Each fall, many companies offer their employees a chance to choose their employee benefits options for the coming year. Employee benefits are a significant benefit of working for a company. Choosing the best benefits option can help your clients save money on things like healthcare and other services. As their financial adviser you can serve as a key resource for your clients as they make their choices.
Typical benefit options include:
- Health insurance
- Dental insurance
- Disability insurance
- Life insurance
- Medical savings accounts such as an FSA or an HSA
Additionally, many companies will offer voluntary benefits such as pet insurance, legal services and others.
They may use this time period to roll out any changes to the company’s 401(k) plan as well, though changes in your client’s investments and contribution levels will not need to be made inside of the open enrollment window as with other company benefits.
A Significant Part of Compensation
Employee benefits can add up to a significant percentage of a worker’s compensation. Some studies have pegged the value of these benefits at as much as 35% of cash compensation. When you figure in the cost of obtaining health insurance on the outside, this makes sense.
Making the best selections for their situation is important for clients and can have significant financial impact for them.
What Employees Should Consider
When discussing open enrollment options, there are several considerations employees should be aware of going into the process.
Have coverage options and insurance providers changed for the upcoming year? This might impact choices in that preferred doctors or hospitals may not be in the new provider’s network. This may lead a client to opt out of an HMO and look at other coverage options, for example.
Have their needs or their family situation changed since the last open enrollment period? How might these changes impact their benefit choices?
While this might not be significant for many clients, it still is an issue to be considered. That is what impact will any changes in their benefit choices have on their take-home pay?
Does the employer offer high-deductible health insurance plans? If so, this might be a good option for the client in that they will be eligible to contribute to a health savings account (HSA). For clients who can afford the higher deductibles and who can afford to max out their HSA contributions, this can offer another pre-tax retirement savings option. If your client can afford to let their HSA dollars grow tax-free until retirement, this can help cover healthcare costs in retirement such as Medicare costs, long-term care premiums and other qualified expenses. Unlike an FSA account, the money in the HSA can be carried over year-to-year if unused. FSAs are “use it or lose it,” in that the money must be used during that year (typically there is a deadline into the early part of the following year), or the unused money contributed will be lost.
The group disability plans offered by most employers have limited coverage in terms of the types of income covered by the plan and other limitations. From many people, this coverage is fine and very cost effective. If you have clients who derive a significant amount of their compensation from variable compensation such as bonuses or other types of incentive compensation, they may need to go outside to private insurance for some or all of their disability needs. Disability coverage is crucial for all clients and you want to be sure all clients have the best coverage in place for their situation.
The group life insurance plans might not provide all of the coverage your clients need, but for those clients who have health issues that might make obtaining a policy from a private insurer expensive and difficult, these policies can be useful.
For clients who are married, they should do a comparison of each spouse’s benefits options if both spouses are employed. They might pick and choose, for example taking one type of benefit from one plan and another from the other spouse’s employee benefits menu.
Take the Time
It's important to impress upon clients that they should take the time needed to research and make the best choices for their situation. They need to know that they will be stuck with their choices for the next year unless they experience a life change during the year that will allow them to make changes. Life changes generally include:
- Death of a spouse
- The birth or adoption of a child
Open enrollment season is an important time period for your clients. Encourage them to take the time needed to understand their benefit choices and to think through the financial impact of these choices. You can be a valuable resource for your clients as they make these important benefits decisions.