Open Enrollment for Benefits: A Guide for Your Life

By Jennifer Facini, CFP® | May 27, 2024 |

Open enrollment for benefits is your annual chance to align your total compensation package with what matters to you.

Your life changes every year.

Shouldn’t the benefits you choose reflect that? We think so. 

Here’s what we recommend you review and adjust in your next open enrollment.  

Maximize your 401(k) benefits

The open enrollment for benefits season is the perfect time to revisit one of the most accessible and potent tools for retirement savings: the 401(k) plan. This might be a 403(b) plan for those in the nonprofit sector. These plans are pivotal in building a retirement nest egg and come packed with tax advantages, employer-matching contributions, and the potential for significant long-term growth through investment. 

It’s essential to grasp the intricacies of your employer’s specific 401(k) plan. Differences may exist from one plan to another, typically offering a choice between traditional pre-tax contributions and Roth (after-tax) contributions. Some plans also allow additional after-tax savings, providing higher limits and the opportunity to defer more money toward retirement.  And don’t make some avoidable mistakes with your 401(k).

Maximize returns with strategic contributions

From a strategic standpoint, here are several approaches to enhance your 401(k) benefits: 

  1. Contribution Matching: Always contribute at least enough to capture the full match your employer offers. This match is essentially “free money,” significantly boosting your retirement savings and benefiting from compound growth. 
  2. Roth Contributions: Those in lower tax brackets, especially early career employees, should consider making Roth contributions. These contributions grow tax-free, offering tax-free withdrawals in retirement, a valuable benefit if you anticipate higher tax rates later. 
  3. Automatic Increases: Utilize the auto-increase function in many 401(k) plans. This tool can gradually increase your contribution percentage annually, helping you inch closer to saving the recommended 10 to 15% of your pre-retirement income. 
  4. Diversification: Avoid the common pitfall of investing heavily in your employer’s stock. Diversify to manage risk and reduce volatility in your portfolio. By spreading investments across various assets, you can capitalize on different market conditions and align your investment strategy with your personal risk tolerance. 
  5. In-Plan Roth Conversions: If available, utilize in-plan Roth conversions for after-tax contributions. This feature can be particularly beneficial for those who might not typically meet the requirements to contribute to a Roth due to income limitations. 

Health plan options: Beyond the metal tiers

You may encounter various plan tiers, often labeled as Bronze, Silver, Gold, or Platinum. While it’s tempting to equate these labels with quality—assuming Gold or Platinum must be the best—assessing what each plan offers and whether it suits your needs is crucial. 

 Key considerations for choosing the right plan: 

  1. Affordability vs. Coverage: Many ask whether they can afford the premium costs of the higher-tier plans and how much their employer will subsidize. While cost is a significant factor, it shouldn’t be the sole consideration. 
  2. Network Compatibility: Check if the plan’s network includes your preferred doctors and hospitals. Changes in providers and network coverage can occur annually, impacting your access to selected healthcare professionals. 
  3. Life Changes and Health Care Needs: Major life events such as marriage or the birth of a child can significantly affect your health care needs and costs. Choose a plan that accommodates these changes. 
  4. Deductibles and Out-of-Pocket Costs: Understand the difference between low-deductible plans (PPOs) and high-deductible plans (HMOs). If your annual medical costs are low, a high-deductible plan might make more sense, especially if you are healthy and rarely visit the doctor. Conversely, a lower deductible plan could be more beneficial if you anticipate higher medical expenses. 

Open enrollment for benefits is the time to choose the right healthcare plan to fit your circumstances best. Consider the following: 

  • Anticipated Medical Costs: Track your past medical expenses to forecast future needs. 
  • Network Coverage: Ensure your preferred providers are covered. 
  • Life Events: Adjust your plan choice based on significant family or employment status changes. 

The health care plan you select can significantly influence your financial landscape and the suitability of enrolling in an FSA or HAS. 

Flexible Spending Accounts (FSAs) are typically available with lower deductible, traditional health plans (like PPOs); FSAs allow you to set aside pre-tax dollars for medical expenses. However, they are not as “flexible” as the name suggests due to their use-it-or-lose-it nature: you forfeit unused funds by the plan year’s end. FSAs generally have lower contribution limits compared to HSAs. Tracking medical expenses to gauge the appropriate funding level for your FSA is crucial. 

Health Savings Accounts (HSAs) offer the benefit of owning the account personally, meaning it stays with you even if you change jobs. Contributions grow tax-free, and withdrawals for qualified medical expenses are also tax-free. This makes HSAs an excellent option for long-term savings towards healthcare costs. 

There are key differences between HSAs and FSAs. HSAs are portable and remain with you regardless of employment changes, whereas FSAs are tied to your current employer and have annual use-it-or-lose-it policies. Major life events, such as marriage or having children, can affect your choice between an FSA and an HSA, as these events might change your medical spending. 

Dependent care FSAs are particularly valuable for families with childcare expenses. The contribution limit is currently capped at $5,000 for a family, regardless of whether one or both parents contribute. 

