How open enrollment boosts financial health in shaky times

FILE PHOTO: Four thousand U.S. dollars are counted out by a banker at a bank in Westminster
FILE PHOTO: Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

November 1, 2021

By Chris Taylor

NEW YORK (Reuters) – Pop quiz for U.S. open enrollment season: What percentage of your total compensation is due to employee benefits?

Since most Americans are so focused on salary, you might not realize it is a whopping 31%, according to the Bureau of Labor Statistics.

Indeed, the Covid-19 era seems to have forced us into considering our benefits more closely. Sixty percent of people say the pandemic has made them think more carefully about benefits, and 68% say benefits will play a bigger role in future job selection, according to a new survey by financial services company Voya Financial.

This is especially important since the benefits landscape is shifting so rapidly in the era of the Great Resignation. With labor in short supply, many companies are revising the array of benefits they offer, both to hold onto their current employees and to entice new ones.

Just a few examples of benefits offerings that are at record highs, according to the 2020 Benefits Survey from the Society for Human Resource Management (SHRM): Critical illness insurance (48%), long-term care insurance (39%), in vitro fertilization (28%) and mental health services (85%).

“Employees tend to focus just on medical coverage, but there are a whole range of additional benefits which can really protect you – and which are not that expensive when purchased through your employer,” says Mona Zielke, Voya’s senior vice president of enterprise client solutions.

As open enrollment season kicks off in November, which benefits in particular are underutilized? We asked financial planners the best way to use benefits to boost financial security in uncertain times.

HEALTH SAVINGS ACCOUNTS

The prevalence of Health Savings Accounts continues to rise – up to 59% of companies surveyed, according to SHRM, with 40% throwing in an employer contribution to sweeten the pot.

“HSAs are a tax-free trifecta that is almost never found,” says George Gagliardi, a planner in Lexington, Massachusetts. “Tax deduction for the deposit, tax-free growth, and no tax when withdrawn to spend on qualified healthcare funds. In HSAs where the funds can be invested in a variety of equity and income funds, this provides for a far better benefit than the simpler Flexible Spending Accounts — which only applies to a 12-to-15-month period, during which the funds deposited earn nothing.”

LEGAL SERVICES

Anyone who has ever compiled critical estate documents knows how pricey it can be. That is why some companies offer enrollment in a legal assistance benefit for those and other matters, which can be much more attractive than a typical lawyer’s fee of $370 an hour.

“This is becoming more and more common for employers to offer,” says Linda Rogers, a San Diego financial planner.

The benefit varies from allowing clients to meet with an attorney, to giving them access to a software to complete their wills and powers of attorney.

“For those that can meet with an attorney, they can save thousands by enrolling in the legal services benefit for one year, getting their trust and other documents done, then disenrolling the next year,” Rogers says.

LONG-TERM DISABILITY

“One of the least understood, and potentially most valuable, benefits is LTD insurance,” says Patrick Lach of Lach Financial in Louisville, Kentucky. “I am constantly amazed at how much effort people will put into insuring a $20,000-$30,000 car, while not paying any attention to how they will insure their $2-$3 million future earnings capacity.”

As an example, Lach’s prior employer offered LTD benefits that covered 50% of his salary for five years. For another $15 per month out of his own pocket, he upgraded that to 67% of his salary, tax-free, that would last until his full retirement age.

“For a mere $15 a month, that supplemental plan was a bargain relative to all my other benefits,” Lach says.

RETIREMENT MATCH

This is the one that really makes financial planners tear their hair out. If you are not contributing to the maximum value of your employer match, you are essentially taking cash and setting it on fire.

One study found that 25% of employees are missing out on that full value, to the tune of $1,336 per year, or roughly $24 billion nationwide. Compound that sum over many years with typical annual investment gains, and you can see why that can be a fatal financial mistake.

Says Brad Wright, a founding partner with Launch Financial Planning in Andover, Massachusetts: “If your company offers a match, and you’re not contributing enough to your retirement account to receive the full amount, you are giving up free money.”

(Editing by Lauren Young, Peter Graff; Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance.)