Only change at open enrollment or change in family status|
|Rollover||Unused balance rolls into next year||“Use it or lose it” and forfeit unused balance|
|Connection to employer||Can follow you as you change employers||In most cases, you’ll lose your FSA with a job change|
|Effect on taxes||Contributions are tax-deductible or can be taken out of pay pre-tax; growth and qualified distributions are tax-free||Contributions are pre-tax and qualified distributions are tax-free|
Remember that once you make your selections and enroll in desired benefits, you’ll only be able to make changes to your plan once per year during the Open Enrollment Period. As an exception to this rule, qualifying life events like marriage or the birth of a child can deem you eligible for a Special Enrollment Period. To plan efficiently within this constraint, take time to anticipate what may be ahead in the upcoming year and choose the best insurance options accordingly.
Dental & Vision Insurance
Dental plans vary widely, so it is recommended that you take the time to know how your plan is designed, since the details will likely affect what you pay for out-of-pocket expenses. Most plans will cover 100% of preventive care such as semi-annual cleanings and x-rays. Because of this, it’s crucial that you make the most of all covered preventative care, thus reducing the likelihood that you will require major dental work that can be exorbitantly expensive and not covered by insurance. If you have questions about your coverage, contact your employer’s benefits department or your dental insurance plan directly.
When it comes to vision insurance, if you wear eyeglasses or have other issues with your vision, you’ll also want to review whether group insurance can be obtained through your company. When you opt for vision insurance you typically receive the benefits of access to a network of providers (including optometrists, ophthalmologists, eyewear stores, and LASIK surgeons) as well as routine, preventative eye care services at reduced rates. Vision plans generally cover or provide discounts for annual eye exams, eyeglass lenses & frames, contact lenses, and some even include discounted rates for LASIK. It is recommended that you ask the staff at your eye doctor’s office to advise on the specific benefits of your plan prior to any exam to avoid any surprises later.
Short-Term and Long-Term Disability
While many workers will never require use of either of these benefits, it is still important to understand how they work and what you can expect should unforeseen circumstances arise. Short-term disability is a benefit that ensures that you have some income replacement in the event of a non-job-related injury or illness that temporarily prevents you from working. This benefit can cover items such as: childbirth, as an extension of or in combination with a maternity leave program; injury sustained from an accident, an illness requiring treatment or a major surgery with a long period of recovery. There is no standard definition for disability, so it is important to review your plan documents to understand what will be covered by your specific plan. If you have underlying condition that may ultimately cause you to miss time at work, then it is critical for you to review your plan documents to see how pre-existing conditions are handled and how disability is defined so there are no surprises when the time comes that you actually need the benefit.
Long-term disability is an additional form of coverage intended to provide additional income replacement if you are not ready to return to work at the end of your short-term disability coverage. The definition for long-term disability under your plan may differ slightly than short-term, but as long as you meet the new definition the transition shouldn’t be overly complicated and may require new paperwork or updated medical records.
Life & Long-Term Care Insurance
Life and long-term care (LTC) insurance are two other important insurance benefits to consider. If you have a family or any outstanding debts, life insurance ensures that they’re taken care of should anything happen to you. If you’re younger and don’t yet have a family to support, it’s likely less relevant to you. However, according to the Bureau of Labor Statistics, 56 percent of private industry workers have access to life insurance through their employers, which may provide a low to no-cost option for obtaining some coverage.1
Long-term care, an increasingly popular option that covers the future cost of care later in life, is becoming increasingly important as medical technology continues to evolve, and diseases are more chronic and less fatal. The Department of Health and Human Services reports that today’s average 65-year-old has a 70 percent chance of needing long-term care as they age.2 They also state that many private and public employers offer group long-term care programs as a voluntary benefit, which may include a favorable group rate and be easier to qualify for than if you were to purchase a policy on your own.3
As more companies offer these additional insurance benefits, more employees must weigh these choices. While death and disability may seem far off for some people, it’s essential to maintain a long-term outlook and be prepared for any event, especially if you have dependents or other unique situations.