Leveraging insurance options

Open enrollment for benefits is critical for employees to reassess their insurance needs and make choices that align with their personal and financial goals. Employers often introduce a variety of benefits during this time, not just to provide value but also to enhance employee retention and productivity. Among these options, life insurance and disability insurance are pivotal, yet they are often overlooked or misunderstood due to their complexities. 

Navigating life insurance choices

Life insurance is a foundational element of financial planning. It’s about more than just ensuring financial support in a tragedy; it’s also about peace of mind. However, choosing the right amount of life insurance can be tricky. Employers typically offer a base amount at a low cost, which is a great start, but it may not be sufficient depending on your circumstances. 

If you’re the primary provider in your household, consider how your potential absence could impact your family financially. Would your spouse be able to cover everyday expenses, save for retirement, and meet other financial obligations? Answering these questions can help determine how much additional coverage you need. 

Be cautious with the enrollment process. The language can sometimes be confusing, making it unclear whether you opt in or out of a plan. Take your time to understand the terms thoroughly before making a decision. 

Understanding disability insurance

Disability insurance is another critical benefit that can protect your income in case of an injury or illness that prevents you from working. Like life insurance, the need for disability insurance might not be immediately apparent, but it is vital to planning for the unknown. 

Short-term disability insurance typically covers a significant portion of your salary for a brief period, such as several weeks. Long-term disability insurance, while potentially covering a smaller percentage of your salary, extends for months or even years. Both types of coverage are essential for comprehensive protection. 

Purchasing disability insurance effectively transfers the risk of income loss due to disability from yourself to an insurance provider. This transfer involves paying a premium, but the cost is generally lower through employer plans than if purchased independently. 

Understanding ESPPs and stock awards

Employee Stock Purchase Plans (ESPPs) offer a compelling benefit for employees. They allow them to purchase company stock at a discount through payroll deductions. This arrangement fosters a sense of ownership among employees and provides an opportunity for financial gain. Typically, the discount on the stock price available through an ESPP is a straightforward way to increase your investment returns potentially. 

Key strategies for ESPP participation

One common strategy is to sell the purchased shares as soon as possible to lock in the discount as profit. This approach is particularly useful if you are concerned about the volatility of the stock or prefer not to have excessive exposure to your employer’s stock. If you believe in your company’s long-term growth potential, holding the shares to qualify for long-term capital gains tax treatment might be advantageous. Remember, holding periods for favorable tax treatment vary by plan but are typically one to two years. 

When you purchase shares, your discount is generally treated as ordinary income. Depending on the holding period, profits from the stock sale are subject to capital gains tax. 

Many companies offer other forms of equity compensation, such as stock options and restricted stock units (RSUs), to align employee interests with those of shareholders and incentivize performance in addition to ESPPs. Stock options allow you to buy shares at a predetermined price (exercise or strike price) within a set timeframe. The goal is for the stock’s market price to rise above the strike price so you can purchase the shares at a discount and potentially sell them at a profit. Restricted Stock Units (RSUs) are company promises to grant actual shares of stock or a cash equivalent once certain conditions, typically a vesting schedule, are met.  

Diverse benefits for diverse needs

Legal benefits

Many employers offer access to legal services for a fraction of what you might pay out-of-pocket. This can include assistance with wills and estate planning. Employer-provided legal benefits can be cost-effective if you haven’t set up your will or trust.  

Health and wellness reimbursements

Recognizing the link between employee health and productivity, many companies now reimburse for gym memberships or fitness programs. This benefit supports your physical health and promotes a positive work-life balance.  

Mental health resources

With the rising awareness of mental health, more employers are incorporating mental health services into their benefits packages. These might be accessible through your employee assistance program (EAP) and can include free counseling sessions or stress management resources.  

Charitable matching programs

If you’re passionate about giving back, consider whether your employer offers charitable match programs. These can double the impact of your donations by matching your contributions to eligible charities. Some employers also compensate for volunteer hours, providing another way to support causes you care about through engaged, philanthropic efforts, like Brighton Jones

Making the most of your open enrollment for benefits

Open enrollment isn’t just a time to sign up for health insurance; it’s a season to strategically enhance your personal and financial health through the myriad of benefits employers offer. Here’s how you can approach this period more effectively: 

  • Evaluate your needs: Assess which benefits align with your current lifestyle and future goals. Whether it’s legal assistance, mental health resources, or fitness reimbursements, choosing the right perks can significantly impact your quality of life and financial health. 
  • Plan: Block time on your calendar to thoroughly review the benefits available to you. Create a list of questions and consider any significant life changes that might affect your choices. 
  • Consult experts: Don’t hesitate to contact HR or benefit coordinators for more detailed information on each benefit. Understanding the fine print can help you maximize the advantages offered. 

The little things you do during open enrollment for benefits can set you up for long-term success. Explore beyond the primary health insurance offerings and consider how other available benefits can support your personal and professional growth. With thoughtful, purpose-driven decisions, you can position yourself to thrive now and in the future.  

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