Making the Most of the Perks at Work: Part One

No matter where you work, chances are there are fringe benefits that can make life a lot easier … and cheaper. To begin with, these perks are generally worth over 35% of your annual salary. So if you make $50,000, we’re talking about the equivalent of an additional $17,500 – a year. At $75,000, it’s $26,250, and at $100,000, it’s $35,000.

Consider just the two most important fringe benefits: retirement and health plans. It would be a lot tougher to save for your retirement and very expensive to buy your own health insurance without the combination of employer assistance and government tax breaks,

In the days of yore, companies that actually offered fringe benefits decided what they would be. There was one retirement plan, a pension, and workers didn’t have control over where that money was invested. Even when labor unions achieved greater benefits for their members, employees get to make the decisions.

That’s all changed. Now, many employers offer “cafeteria plans,” where workers get to choose among an assortment of possible benefits. The boss provides a set amount of benefit dollars and employees can allocate those funds based on their personal priorities. For example, if you have youngsters, you might opt to put more dollars into life insurance and child care benefits, and if the kids flew the nest some time ago, you might choose to funnel more into your retirement plan.

Unfortunately, many people take perks for granted and don’t use them to the fullest. That’s like throwing money away – especially when it’s so easy to use yours wisely and reap the rewards.

In Part One of “Making the Most of the Perks at Work,” we’ll discuss the two most important fringe benefits – retirement and health plans. In Part Two, we’ll focus on family leave, tuition reimbursement, stock options, flexible spending accounts, employee assistance programs, expense reimbursement, day care, gyms, and so on. But first, here are some overall strategies that will help.

Simple Strategies to Make the Most of the Fringe Benefits Where You Work

1. Spend the time to become familiar with all your possible perks and make sure you’re using each one to your best advantage – every year. (Use open enrollment periods as the time to take a fresh look.) Your circumstances may change and the benefits you’re eligible for may change as well.
2. Fund your retirement plan to the max.
3. Choose a health plan that matches your needs.
4. Take advantage of tuition reimbursement and further your education on the boss’s dime.
5. If your spouse has a good fringe benefit package as well, compare and contrast to make the most of your combined options. True, you’ll have more homework, but you’ll also get more of the perks you need and want.

Tip: Get to know someone in Human Resources who can advise you and respond to your questions.

Fund Your Retirement Plan to the Max

Social Security is an important part of the retirement benefits we all receive, but for most of us, it’s not enough. Recognizing that, businesses often offer other ways to save for the future.

While traditional pension plans pay retirees a fixed monthly income, more and more companies now offer plans that shift the responsibility – and risk – of providing a financially secure retirement to their employees. With a 401(k) plan, a 403(b) from a nonprofit organization, or a 457 from a government agency, workers fund much of their retirement savings themselves. They’re responsible for deciding how to invest their retirement money, and they take all the investment risk.

• Still, if your employer offers a retirement savings plan, run – don’t walk – to participate in it. Here’s why:
• It’s the most painless way to save you’ll ever find, since the money is deducted from your paycheck. You never handle it, can’t spend it, and probably won’t even miss it.
• The money is tax deferred. You don’t have to pay tax on it or on any of the interest, dividends, or capital gains you earn until you withdraw the money. Ideally, this will be after retirement, when you’re apt to be in a lower tax bracket. In the meantime, your savings snowball.
• You may be eligible for “free” money. With a 401(k), companies have the option of matching as much as 100% of every dollar employees put in, with either cash or company stock. Be sure to take full advantage of an employer match if you have the option! You can’t find a better deal than doubling your money in 12 months with little or no risk.

Tips

• If you haven’t been saving at all, don’t go overboard, but do start saving. Begin with an amount you’re pretty sure you’d never notice, and boost it a bit every few months until you’re putting in at least enough to get the maximum “free money” match provided by your employer.
• The earlier you start, the less you’ll have to put aside to retire comfortably – and the sooner you may be able to quit your day job. So if you haven’t signed up for the retirement plan at work – get on it! This is a case where time IS money, literally.

Managing Your Retirement Plan

Once you decide to participate in the retirement plan at work, you may find a dizzying array of investment choices, ranging from an assortment of mutual funds to your company’s own stock. To make matters worse, not only are there fees associated with the overall management of the plan, but  each investment option comes with its own fees. Turn to the Department of Labor for an explanation of what these fees are and how you can make choices that won’t rob your savings.

An increasing number of companies provide company stock for their 401(k) match. Other companies have Employee Stock Ownership Plans (ESOPs) that give employees stock as part, or even all, of their retirement plan. Be very careful about tying too much of your future to your company’s future (or any company’s future, for that matter). If your boss already provides company stock as part or all of its contribution to your retirement, you’re probably better off diversifying the rest of your portfolio.

• Your investment strategy should depend on how much time you have until you’ll need the money, what your other financial opportunities are (e.g., a future retirement business or rental property), and how much risk tolerance you have. For example, if you have 20 years to go, you might feel comfortable investing more aggressively than if you’ll need to start tapping into the account in five years.
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Tips:

•  If you’re new to investing and/or don’t want to be too involved in making investment decisions, consider “target-retirement funds” (aka “life-cycle funds”), if they’re offered. One of the newer permutations, these funds are geared to when you plan on retiring.
• Learn more about investing. Your future is at stake! Fortunately, Uncle Sam offers lots of information about 401(k) plans and other pension programs, and there’s a wealth of information available on the Internet. Start by reading about retirement plans on a few different Web sites, for example, MoneyCentral, the Motley Fool, and Kiplinger. Find a site that “sings to you,” and visit it often. 

