Employee Corporate Benefits: A Guide

Employee corporate benefits are integral to financial health, so understanding your options is vital. However, choosing the right benefit vehicle can feel overwhelming.  

Let’s walk through a process to assess the best benefits package for you and your family. 

Managing your 401(k)

The 401(k) is one of the most common retirement savings vehicles available today. These plans allow employees to contribute after-tax or pre-taxed dollars into a long-term investment fund. Over time, the investments grow tax-free, forming a nest egg for retirement. After you reach 59½ years of age, you can withdraw the money and use it as you see fit. These withdrawals are referred to as distributions. Early distributions—made before 59½—may incur penalties. 

If you have a 401(k) plan from a previous job, you generally have three options: keep it where it is, roll it over into your new employer’s 401(k), or transfer it into an individual retirement account (IRA). 

The maximum annual contribution for employees under 50 years old is $23,000. If you are 50 or over, the maximum includes a $7,500 “catch-up” contribution and rises to $30,500. There are limitations on who can contribute to a Roth IRA, such as high-earners. However, while contributions are not permitted, conversions from a traditional IRA into a Roth IRA are allowed with a “backdoor” to Roth IRA contributions.   

Health care benefits

When selecting healthcare benefits, employees should prioritize two essential elements: health needs and financial implications. It’s important to assess your medical requirements—how frequently you visit a doctor, whether you need specialized care, and if you have regular prescriptions. Choose a plan that covers these needs without overburdening your budget. 

Consider the financial details of the plans: What are the premiums, deductibles, and out-of-pocket maximums? Before deciding on a healthcare benefit, ensure you understand which services are included, particularly if your medical needs are specific 

Medical coverage

Most companies offer three different employee and family medical plans with eligibility based on geographic location: 

• On-demand coverage: A no-deductible plan that allows you to see precisely what your health care services will cost and save by choosing in-network providers 
• Physician-coordinated coverage: A low-deductible plan with a selected primary care provider who refers you for specialist care when needed 
• Consumer-directed coverage: A plan that allows you to pay for coverage through a health savings account (HSA) 

Dental coverage

Most companies will offer a network of dentists that will cover over 100% of the cost of cleanings and other preventative services if you exceed your annual coverage limit.  

Vision coverage

Most employees who want vision insurance will be offered a variation of one of the following: 

• Exam Only: Annual eye exam; copayment required 
• Exam and Materials: Exam plus either contact lenses or glasses frames and lenses 
• Exam and Materials Plus: This plan includes exam and materials coverage, as well as extended lens and lens coating options from in-network providers. 

High deductible plan with HSA

A health savings account (HSA) is an investment vehicle for long-term healthcare costs. The maximum an individual can contribute in 2023 is $4,150 ($8,300 for families). Individuals over 55 may make an additional $1,000 catch-up contribution.  

If you are no longer enrolled in a high-deductible plan, you can keep the HSA and withdraw tax-free funds for eligible medical expenses. However, you cannot make additional contributions. 

Flexible Savings Account  

A flexible savings account (FSA) allows employees to contribute pre-tax dollars into an account for eligible medical expenses throughout the year. There are two types of FSAs: 

• A health care FSA is for typical medical expenses, such as contacts or medication. The contribution limit for 2024 is $3,200.  
• A dependent care FSA is for dependent care expenses, such as child or elder care, while you are working.  The contribution limit for 2024 is $5,000 for single filers and couples filing jointly and $2,500 for married couples filing separately. 

An FSA can be used with an HRA but not an HSA. Exceptions are granted to dependent care FSAs. It’s essential to set clear objectives before enrolling in an FSA. What are your priorities? How much can you contribute to a plan? What are your ongoing healthcare needs and habits? Once you grasp your priorities, you can find the right vehicle to achieve your goals. 

Restricted Stock Units (RSUs)

A restricted stock unit (RSU) is a form of compensation from company shares. You receive a grant filled with a certain number of restricted stock units. These hypothetical shares of stock become yours once they vest. Vesting periods depend on the grant. The date they vest is the date they become yours.  

When your shares vest, they are treated for tax purposes as if you received a cash bonus, with the income and tax withholding reflected in your paycheck and on your W-2 form. After vesting, you can retain or sell the shares, provided you are within a permitted trading window. Selling the shares immediately upon vesting does not result in capital gains tax; however, if you choose to hold the shares, value increases will be subject to capital gains tax. If you have the stock for more than a year, any profit from its sale qualifies for the lower tax rates applicable to long-term capital gains.  

Deferred compensation plan

A deferred compensation plan can offer significant tax deferral benefits for eligible employees. 

Participants can defer parts of their compensation, such as base salary and bonuses, to be paid out later, potentially at a lower tax bracket. It’s crucial to note that employees who defer compensation become the company’s creditors; if the company goes insolvent, the deferred funds could be at risk. 

The deferred income is treated as invested, with earnings accruing on a tax-deferred basis until the funds are distributed. Employees can tailor their distribution schedules to align with specific financial objectives, like funding a college education, purchasing a vacation home, or preparing for anticipated needs, such as caring for an elderly parent.  

Take action

There is no one-size-fits-all solution to securing your finances and optimizing your benefits package. So, what do you do next? Start by defining your 401(k) goal, game out your RSUs, pick a healthcare plan, and protect your income.  

Are you looking to build out a financial plan customized to your needs? We are here for you.