Are Your Employer Benefits Meeting Your Needs?

Contributed by: Robert Ingram, CFP®

Fall is upon us, but just around the corner is the 2021 Open Enrollment Period. The window to select next year’s benefits at your employer runs from Nov. 1st through Dec. 15th. In the past, you may not have given these selections much thought, but this year, the impact of COVID-19 may have you thinking about the many “What if...” situations. Like, “What happens if my family and I get sick?” or “What happens if I'm out of work for a long time?” Understanding your options helps ensure that you're taking full advantage of the insurance plans and other benefits. Here are 5 reasons you should review your benefits and coverages:

1. Do you have the right health insurance coverage?

Most employer health and wellness benefits have at least a couple of health insurance options, such as PPO or HMO plans. Today, available choices usually include a type of High Deductible Health Plan (HDHP) eligible for a Health Savings Account (HSA). With a higher deductible, you will be responsible for a greater amount of medical costs out-of-pocket before the insurance plan begins to pay (compared to a more traditional lower-deductible plan). In addition to the opportunity to contribute to an HSA, the higher deductible plans usually have lower premiums than plans with lower deductibles. However, you should focus on the total potential costs, including premiums, deductibles, co-pays, and annual out-of-pocket maximums. 

When deciding which plan makes the most sense, you would normally consider your health history and the services you might expect to use. Generally, the greater your expected medical costs each year, the more likely you benefit from a lower deductible plan. You also should consider how you want to manage your health care (are you comfortable staying within a specific network of doctors and hospitals, or do you want greater flexibility?). Some health plans, for example, will require higher co-pays for services provided outside of their direct network.

The COVID-19 pandemic has made it even more important to understand your coverage options and make decisions accordingly. Some questions to ask when evaluating insurance plans could include:

• If I get sick and need treatment, what restrictions does the plan have on services? What hospitals or outpatient facilities can I use?

• Are there any deductibles waivers for COVID-related services or office visits?

• How does prescription drug coverage handle any special treatments or therapeutics?

2. Do you need to add young adult children to your health insurance plan?

Under the Affordable Care Act, health plans that offer dependent child coverage must allow children to be covered under the parent’s family plan until they reach age 26. With the widespread disruptions in the economy, many young adults may have lost their employer coverage or face other cost-prohibitive options. 

On plans that cover dependents, you can add your child under age 26 to your plan as a dependent even if he or she:

• is not living with you

• is not financially dependent on you

• is married

• is eligible to enroll in their own insurance plan

3. Strengthen your life insurance and disability insurance protections.

Employer benefit plans offering life insurance typically provide a basic amount of coverage at no additional cost to you, such as an amount equal to your base salary. Many plans will allow you to purchase additional coverage (supplemental life insurance) up to a maximum dollar amount or a multiple of your salary, for example, up to five times your salary.  

Often there is additional spousal coverage you can purchase as well.

While the supplemental and spousal insurance has an extra cost that can increase as the employee/spouse ages, employer group insurance tends to be less costly than individual policies and can provide a good base of coverage. When considering your life insurance needs, here are some tips.

Many employers also provide a group disability insurance benefit. This can include short-term coverage (typically covering up to 90 or 180 days) and/or long-term disability (covering a specified number of years or up through a certain age such as 65). Disability benefits often cover a base percentage of income such as 50% or 60% of salary, many times at no cost with some plans offering supplemental coverage for an additional premium charge.   

As with the life insurance benefits, group disability may not completely replace your lost income, but it can provide a solid foundation of coverage that you should maximize.

4. Your retirement plan (401k, 403b, etc.) might need a tune-up.

Start with contributions to your account. 

• Are you contributing up to the maximum employer match, if offered? Take advantage of free money!

• Are you making the maximum annual contribution (elective deferral)? The basic limit was $19,500 in 2020.

• If you can save more after maximizing your elective deferrals, does your plan offer separate after-tax contributions? This could be a way to leverage additional Roth IRA conversion opportunities.

Review your investment allocation. Do you have the appropriate balance of stocks, bonds, cash, and other asset categories in your portfolio given your timeframe and tolerance for risk? After experiencing the plunging financial markets of March and the sharp rebound in the stock market through the summer, you may have concentrations in certain assets that are above or below your desired target. This could be a good time to rebalance your portfolio back to those targets.

