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5 Tips for Setting Up Your Employee Benefits

Clint Pumphrey

One of the most important tasks you'll have when you start a new job is to choose benefits that will save you money. See more investing pictures.“One of the most important tasks you’ll have when you start a new job is to choose benefits that will save you money. See more investing pictures.Comstock Images/Getty Images

After defending your smarts in front of people who seem more like FBI interrogators than potential employers, you finally receive the good news: You got the job! The relief is only temporary, though. Now you have to box up everything you own and move it. After choosing a place to live in an unfamiliar city, you must unpack all your things and then — oh yeah — start that new job.

Your first day begins with a barrage of introductions and a visit with the HR manager, who tosses a formidably thick handbook on the table and asks that you make your choices by the end of the week. With all the other stresses you have to deal with, it’s easy to just pick something and be done with it.

But don’t do that! If you make smart decisions, you could save yourself hundreds, even thousands of dollars a year.

Contents

  1. Make the Most of Your Retirement Plan
  2. Choose a Health Plan That's Right for You
  3. Consider a Health Savings or Flexible Spending Account
  4. Carefully Consider Voluntary Benefits
  5. Ask About Other Free or Subsidized Benefits

5: Make the Most of Your Retirement Plan

When you start a new job, retirement is probably the last thing on your mind — especially if you’re young. But let’s face it; you, too, will grow old. And if you gloss over the details of your employer’s retirement plan, your "golden years" are going to bite.

Retirement benefits vary considerably among employers, but these days most offer some type of defined contribution plan. Under this type of plan, the employee or the employer (or both) makes contributions to an individual investment account like a 401(k). The amount paid upon retirement depends on the value of those investments.

As you set up your benefits, scope out ways to maximize your retirement savings. For example, many employers will match some contributions you make to your retirement account. A common match is 50 cents on the dollar for the first 6 percent you save. This means that if you make $5,000 a month (lucky you!) and contribute $300 to your retirement plan, your employer will give you an additional $150. You wouldn’t ignore someone shelling out 150 bucks on the street, so you shouldn’t pass up your employer’s $150 match, either.

But don’t stop there. Financial planners recommend that you save 10 percent of your salary for retirement. So set up an automatic withdrawal to get that money out of your account before you can get your hands on it. If you can’t afford that much at first, find out if your employer offers an auto-escalation option that will automatically increase your savings rate over time.

Does your company match?

A Society for Human Resource Management member survey of 600 employers showed that 93 percent offered defined contribution retirement savings plans in 2011. Of those, 70 percent offered matches for employee contributions [source: SHRM].

4: Choose a Health Plan That's Right for You

Everyone knows that health care costs an arm and a leg these days, so any health insurance plan is better than none at all. But when setting up your employee benefits, look closely at the available health plans: Some may cost you a whole lot less than others.

Many companies now offer a traditional plan and a high-deductible plan. The traditional plan has a higher premium, which is the amount of money you pay monthly to the insurance company for coverage. However, it also has a lower deductible — the amount of money you have to spend before your insurer begins paying your medical expenses. High-deductible plans, on the other hand, charge lower monthly premiums, but have more costly deductibles.

The best plan for you depends on your situation. If someone in your family has a chronic medical condition, the traditional plan is best because it pays out more in the long-term. It’s also a good choice if you’re older or have a large family, since the chances of a severe illness are higher. If you’re young and healthy, however, high-deductible plans could save you a great deal of money in lower premiums … that is, if you manage to stay out of the hospital.

Be on the lookout for other ways to reduce costs. Some employers offer lower premiums — or even cash — to employees who participate in wellness programs, which typically provide services like personalized health reports, educational materials, weight-loss support groups, fitness classes and counseling. Sure, it’ll be a little more work, but hey, you’ll be healthier and richer!

The Rising Cost of Health Care

According to the professional services company Towers Watson, the average cost of health care per employee rose from $10,387 to $11,176 between 2010 and 2011 [source: Towers Watson].

3: Consider a Health Savings or Flexible Spending Account

Want to stretch your salary a little further? Of course you do. Check to see whether your employer offers a health savings account or a flexible spending account.

