How to Get the Most from Employee Benefits Plan

April 17, 2023 Beginner
Employee benefit plans are an opportunity to put your financial health first. Make the most of your plan with these great tips.

Employee benefits are more than just perks; they're a key part of your financial well-being.

Between health care, life insurance, retirement plans, and other benefits, it's possible your employee benefits plan could account for as much as 30% of your total compensation. These plans can also potentially provide the opportunity to help build a financial future. This could potentially be substantial depending on the choices you make.

Five questions to get the most from employee benefit plans

Has your family situation changed?

Life events can play an important role in deciding which employee benefits to choose and how much you pay.

For example, the birth of a child might mean switching to family coverage for health insurance. Recently married? You and your spouse could do a side-by-side comparison of the benefits offered by your employers to see which ones best meet your household needs. It's possible you might decide to choose some benefits from each package because of the cost or coverage.

Of course, if the situation allows, employees often consider contributing as much as possible to an available workplace retirement plan. Have adult children under the age of 26? See if they can get medical coverage through their own employer. If so, you may not need to keep them on yours.

How much are you contributing to your retirement plan?

It's a good idea to review your 401(k) or 403(b) plan to see if your retirement plan is on track. Remember, contributions are annually capped by law, a move made to prevent high wage earners from sheltering income. For 2023, you can generally contribute up to $22,500 if you're under age 50. Those 50 and older are eligible to make a $7,500 catch-up contribution.

If you're not contributing the maximum amount, you could consider contributing enough to receive any employer match. An extra 1% might go a long way in pursuing a financial future.

If your contributions are pre-tax, they may help lower your current tax bill, and there's also the potential for tax-deferred growth. Alternatively, many 401(k) plans allow contributions to be Roth deferrals, which are taxed before they're deposited.

As a result, earnings on Roth contributions are tax-free in retirement. There are very few opportunities for tax-free income in retirement, so this might be one to consider. Of course, employees can consider converting funds to a Roth IRA, but alternately they can start by making Roth contributions to a 401(k).

Note: Contribution limits vary by plan type. For example, if you have a SIMPLE IRA, you can contribute up to $15,500 for 2023 with a $3,500 catch-up for those age 50 and older. Be sure to confirm the limits for any workplace plan with your employer.

How much do you typically spend on medical expenses?

When reviewing medical benefits, you'll likely have a choice of multiple health care plans with varying premiums, deductibles, co-payments, and services. One way to help narrow the choices is to estimate your predicted health care expenses for the upcoming year based on your out-of-pocket costs for the past year.

Your employer might also offer a health savings account (HSA), which might help you save and pay for future health care costs. HSAs offer the potential for tax-deductible contributions, tax-deferred growth, and tax-free distributions for qualified medical expenses.

For 2023, the HSA contribution limit is $3,850 for individuals and $7,750 for families. Those age 55 or older can contribute an additional $1,000. In order to fund an HSA, you typically have to select a high-deductible health plan from your employer. If you do have a high-deductible health plan offering, some employers will contribute to your HSA as part of their benefit offering. Don't be afraid to ask.

Still not sure which medical plan to pick? See if there's a comparison tool to help evaluate your choices.

Are you protecting your future (and your family's)?

Life is full of unexpected events, some of which could have a potentially negative impact on your financial well-being, such as disability, death, or the need for long-term care. Make sure you have sufficient protection.

  • Short- and long-term disability insurance. According to the Social Security Administration, a 20-year-old worker has a one-in-four chance of becoming disabled before reaching full retirement. As a result, they can expect to be out of work for at least a year. The basic coverage your employer provides may not be enough to meet expenses. To cover those ends, consider purchasing supplemental disability insurance if it's available.
  • Life insurance. Most companies also offer basic life insurance but not supplemental coverage, which is generally available as an add-on cost. Should you buy it? If you're the primary earner, it might make sense to do so. However, if you're single, basic coverage may be enough.
  • Long-term care insurance. This type of insurance is relatively new and expensive, and only a small percentage of employers offer it. If yours does and you're between ages 50 and 65, it might be worth considering.

Keep in mind, there are no requirements to purchase any of this insurance through your employer. Although an employer's policy is often cheaper because they can negotiate rates, you should always shop around and compare prices and benefit offerings.

Are you leaving any benefits on the table?

Employers have a vested interest in the physical, emotional, and financial health of their employees. Because of this, they may offer additional programs and services to help you pursue your goals and save money. A potential plus: A lower tax bill.

Make sure you understand all the benefits your company offers and what the deadlines are to enroll. For certain benefits, you may have to register during open enrollment. For others, such as tuition reimbursement, you may be able to wait until the need arises.

Some additional benefits to explore include:

  • Pre-tax commuter benefits
  • Discounts for local businesses or events
  • Fitness center reimbursement
  • Adoption assistance
  • Employee assistance programs
  • Student loan assistance

Open enrollment is a great time to put yourself first by making choices that support your goals for physical and financial health. During open enrollment season, be sure to attend any benefits fairs or webcasts offered to learn what's new or changing for the upcoming year and to get questions answered to help tailor the offering to your unique situation. Remember, these benefits can be valuable, so don't dismiss them.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.