By Tina Wood-Wentz
What are benefits?
When you worked your first teenage jobs, you likely only received an hourly wage for your efforts. Benefits are perks or fringe benefits, cash or non-cash compensation, above and beyond your wages. Typical benefits include health and life insurance, vacation/PTO (paid time off), and a 401(k) match.
The big packages of employee benefits tend to require at least half-time employment, sometimes 80%, or may be restricted to only full-time employees. For non-executive employees, benefits are typically standard across much of the organization. For lower wage earners, benefits may make up a large percentage of their total compensation (wages+benefits), whereas for higher wage-earning employees their benefits are likely a smaller portion of their total compensation package.
When you start a new benefits-eligible job, you have an opportunity to make benefits elections that you may not ever be able to elect again during your time with that employer. Other benefits you may only be able to change during limited windows. Buyer beware, choose carefully!
How initial election often works.
You are often handed a benefit enrollment packet on day 1 of your new job, told to sit down, complete it, and hand it back to the person who handed it to you, and that the next item on the agenda needs to start in 15 minutes so be sure to be quick about it.
Since this is the first time you are likely seeing the ins and outs of this particular employer’s benefits, it can be hard to make an informed decision without taking the documents home to study them and possibly discuss them with a spouse. But if you take them home, and fail to fill them out and return them to the correct office within the initial election period (usually 30 days), then there are default elections that will be made for you - including possibly an election of no coverage.
One option you can take is to elect a level of coverage on all benefits offered, note which elections you have made, and then take your educational materials on the benefits home to study. If you change your mind, you can reach out to Human Resources (HR) to modify your elections. But again, if you have the best of intentions but don’t follow through, you’re stuck with the elections you made. If feasible, learn about the new employer’s benefits ahead of time, along with knowing what coverage you need. Then you can make well informed initial elections, and avoid the possibility of missing the enrollment period.
Benefit election window: Only during the first 30 days as a new employee
These are the big gotcha’s. The good news is there are a limited number of benefits that fall in this category, the bad news is that they are big consequence benefits.
The primary benefit here is group life insurance coverage. Whatever multiples of your salary your employer permits you to enroll in for life insurance coverage, whatever you elect you will receive as guaranteed coverage – no proof of your health status required. Often, this life insurance is cheaper for younger people than term life insurance on the open market for a similar age, sex, and health behaviors person. It often progresses to being more expensive than equivalent term life insurance for older employees. It is also not portable – you can’t take it with you (at least not at the current price). This is a problem if you change employers to one without group life insurance, or want to work freelance or be a stay-at-home parent, because often something has changed in your life to make you less eligible for cheap term life insurance coverage compared to your initial benefits-eligible job.
If during your employment you wish to have more group life insurance coverage, you may be able to arrange for additional coverage for an increased price, but at that point you would have to prove your insurability – meaning a physical exam, bloodwork, a personal health review and family history assessment. If you’ve had any health issues come up, including having gained weight, you may not be eligible for this health coverage through your employer, or for term life insurance purchased on the open market.
Another benefit in this same category is accidental death and dismemberment (AD&D) insurance. If it’s free to you, e.g., paid for by your employer, there’s no downside to getting it. But if it’s a benefit you have to pay for, you should be aware that often it’s got so many clauses and exclusions that it may effectively never pay out. You can ask your HR representative about the number of paid out claims for this benefit within your company. This is an insurance category that many opt into out of fear, and while it is cheaper than some other types of insurance, it is a cost drain and those dollars may be better spent funding more appropriate life insurance and disability insurance coverage.
Benefit election window: As a new employee, annually during open enrollment, and at specified life events
This category includes most of the big-ticket items of your benefits, excluding those already covered in the one-time-shot category described above. These are your medical insurance, prescription medication coverage, dental and vision coverage, and your flexible spending accounts or savings accounts. You get to elect these as a new employee with the opportunity to revisit your elections every year at open enrollment, a time window that may be in early November if your benefit year is January-December, or May if your benefit year is July through June as many school districts are. And finally, certain specified qualifying life events will make you eligible to enroll or change your enrollment.
If you are filing your own non-dependent tax return, are declining health care coverage through your employer because you are under age 26 and covered under your parents’ health care plan, you may have a major financial opportunity available to you. If your parents have a high-deductible health plan (HDHP), you can open your own health savings account (HSA) outside of work, and make a family HSA contribution of $7200 (2021 dollars annual contribution limit). After you turn 26, if you enroll in a HDHP of your own, you would then be limited to the $3600 single person contribution limit (assuming you’re still single). Many young people have little for healthcare costs, and therefore can stockpile these healthcare earmarked funds towards the years when healthcare expenses are higher. And since HSAs are portable, it doesn’t matter if you change employers, these dollars won’t be lost in transitions.
Benefit election window: Unusual timing
If you work for a non-governmental non-profit, such as a medical center that’s not affiliated with your state health care system, you may have access to a non-governmental 457(b) for highly compensated employees (informally referred to as a “top hat 457(b)”), which is an employer-sponsored tax advantaged retirement account. The enrollment cycle for this is not based on the open enrollment window, nor is it done during the first 30 days of employment. Instead, enrollment may be in May and June for the 12-month period of July-June, or it may be under some other scenario the employer has elected. This one will need to be investigated with your employer.
Sometimes there are also one-off elections. For example, if your employer never offered identity theft coverage as an electable benefit, they may add that option mid-year and allow anyone to opt into the group coverage. Another example would be when life insurance premiums dropped about 5 years ago. Some employers allowed additional coverage multiples to be added to employee policies without the requirement for a medical exam and proof of insurability. If you work for a privately held for-profit company that only makes employee stock appreciation rights every couple of years, this is another compensation point with an unusual timing window. For these, you have to monitor your employer’s communication to receive updates.
What might cause me to want to elect different benefits?
When we are young, both our own experience and our opportunities to learn from others’ experiences are relatively limited. If we start at an employer straight out of college, with no job experience, no spouse, and no children, it can be hard to envision what benefits we might need in 10 years if we are still with the same employer, but yet that first 5-10 years out of college tend to be periods of maximum change in our personal lives. While the national median duration with an employer is 4.1 years, if you work in the public sector (especially the federal government), in a professional field, or for the primary employer in your town, that number can easily be a decade or your whole career.
Therefore, it behooves a new employee to consider the life changes that may occur while they are still with the same employer. This could include gaining financial dependents (a spouse and/or children), being stricken with a chronic illness, or facing health changes that trigger lack of affordable coverage for obtaining new insurance policies – a primary factor affecting many people here in the rising obesity epidemic. People who finished college at a healthy BMI and with health-supporting personal behaviors like daily exercise, time with friends, and plenty of sleep, may find that their professional career, with stress and time-intensive demands leaves little time for healthy behaviors, and on-call, overnight or rotating shifts that disrupt sleep quickly causes their weight to rise and additional life insurance be priced out of reach.
Before your new employee benefits election window closes, make sure you’ve considered carefully the short- and long-term effects of your benefits elections. Often you will be allowed to adjust downward, but not upwards. While you are still in that new employee benefit election window, think carefully about how long you anticipate being with a potential employer, and what life stage changes that could take you through.
About the author: Tina Wood-Wentz, MS
Tina Wood-Wentz wants to help you feel comfortable understanding your financial situation, and using your money as a tool for feeling more secure about your life. She is a financial educator, paraplanner, and founder of Wood Financial Services LLC. With an extensive background that includes whitewater kayak instructor, data scientist, tax preparer, and board member for many non-profits, Tina brings a passion for understanding numbers along with helping and educating others.
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