Open enrollment is an important time each year because it gives you the opportunity to adjust your employee benefits. It allows you to sign up for health insurance, add a child or dependent, or make changes to other benefits like group life insurance, disability, or your retirement plan contributions. It's also a great time to review how those benefits integrate into your overall financial plan.
Here are some things to consider as open enrollment approaches.
Are there any changes to the plans my employer offers?
When you receive the packet of open enrollment materials from your employer, you will need to look for changes in the plans that are being offered. Besides adjustments in the premiums, there may be differences in the coinsurance, copayment, or deductible amounts. Additionally, if your employer changed plans in the past year, your current doctor or dentist may no longer be in your plan’s network. If they are not in your network, you could be charged out-of-network costs or your claims may be outright denied by the insurance company.
Your employer may have different plans from which to choose and your choice should depend on your health, your income, and other aspects of your personal circumstances. If you're healthy and single, then a high-deductible plan with lower monthly premiums may be the best choice, since you rarely visit the doctor. On the other hand, if you are expecting to have a child or some other sort of potentially expensive medical procedure in the next year, you may want to choose the plan that costs you the least out-of-pocket.
Think of it this way: the more costs the plan will cover, the higher you should expect your premiums to be.
What about the other insurance and benefits?
Review your other benefits carefully and choose the options best suited to your lifestyle and circumstances. If you don't wear glasses, then you probably don't need vision coverage. However, if you have a family history of cancer, then the extra cost of cancer insurance may be worth it.
Disability insurance becomes more critical as you get older, but that does not mean young people should not consider coverage. Do your weekend hobbies include racing mountain bikes or skydiving or are you more risk-averse in your activities? Disability is an often-overlooked benefit that can be extremely valuable in worst-case scenarios.
What about group life insurance? While it's usually less expensive than a private policy purchased through an insurer, you may lose coverage if you change jobs. Group life insurance should supplement the private insurance policies you own independent of your employer's plan. Especially if you have or are planning to have children, being properly insured against the unthinkable is critical.
Does your employer plan offer a Health Savings Account (HSA) or a Flexible Savings Account (FSA)? These accounts can be valuable and save you money on taxes, but make sure you’re familiar with how they work and the types of expenses the accounts can be used to pay. Certain items like check-ups, prescriptions, or child care can be paid on a pre-tax basis and your employer may even partially fund the account every year. However, as opposed to an HSA, the balance in your FSA will not rollover to the next plan year, so you might find yourself buying a year’s worth of contact lenses or prescription medications in late December just so you don’t lose the balance in the account.
Health Savings Accounts, on the other hand, can be very great long-term planning tools because unspent balances can be rolled over each year and the accounts can accumulate significant assets over the course of a career. After age 65, they can even be used to fund everyday retirement expenses!
What about my retirement plan?
You should review your retirement investment options to see if there are any changes to the fund lineup, if you need to rebalance your account to a different asset allocation, or change your contribution amount.
Important things to consider include:
· Your age and length of time until retirement;
· Your appetite or comfort level with fluctuations in the stock market;
· Whether your employer matches your contributions and whether those matching contributions are "vested" over a particular period of time (1-5 years typically);
· Whether the plan offers both Pre-tax and Roth contributions; and
· Your personal budget and what you can afford to invest.
At a minimum, you should be contributing the minimum necessary to receive the employer's matching contribution. It is literally free money waiting for you to grab.
The allocation between your investment choices, or your asset allocation, is more complicated. Your plan may offer Target-Date funds that seek to manage the funds based on your expected date of retirement, or you can DIY.
If you're the DIY type, go for the funds with the lowest internal expenses as opposed to the funds with the highest performance because past performance is not a reliable indicator of how the fund will do in the future.
How will the changes affect my take-home pay?
Before you lock in your benefit choices for next year, take a moment and evaluate how your changes will impact your paycheck. Most plans won't allow for much adjustment outside of open enrollment, so consider your choices carefully. Think about your current cash flow and budget
Reach out to your Human Resource personnel for some help and guidance to make sure you're setting yourself up for success. Employee benefits should make your life less stressful and allow you to concentrate on your career and personal life; they should not cause you additional worry.
Where can I get additional help?
Your HR department can answer general questions about the options for your employer's plan, but they may not be equipped to give you personalized advice, like how to allocate your retirement portfolio or how a Health Savings Account can lower your taxes.
If you want more detailed advice, a Certified Financial Planner™ may be able to review your financial and personal circumstances and provide you with objective guidance. Seek out an advisor who is compensated by fees, not by commissions on selling investments. A great resource to find an advisor is the National Association of Personal Financial Advisors (NAPFA) or the XY Planning Network. Some advisors will charge a small fee to review your employee benefit package and deliver to you your best options.