Work for a Small Business?

Instead of 401(k)s, many small businesses offer less complicated retirement plans, if they offer any at all. Examples include SIMPLEs (Savings Incentive Match Plans for Employees of Small Employers) and SEPs (Simplified Employee Pensions), although profit-sharing, Individual Retirement Accounts, and payroll deduction plans are offered as well. As with 401(k) plans, if you’re offered the opportunity to kick in savings, take advantage of it! For more information on your options, as well as links to share with your boss, click here.

Choose a Health Plan that Matches Your Needs

Even though more companies are passing on the cost of premiums to workers, health insurance remains a highly valuable perk. Compared to individual policies, group plans are a lot cheaper, more comprehensive, and less apt to reject you because of pre-existing medical conditions.
Many companies offer a plain-vanilla insurance package – one or two health plans – plus disability coverage and life insurance in amounts of one, two, or three times your salary. But you might also face a much bigger array of choices – not only more types of health plans, but more ways to allocate your benefit dollars.

There are four main types of health plans:

1. Fee-for-service or indemnity plans are usually the most expensive, but you can see any doctor. Typically, you pay a yearly deductible and once that’s met, the plan pays 80% of what it defines as “usual and customary.” Preventive care is often not covered.
2. Preferred provider organizations (PPOs) let you see any doctor in the “network” by paying a small co-pay. With some plans, you have to pick a primary care physician. Others don’t require it. If you see a doctor outside the network, you’ll pay more, but not the complete cost. There may also be a yearly deductible.
3. Health maintenance organizations (HMOs) require that you use their doctors, choosing one as your “primary care physician.” Preventive care (e.g.,  physicals, mammograms, and immunizations) is often covered in full. Or you may have a small co-pay. A written referral from your primary care physician will be required before you can see a specialist. If you go to a provider outside the network, you’ll have to pay the full amount.
4. Point-of-service plans (POSs) are a mix of HMOs and PPOs. They work like HMOs if you use the network’s doctors, and they pick up 70%-80% of the “usual and customary” charge if you choose other physicians. Again, there may be a deductible.

Here are some factors to keep in mind as you compare plans:

• Your needs. If features like day care for children, prescriptions, mental health benefits, and/or chiropractic care are important to you, check out how each plan covers them. If you do a lot of traveling, find out what the coverage would be both in the US and overseas.
• Out-of-pocket costs. Compare deductibles and premiums. Will a higher deductible be offset by lower premiums, or vice versa? How much did you spend – out of your pocket – on health care last year? Compare that to the amount you’d spend with each plan under consideration.
• Coinsurance costs. How much of each bill would you pay once you fulfill the deductible? At what point would the insurer start paying 100%?
• Your spouse’s coverage. Many group plans provide individual coverage free, so if you don’t have kids, “to each his/her own” might be the cheapest approach. If you do have children, it’s best to go with the plan that offers better family coverage. (Make sure that if the spouse with the family plan quits or gets fired, you can still sign on to the other spouse’s plan.) Tempted to have coverage through both employers? Beware! There are complex rules about who pays for what, which in turn can lead to time-consuming squabbles and less bang for your health bucks.
• A lifetime benefit of at least $1 million. Hey, you never know.
• The fine print. Each plan will have its own definition of what qualifies as an emergency and when pre-certification is required (e.g. for an MRI).

Considering an HMO or POS plan?

Know that your care will be more heavily “managed” by your insurer. So it’s important to find out as much as you can in advance.  Has the plan been in the area for at least a few years? What do co-workers and neighbors have to say about their experiences with the company and how the plan is run?

Take a look at the network’s doctors. Are there several specialists to choose from in each field? Are your own doctors in the network? If not, find out the extent to which you’d be covered if you used them. Someone at your benefits office or the insurer’s customer service department should be able to tell you. While you’re at it, ask if the doctors are compensated with a yearly per-person or per-visit fee. (Chances are, you’ll get better care if physicians are paid each time they treat you.)
           
To help decide which plan is for you, visit:

• The National Committee for Quality Assurance , which issues report cards on health plans – and on physicians.
• U.S. News & World Report , which ranks health plans every year and offers advice on deciding which one is right for you.

When You and Your Job Part Company: Think Snake

If you leave your job and 20 or more people still work there, you can continue your health insurance for up to 18 months (unless you leave for gross misconduct), through COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985.

The catch? You’ll have to pay the full premium, plus up to 2% to cover administrative costs. But that still may be cheaper (or give you better coverage) than finding health insurance on your own.

It’s very important to make sure you have coverage between jobs. Not only might it save you a fortune in medical bills, but also because it is much more likely that you will be covered for “pre-existing conditions” – any health problems that accompany you to your next job.

If you think you may want to use COBRA, talk to your employer immediately.

Making the Most of the Perks at Work: To Be Continued

We’ve focused here on the two most important fringe benefits of the workaday world, retirement and health plans.  In Part Two of “Making the Most of the Perks at Work,” we’ll cover some of the other fringe benefits that may be offered to you: tuition reimbursement, stock options, flexible spending accounts, employee assistance programs, day care, gyms, the best corporations to work for, and so on.
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Nancy Castleman has spent 20+ years helping people get out of debt, save money, and live better on less. She considers her book, Invest in Yourself (Wiley, 1998, 2001), which discusses how to invest your time, energy, and money to create the life you want, to be her life's work.