Choose employee benefits carefully

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Many employers will soon be offering open enrollment for next year’s employee benefit coverage. Wading through all that paperwork is a sure-fire cure for insomnia, but considering how much is at stake, you may want to pour another cup of coffee and dive in.

Here’s why:

New coverage options. Employers occasionally change benefit plan options as a way to control costs or eliminate underused or unpopular plans. In addition, they sometimes retain the same insurance providers but change certain levels of coverage within the plan; for example, increasing deductibles or copayments or changing eligibility requirements.

 

In addition, insurance providers themselves may alter terms of coverage: For example, medical plans sometimes change which medications they will cover and at what copayment levels. And individual doctors, clinics and hospitals sometimes drop out of plan provider networks. Thus, it is wise to review plan changes carefully and check with your providers before automatically signing up for the same plan as last year.

Prepare for possible economic hardships. In these uncertain times, it pays to know all your options in advance. For example, if you or your spouse suspect you might be vulnerable to a layoff, find out the relative costs to join the spouse’s employer’s medical plan or buy COBRA coverage (COBRA is a federal law that allows many people to retain health coverage under their former employer’s plan for a certain amount of time at their own expense.)

Maximize tax advantages. If your employer provides a retirement savings plan and dependent care and health care flexible spending accounts (FSAs) and you’re not participating, you could be missing out on thousands of dollars in annual tax savings. Briefly:

•401(k) plans let you save money for retirement on a tax-deferred basis—that is, you don’t pay federal or state income taxes on your savings or investment earnings until you withdraw them at retirement.

•Similarly, FSAs let you set aside money on a pretax basis to pay for eligible out-of-pocket medical and dependent care expenses, thereby lowering your taxable income.

•To learn more about how 401(k) plans and how FSAs work, visit Practical Money Skills for Life, Visa’s free personal financial management program (www.practicalmoneyskills.com/benefits).

Family status changes. If you marry, divorce, or gain or lose dependents, it could impact the type—and cost—of coverage options best for you. A few examples:

•Compare maternity and pediatric benefits offered by the various medical plan options. Slightly lower monthly premiums might not be worth more restrictive coverage.

•If you participate in a dependent care FSA, carefully estimate how many weeks of child care (or day care for eligible adult dependents) you’ll need next year to maximize your tax advantage.

•Similarly, take family status changes into account when estimating eligible expenses for your health care FSA. Remember, over-the-counter medications count.

•Recalibrate life insurance coverage if more dependents now rely on your pay.

•Also review beneficiary designation forms to ensure your life insurance, 401(k) or other plan benefits will go to the appropriate people if you should die unexpectedly.

A little homework now can save you a lot of money later on.

(Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to http://www.practicalmoneyskills.com/newsletter.)

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