5. Michigan’s auto insurance no-fault law changed in July.

Okay, while your auto insurance is probably not part of your employer group benefits, now would be a good time to review your auto insurance coverage along with your other benefits. 

Earlier this July, legislation went into effect here in Michigan that changed the no-fault insurance law. One of the main changes related to Personal Injury Protection (PIP) is the part covering medical bills and lost wages if you are injured in an accident. Residents can now select different levels of PIP, whereas Michigan law had previously required insurance covering unlimited medical benefits for the lifetime of the injured person. Read more about the Michigan insurance reform.

If your policy has been renewed since July 1st, you may have chosen a specific PIP level or continued a default option for unlimited coverage. Selecting a lower level of PIP can lower your premiums depending on the limit you choose. However, it's important to note that carrying a higher level of protection could still make sense for many people and could be worth the extra cost. 

Having a conversation with your insurance agent and financial advisor about the potential risks versus cost savings can help you decide if changes to your policy are appropriate. 

As always, if we can be a resource for you, please let us know. 

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

3 Types Of Practical Disability Coverage You Should Know

Contributed by: Josh Bitel, CFP®

According to the Social Security Administration, studies have shown that just over 25% of today’s 20 year-olds will become disabled at some point before reaching age 67. Wow! This is a pretty staggering statistic – these odds are far greater than a premature death, which is what life insurance is typically purchased to protect against. However, often when we discuss disability insurance with clients, we find that it’s an area of confusion. Many aren’t even sure if they have coverage or they may believe that Social Security will kick in and be enough. For most of us, especially if you’re in the early stages of the “accumulation mode” of your career, your earnings power is most likely your largest asset both now and into the foreseeable future. A disability can wreak havoc on this “asset” which is essentially why disability insurance is purchased. Let’s look at the basic types of coverage:

1. Short-Term Vs. Long-Term Disability

Long-term disability typically has what’s known as an “elimination period” of how many days must pass before benefits begin. This is often called the “time deductible” of the policy which in many cases is 90-120 days. Benefits can payout up until age 65, however, most policies have a stated period of time where benefits would be payable. To help bridge this gap of coverage, a short-term disability policy can come in handy because benefits will usually begin within a week or two of disability and continue for up to one year, although benefits typically last between three to six months. Short-term disability policies can be a great tool to preserve your emergency cash fund, typically at a somewhat reasonable cost. 

2. Group Coverage

As with life insurance, many employers offer a form of disability insurance to their employees as part of their benefits package. Sometimes the employer will pay for the premium in full and other times the employee will have the option to pay for premiums (fully or partially). You may be asking yourself, “Why would an employee want to pay for the group coverage instead of having the employer foot the bill?” Great question, with very important ramifications! If the employer pays your premiums in full, the entire amount of your benefit if needed (typically between 50% and 60% of your pay up to certain limits) would be taxable. If you as the employee were paying for the premiums in full and you needed the coverage, benefits paid out would NOT be taxable. If you were only paying a portion of the total premium, say 20%, only 20% of the benefits paid would be non-taxable to you as the employee. The tax treatment of benefits will have a large impact on the net amount of benefit that hits your bank account so it’s important to understand who’s paying for what if you have access to a group disability policy at work.

3. Individual Coverage

As the name implies, individual coverage is purchased by you through an insurance company – the policy is not offered through your employer. A major benefit of purchasing an individual policy is that the coverage is portable, meaning you can take it with you if you change jobs because it’s not tied to your company’s benefits package (most group policies are non-portable). Another advantage (or disadvantage depending on how you look at it), is that you are paying for the coverage in full so if benefits are needed, they will not be taxable to you. With an individual policy, you have control over selecting the definition of disability that your policy uses (any occupation, own occupation, etc.) and you’d also have the option to add any additional features to the policy, usually at an additional cost.

In this blog, we’ve merely scratched the surface on disability coverage. As I mentioned, it is often one of the most overlooked parts of a client’s financial plan and coverage types, despite its high probability and significant risk of long-term financial loss. At a minimum, check with your employer to see if group coverage is offered (both long-term and short-term) and consult with your financial planner on whether or not it is sufficient or if additional coverage would be recommended. 