Employer-Sponsored Retirement Plans & Savings Incentives
What to consider:
- Qualified Plans: 401(k), 403(b), 401(a), 457(b), 457(f)
- Profit Sharing
- Employee Stock Purchase Plans/Stock Options
Living a comfortable life in retirement is a primary goal of almost any worker, which makes saving for retirement crucial. And while the vision of a comfortable retirement may appear different for each person, they all need a budget to match. Employer-sponsored qualified retirement plans are a great way to help you reach your retirement goals. While it is likely you will be offered an employer-sponsored 401(k) if you work at a for-profit company, the plan available to you may differ depending on your industry. Specific employees of public schools, tax-exempt organizations, and certain ministers typically have access to a 403(b) with the notable difference that these plans are unable to accept profit sharing from their sponsor employer since those entities are not working to make a profit. Other similar industry specific plans you may encounter include 401(a), 457(b), and 457(f). Regardless of which type of plan you have access to, maximize your retirement plans with these helpful tips to get you started:
1. Start Early
Consistent saving and the power of compound interest is what makes millionaires today. If you make $6,000 in annual contributions for 40 years, earning 7 percent, you’d have over $1 million saved for retirement.
Saving from the beginning also means you likely won’t notice the reduced salary. Make it easy on yourself and enroll in your employer’s plan as soon as you are eligible.
2. Take Advantage of Free Money from Your Employer
Ensure you are contributing enough to maximize your employer match (if available). If your salary is $50,000 and your employer will match contributions up to 4 percent of your salary, then you should contribute at least $2,000 so that you can receive another $2,000 match from your employer.
When evaluating what your employer or potential employer offers, a few common aspects of the benefit are important to consider:
- Percentage Match: The percentage offered by employers varies widely. Some include a percentage cap of 3-4%, meaning that they will match whatever you contribute up to 3-4% of your salary. Others are more complicated, offering to match “50%” of the first 8%” you contribute. While this dollar amount from your employer is no different than a 4% match, it is designed to encourage you to save more. Factor these features into your analysis in terms of what that ultimate contribution will be from your company and whether you can contribute a large enough percentage to capture that match.
- Automatic enrollment and escalation features: Many employers offer these features to encourage participation. Automatic enrollment means that a new employee must expressly opt out of 401(k) enrollment to not have a plan set up for them. Hopefully this will not be needed by our readers as they already understand the value of starting a 401(k) in the first place. But automatic escalation can be valuable to new savers just starting out – this feature locks in an automatically scheduled increase in contributions, typically changing annually, that employees must opt out of. This is especially valuable if you are not likely to remember to change your contributions over time.
- How does your match vest? Most 401(k) plans include a detailed “vesting schedule”, which explains how long you must work at the company to retain the full match provided by your employer. Some plans vest immediately (sometimes referred to as a “safe harbor match”), meaning you own 100% of the match made by your employers as soon as you receive it. Other plans include a “vesting schedule”, meaning the longer you work for your firm, the more of your match you get to keep should you ever depart. Designed to retain employees, these schedules vary in structure, but typically only allow you to keep a portion of the vesting until you complete a certain number of years with the firm.
Pre-tax or tax-deferred contributions allow you to save money without reducing take home pay as much as after-tax contributions. If your tax rate is 20 percent and you contribute $100 to your plan, you have added the $100 to your savings, but only reduced the amount you otherwise would have received in your paycheck by $80.
3. Consider a Roth 401(k) Option (if available)
Roth options are taxed up front but allow you to withdraw earnings tax-free after age 59.5. This is beneficial, as typically the tax bracket you inhabit when younger is lower than that when you’re ready to retire. Since there is no way to know what tax rates will be in the future, opting to pay taxes now and slightly decrease your current cash flow in order to have access to tax-free distributions in retirement, should be seriously taken into consideration as part of your overall retirement saving strategy.
4. Pick a Long-Term Allocation and Stick with It
Age-based allocations or target retirement date funds are a great place to start. Younger investors generally have higher risk tolerance and may want to tailor their allocation to reflect that, while investors closer to retirement may want to stick with safer bets. Also maintain a long-term mindset. Avoid trying to “time the market” or shifting to cash in times of volatility or downturn. Understand that over time, the market tends to move up. As retirement benefits are such an important part of your financial plan, a more in-depth look at 401(k)s and other retirement plans will be explored in upcoming content.
Vacation, Time Off, and Family/Parenting
What to consider:
- Paid leave: holidays, vacation, sick days, bereavement
- Parental leave: maternity, paternity, adoption
- Dependent care
- Flexible schedules/Telecommuting (working from home)
Most companies offer paid time off (PTO), though plans vary widely based on region, company size, and industry, as there is no country-wide mandated law that employers must adhere to. Growing in popularity are plans that aggregate the different types of time off (sick days, vacation days, bereavement, etc.) into a single leave plan, creating a pool of days for you to use as needed. These types of plans recognize that time off needs vary by individual and may help provide employees with greater flexibility.
