Starting A New Job...Understand Your Benefits Package
Starting a New Job
If you’re fortunate enough to have been hired into a new job there can be a number of things that need to be addressed at the beginning of employment. Often times it can be a little overwhelming to address all the issues that come up with regards to your benefits package while getting acclimated to your new surroundings. However, considering that you have a limited amount of time to enroll in some benefits it is wise to address them immediately.
Most employers in the private sector have progressed towards defined contribution plans (401/Profit Sharing Plans) for their employees. Don’t wait to enroll. While new legislation in recent years can allow for employers to auto enroll you in a 401k at work unless you choose to opt out, not all will do so. Some may feel their budget is already tight and will contribute down the road. That is a big mistake. The first bill you pay is yourself. The power of compounding money early is substantial. Additionally, if your employer matches contributions you will be leaving money on the table that they give you as a match to your contributions. If you don't contriibute, they don't have to match. Try and target at least 10% of your gross income into the plan. If you’re fortunate enough to have enough income to maximize the contribution, be careful not to hit the limit too early in the year. For example if you set your contributions to hit the max contribution by Sept, you’ll lose the employer match for Oct-Dec. Some employers offer what it called a “True Up” at year end to protect against this, however most do not.
If you’re not familiar with investing, be sure to consult with the benefit provider or a third party on the investment options available. Don’t just select the fund with the most recent top returns. Most 401k providers can help you with an investment strategy, but cannot solicit you through a group plan. So it is often incumbent on you to reach out to them.
Needless to say you want to enroll in the company health insurance as soon as you are permitted to. In some cases there may be more than one option, PPO/HMO/Higher deductible plans or some other option. Depending on your family and how many participants there will be, any number of options may be appropriate.
Life insurance is sometimes provided as a condition of employment. But any additional amount can often be bought at a group discount rate. Although most employer plans now have portability that will allow you to continue to utilize the coverage when you leave, it will no longer be subsidized by the employer. In most cases, you’re better off buying you own private policies. If there are any insurability issues that you have already related to your health history you can go back and revisit your employer coverage which may allow you additonal coverage without a further examination of your medical history.
In the cases of long & short term disability, the same is true in regards to employer subsidies of premiums. Additionally far fewer disability policies are portable upon future employment termination. These policies are best purchased independently for a variety of different reasons outlined below.
HSA & FSA
Health Savings Accounts (HSA) are a great idea to enroll immediately, particularly for those who opt for the high deductible plans. The contributions go in on a pre-tax basis and can be utilized for a variety of health related expenses with no tax liability or penalty for withdrawal regardless of age. Funds can even be utilized in many cases for child care expenses. Should you not utilize the money in a calendar year it rolls over to the following year. In many cases the employer makes a matching contribution to the HSA on your behalf. The max contribution in 2012 is $3,100 annually or $6,250 for a family. Funds remain under your control even when you leave the employer. It is not a lost benefit upon termination of employment.
Flexible Spending Accounts (FSA) are in many ways similar to the HSA. One key difference is that there is a “use it or lose it” requirement to the plan. If the money is not utilized within the coverage period, it does not roll over to the following year. This is a major drawback. However if that is all your employer offers it is probably worth exploring as long as your contributions are well within your annual reasonable out of pocket medical expenses.
Employee Stock Purchase Plans
Be a little careful with these plans. While there are often substantial discounts of 10-15% of the stock price available, read the fine print. The discount is usually that of the average price over a recent period of time. Not the date of purchase. So if the stock recently dropped by a large value, you may still be paying too much. The larger risk tends to be accumulating too much of your net worth in one asset. It's risky to have your employment income and a large part of your liquid net worth tied to any one company.
These would more likely be granted to you. Should they accumulate to a market value that is sizeable over time, it is important to work with a tax professional and your planner on a strategy to excercise these options. It's possible that if you do well with them down the road, you can create a tax problem if not handled properly. However, this is not necessary to address at the beginning of employment, but rather further down the line.
Many employees of large organizations are entitled to perks they aren’t even aware of because they never read the entire new employee package. As an example, I was once employed by an organization that offered various small perks such as…
Health Club Membership Reimbursement to a max of $260 annually.
Reimbursement of any home computer or software expenses up to $1,500 within a 3 year period.
Discounts at numerous hotels and travel destinations.
Discounts on AAA memberships for family auto expenses.
Amazingly, most employees never bothered to read their employment package and were simply too busy with their day to day lifestyle to research what they had at their disposal. Take your time and read through what you’re actually being offered. You might be presently surprised.
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