A health savings account (HSA) is basically a savings account for medical expenses incurred only by employees enrolled in high-deductible health insurance plans. A single adult can deposit up to $3,050 a year in this account while a family can put in $6,150. Contributions are pretax, meaning that you don’t have to pay income tax on the money. You don’t have to worry about your money going anywhere, either. With an HSA, the money stays in your account, year after year, until you spend it.

While contributions aren’t typically mandatory, it’s generally a good idea for anyone with a high-deductible health insurance plan to put money in an HSA. These funds will help offset the cost of unexpected doctor visits or prescriptions, which are unlikely to be covered under the lower-cost insurance coverage.

Like HSAs, flexible spending accounts (FSAs) are pretax and can be used to save for medical expenses. FSAs can also be set up to pay for dependent care, such as child or adult daycare. The medical accounts are limited to $2,500 in contributions, while the dependent accounts max out at $5,000. One big difference between HSAs and FSAs is that any unspent money in an FSA is forfeited to the employer at the end of the year. So if you decide to open an FSA, be sure to estimate your medical and dependent care expenses based on the previous year. Otherwise, it’s not such a great deal!

These accounts are not typically opened automatically, so let HR know which you want and how much you want to contribute each month.

Pretax, Please!

The pretax savings on an HSA or FSA can be considerable. Let’s say you put $2,000 in one of these accounts. If you’re in the 25 percent tax bracket, you’ll save $500 on your income taxes. Not bad!

2: Carefully Consider Voluntary Benefits

No one wants to pay for something they don’t need. And if they do need it, they certainly don’t want to pay more than they have to. That’s why you should weigh the pros and cons of voluntary benefits carefully before committing to them.

Voluntary benefits are insurance policies and other coverages that are offered through an employer but aren’t subsidized by them — like dental and vision coverage, supplementary life insurance, accident insurance, and short- and long-term disability. When you purchase these benefits through your employer, the premiums will be deducted from your paycheck, which makes things easy for you. But just because it’s easy doesn’t mean it’s a good deal.

Before signing up for a voluntary benefit, ask HR if you’re getting it at a discounted rate and if there’s any real advantage to purchasing it through them. Then ask yourself if the benefit duplicates an insurance or service that you already have and whether it’s really worth your money. For example, what use is vision coverage if you’re young, single, and every checkup you’ve had since childhood has been perfect?

And never sign up for a voluntary benefit that you could get somewhere else for a better rate.

1: Ask About Other Free or Subsidized Benefits

“Some employers offer counseling as a free or subsidized benefit.David Buffington/Digital Vision/Getty Images

Have you ever bought a book or a DVD only to return home and find out that you already have it? It’s frustrating, but at least you can return it. Now imagine spending thousands of dollars on an expense or service that you later discover your employer would have paid for. Unfortunately, many an employee makes this wallet-wrenching discovery because they never really combed through their benefits packages.

Employers offer all kinds of free or subsidized benefits to try to lure good employees to their organizations — tuition assistance, student loan repayment, legal and financial services, counseling, daycare, adoption services and moving expenses. Some companies even offer luxuries like paid workouts and employee concierge to their workers. While the last two examples aren’t exactly commonplace, you’ll never know what you could bank in on unless you ask HR for a list detailing all employee benefits. Find the ones that are both valuable and useful, and take advantage of them.

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Author’s Note: 5 Tips for Setting Up Your Employee Benefits

I’ve set up employee benefits for two different jobs. The first go around I was pretty clueless and mostly just signed up for whatever the HR representative recommended. The second time I was a little more prepared, but still managed to make one little mistake. OK, it was kind of a big mistake. When I started the job, I knew that I would be incurring some pretty significant medical expenses over the coming year. Unfortunately, I didn’t think to take advantage of the flexible spending account that my employer offered. If I had, I’d probably be about $500 richer than I am right now. Oh well. You live, you learn, right? I hope this article teaches you what my experience has taught me: Give your employee benefits the consideration they deserve and you can avoid making mistakes that might become costly down the road.

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