If transitioning between jobs where “PTO” includes different definitions, be sure to tally all of the following to understand net days you receive – holidays, vacation, sick days, and bereavement. Also consider the value of how these days function: are the days accrued over time, or do you receive them up front each year? Do the days you are given expire, or can you accumulate them indefinitely? Whatever the answer, weigh the features against your needs for time, whether they be for travel or specific family needs.
While employers are not required to provide paid maternity leave, the Family Medical & Leave Act (FMLA) mandates that companies with 50 or more employees must provide certain qualified employees with 12 weeks unpaid leave for up to one year after the birth of a child. Many employers large and small do offer some form of maternity leave, typically around 12 weeks in length. However, this doesn’t necessarily mean it is fully paid, as some companies offer partially paid leave or a program that may technically be a combination of sick leave or a short-term disability policy that pays during your absence as discussed earlier. As the father’s role in the home continues to increase, many employers now offer paternity leave as well, commonly for two weeks. Policies regarding adoption leave typically fall under a company’s maternity leave policy, but it’s important to clarify any such policies with your HR department if you anticipate adoption in your future.
Dependent Care Options
Dependent care benefits may be available to help those employees who care for young children or disabled adults. Through a dependent-care flexible spending account, you can set aside pre-tax money from your paycheck and be reimbursed for eligible expenses that relate to the care of your dependents. Like healthcare FSAs, these accounts operate under the “use it or lose it” principle, which makes it important to calculate the amount set aside for the year as accurately as possible. If you have not spent the total amount, or request reimbursement by the deadline, the balance will be forfeited. Differing from healthcare FSAs, dependent-care FSAs require that you first pay dependent expenses out-of-pocket, and then apply for reimbursement from your FSA.
Opportunities for Flexible Scheduling/Teleworking
As work-life balance becomes an increasingly important consideration for many, some firms (depending on the industry) offer the option to telecommute — to work from home or another remote location somewhere other than the firm’s physical office. Firms may also allow employees to work flexible schedules, meaning employees may vary their arrival and/or departure times from the standard 9 to 5, 40-hour workweek.
This type of work arrangement has recently entered the spotlight due to the Covid-19 outbreak. As employers continue to grapple with the fallout from the virus, new and unique opportunities may arise for remote work. While working from home can have its drawbacks, some companies are beginning to operate under the presumption that a higher percentage of workers being remote will be the “new normal,” and are taking steps to improve the experience. Some employers are providing staff with generous work from home perks – providing home-office budgets, online fitness classes, opportunities for online learning, entertainment packages for children, and more. Our current environment also opens the door to the possibility of working for a company that may not be geographically near you. If you never pursued your dream employer or job because it isn’t physically located nearby, now is the best time to reach out and see if an opportunity exists to join them in a remote capacity!
Perks, Discounts, and Professional Support
Possibilities to consider:
- Gym memberships/discounts
- Free parking
- Catered lunch
- Legal assistance
- Tuition reimbursement/support
- Professional development programs
To further their competitive edge, employers are offering a number of other perks beyond your basic free coffee. These perks can range from snacks in the break room to offering legal aid services that provide access to a lawyer for non-criminal matters such as drafting basic estate planning documents. Firms may go a step further and demonstrate their commitment to employees by covering the cost of professional development programs or offering tuition reimbursement/support for higher education.
These additional benefits may vary both in terms of financial value and enthusiasm from each employee. But it’s important not to discount the total annual value each of these benefits can offer you. If you receive free parking, discounts on gym memberships, and one catered lunch per month, that could save you as much as $150 per month, all money you can better use by contributing to your 401(k).
The compensation package offered will often be the driving factor when reviewing job opportunities, but don’t neglect to consider non-benefit components. Variables such as cost of living and taxes where the job is located can weigh heavily on your take home pay, as well as plans for future savings. You’ll also want to reflect on your future and that of the company. Is the company doing well financially? Is there a clearly defined career path that aligns with your future goals? While not necessarily job benefits, these items should factor into your thought process when evaluating offers.
Finally, while shiny fringe benefits may be part of the reason a certain job piqued your interest, it is important to differentiate between non-essential and more financially meaningful benefits. Consider your compensation package holistically but be sure to rank the various components in order of financial importance: salary, health insurance, retirement plan, time off, and then other perks. While it’s prudent to look to the years immediately ahead in order to select the right benefits package, don’t neglect the value of these benefits over the long run. Align the available options with your unique situation and values to ensure you maximize the workplace benefits available to you.