Josh Bitel, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James.

Employee Benefits Open Enrollment: 2018 Game Plan

Contributed by: Robert Ingram

Now that the Fall season is upon us and the holidays are right around the corner, it is also the annual benefits open enrollment season for many employers.  I know it can be tempting to quickly flip through the booklet checking the boxes on the forms without too much consideration, especially if things haven’t changed too much in your situation.  You’re certainly not alone.  However, setting aside some extra time to review your options is important for not only understanding the benefits you have and what might be changing, but also for identifying potential gaps in your coverages or underutilized opportunities.

Below are some benefits that, if offered by your employer, you should keep top of mind as you are making your elections.

Retirement plan contributions (401(k)/403(b) )

• Are you contributing up to the maximum employer match? (Take advantage of free money!)

• Are you maximizing the account?  ($18,500 or $24,500 for age 50 and over in 2018)

• Traditional 401(k) vs. Roth 401(k) options? 

Click here for a summary of 2018 retirement plan contribution limits and adjustments

Health insurance plans

• Review and compare your available plan offerings (e.g. PPO vs HMO). Want to explore some of the differences between plan types in more detail? Click here.

• Focus on more than just the premium cost. Think about the deductibles, copays, and the annual out-of-pocket maximums

• Consider your health history and the amount of services you use. For example, are you likely to hit the deductible or maximum out-of-pocket costs each year? The benefit of lower premiums for a high deductible plan may be outweighed by higher overall costs out-of-pocket.  Are you less likely to hit the deductible but you have excess cash saving just in case?  A lower premium, high deductible plan could make sense.

Health Care Flexible Spending Accounts vs. Health Savings Accounts

Flexible Spending Accounts and Health Savings Accounts both allow you to contribute pre-tax funds to an account that you can then withdraw tax-free to pay for qualified out-of-pocket medical expenses.  There are, however, some key differences to remember.

Flexible Spending Account for health care (FSA)

• Maximum employee contribution in 2018 is $2,650

• Generally must spend the balance on eligible expenses by the end of each plan year or forfeit unspent amounts (use-or-lose provision).

• Employers MAY offer more time to use the funds through either a grace period option (you have an extra 2 ½ months to spend the funds) or a carryover option (you can carry over up to $500 of the balance into the following year)

For more information on the FSA click here.

Health Savings Account (HSA)

• Can only be used with a high deductible health insurance plan

• Maximum contribution in 2018 for an individual $ 3,450  ($4,450 for age 55 and over)

• Maximum contribution in 2018 for an family plan $6,900  ($7,900 for age 55 and over)

• All HSA balances carryover (no use-or-lose limitations apply)

Click here for more information about the basics of using an HSA

Dependent Care Flexible Spending Account

• Pre-tax contributions to an account that can be withdrawn tax-free for qualified dependent care expenses within the plan year

• Maximum contribution in 2018 is $5,000 ($2,500 if married filing separately)

• Use-or-lose provision applies 

Life and Disability Insurance

• Employers often provide a basic amount of life insurance coverage at no cost to you (typically 1 x salary). 

• You may have the option to purchase additional group coverage up to certain limits at a low cost.

• Many employers also provide a group disability insurance benefit. This can include a short-term benefit (typically covering up to 90 or 180 days) and/or a long-term benefit (covering a specified number of years or up through a certain age such as 65).

• Disability benefits often cover a base percentage of income such as 50% or 60% of salary at no cost with some plans offering supplemental coverage for an additional premium charge.

• Life and disability insurance benefits can vary widely from employer to employer and in many cases only provide a portion of an employee’s needs.It is important to consult with your advisor on the appropriate amount of coverage for your own situation.

Like most things related to financial planning, your benefit selections are specific for your family’s own unique circumstances; and your choices probably would not make sense for your co-worker or neighbor.  We encourage all clients to have conversations with us as they are reviewing their benefit options during open enrollment, so don’t hesitate to pass along any questions you might have. If we can be a resource for you, please let us know.

Robert Ingram is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.®

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This information has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional. Life insurance Guarantees are based on the claims paying ability of the insurance company.