The latest issue of Consumer Reports' Money Adviser reveals that only 80.6 percent of total compensation in the United States goes to wages and salaries. The rest pays for employee benefits. So if you're not taking full advantage of your employee benefits, you're walking away from some of your compensation.
Here are some tips to help you make the most of your benefits:
- Retirement plans. You should be sure to get the full value from your company's 401(k) or similar plan. Unfortunately, fees in 401(k)s may significantly decrease participants' retirement savings. For example, if your 401(k) plan's investment offerings include variable annuities or funds that carry 12b-1 fees, you may be paying more than you should to save for retirement.
What to do: If your company has a high-cost 401(k), you should contribute at least enough to get any employer-matching contribution. If you qualify for traditional IRA deductions or for Roth IRA contributions, those are better choices than unmatched contributions to a high-cost 401(k) plan.
- Health benefits. Most employers offer at least two types of health plans: one with a preferred-provider organization (PPO) and another with a health-maintenance organization (HMO). PPOs contract with doctors, hospitals and other providers, whom members must use to avoid higher co-payments. Generally, there are annual deductibles to meet before the plan will pay benefits. HMOs offer members a range of health benefits for a monthly fee with no deductibles or maximums. A member who goes outside the HMO without referral from a primary-care doctor may be responsible for the cost of services received.
What to do: Review your claims history and make a projection for the coming year. See how the costs of preventive-care and prescription-drug expenses are likely to be covered in each of the plans, and compare monthly premiums and out-of-pocket costs.
- Disability insurance. Disability insurance provides you with income if you're unable to work. Generally, group long-term disability benefits start when short-term benefits are exhausted and continue anywhere from five years to life. Those benefits replace about 60 percent of salary. In some cases, group disability is fully paid for by employers. In others, employers fund a basic plan and employees can buy supplemental coverage.
What to do: Someone in good health might do better looking beyond the group coverage to the individual market for supplemental disability coverage. A policy you purchase on your own may not only be more liberal in approving benefits but also will be portable, so that you can retain coverage if you change jobs.
- Life insurance. Your employer may offer some free life insurance, as well as the opportunity to buy more coverage through a group plan. What to do: If you have health problems, use the group plan. It will have limited, if any, screening for medical conditions. You might not be able to get outside coverage or it might be too costly. If you're healthy, consider passing up the group plan in favor of individual coverage. Individual policies may have premiums that are guaranteed for up to 20 years, while group premiums rise as you get older.
An additional caveat about group plans: If a group policy can't be converted to individual coverage when you leave the company, it could be disastrous, especially if you have medical issues.
Instead, your group life insurance might be used to provide coverage for purposes such as making sure your college-age kids can finish their education.