The first day of your new position is here. You’re a little nervous, but excited to get started. Everything is new. New desk, new people, and new schedules to figure out. At some point, HR will hand you a stack of paperwork to fill out. While the benefits part of the job is exciting, the sheer amount of terms you’ll see may leave your eyes glossed over.
Here are a few key terms to know when reviewing your benefits package. Get familiar with these so you can maximize your new benefits.
Health insurance is a benefit that often draws us in. We all have healthcare needs and need a way to pay for them. While health insurance is an important benefit, it can be very confusing to understand.
These are a few basic terms you’ll hear when learning about health insurance:
- Premium – The amount charged by your insurer to keep your insurance active. Typically, you’ll pay part of the premium out of your paycheck, and your company will pay the rest. Some companies will pay the entire premium.
- Deductible – The amount of money you have to pay “out of pocket” before your health insurance company will start paying for your healthcare costs. For example, a $2,000 annual deductible means you are responsible for paying any healthcare-related bills up to $2000. Once that amount is met, your insurance company will begin paying.
- Co-Insurance – The amount your health insurance company will pay toward your bills once your deductible is paid. As an example, they may pay 80% of your bill, and you’ll still be responsible for the remaining 20%.
- Copay – A one-time fee you have to pay for a covered healthcare service. For example, you pay a $30 copay each time you see your doctor (not including your annual checkup).
- High Deductible Health Plan (HDHP) – An insurance plan with a high deductible and relatively low monthly premium. These plans typically include standard preventive care – like an annual physical. However, you’re responsible for all other healthcare costs until you hit the high deductible – like maybe $3,000 a year.
- Health Savings Account (HSA) – You can place pre-tax dollars in these accounts to pay for out-of-pocket healthcare expenses. Some employers may even add contributions for you.
You can only utilize an HSA if you are enrolled in an HDHP.
There are annual limits on how much you can contribute to an HSA. The 2019 limits are $3,500 for a single wage earner and $7,000 for a family. If you are or turn 55 anytime in 2019, you can contribute an additional $1,000.
In addition, funds placed in HSAs roll over year to year, meaning you don’t have to worry about losing your money.
- Flexible Spending Account (FSA) – Similar to an HSA in that you place pre-tax dollars in these accounts to cover healthcare costs. You do not have to pair these accounts with an HDHP.
Unlike an HSA, the funds do not roll over year to year, which means you have to spend the money or you’ll lose it.
The contribution limits are also lower. In 2019 the contribution limit is $2700, and you can only enroll if your employer offers them.
- Health Maintenance Organization (HMO) – A health plan that covers only services offered by health care providers within the network. HMOs are considered one of the most affordable options as they tend to have low premiums.
- Preferred Provider Organization (PPO) – A health plan that allows you to choose any doctor you want. The catch is that you will pay more if you choose out of network doctors. Additionally, PPO premiums are typically higher than HMOs.
We all know it’s essential to plan for our eventual retirement. Here are a few of the retirement options a company may offer:
- 401(k) – Allows employees to make pre-tax contributions to a retirement savings vehicle. Earned interest grows on a tax-deferred basis, which means the money is not taxed until withdrawn. Often times, employers will match the employee contribution up to a certain amount. Employees can change how funds are distributed at certain times of the year.
- 403 (b) – Similar to a 401(k), but offered by certain tax-exempt organizations. Employees can make tax-deductible contributions and employers can match up to a certain percentage. The funds grow on a tax-deferred basis.
- IRA – An account set up at a financial institution that allows you to save for retirement with either tax-free growth or on a tax-deferred basis. There are 3 main types of IRAs – Traditional, Roth, and Rollover. Each IRA offers certain types of benefits you’ll want to examine to see which makes the most sense for you.
- Profit Sharing – Some employers set up a profit-sharing plan. Employees “share the wealth” by using a portion of the companies profits to share a retirement plan. Contribution amounts are entirely up to the employer and are limited to a fixed percentage of the employee’s income. Employees are not allowed to make any contributions and employers may restrict part-time employees from participating.
Paid Time Off
While you enjoy your job, you need a break from time to time. This is where PTO or “paid time off” comes into play.
PTO can be handled in many ways. Some employers may give a certain number of days off for each PTO category (such as paid vacation, paid sick days and floating holidays). So you may get 10 paid vacation days, 5 paid sick days, and 1 paid floating holiday (a day to celebrate a personal holiday, such as a religious holiday that your employer doesn’t offer).
Some employers may put your PTO into one basket and you can use your time however you want.
Some companies offer PTO upon hire and others make you accrue the time. Either way, PTO is a nice benefit to have.
Employers prefer their employees to be happy and healthy. Many employers are starting to offer wellness benefit to encourage work and life balance.
The term wellness is very broad, so there is no standard program you can expect. Some companies may offer to pay the membership costs at a local gym, hold in-house fitness classes or provide access to health coaches.
Other wellness benefits may include workshops for managing stress, financial planning, and overall wellness coaching. The possibilities are endless for wellness programs, so take time to see what is offered and take advantage!
When your young and healthy, the thought of becoming disabled and not earning a paycheck rarely crosses your mind. However, as the Social Security Administration points out, a 20-year old has a 1 in 4 chance of becoming disabled before reaching retirement age.
Disability insurance pays a set percentage of your earnings if you cannot work due to an injury or illness.
There are two types of disability insurance, short-term, typically lasting up to six months, and long-term, which can last for several years and even up to retirement age (depending on your policy).
If your employer offers disability insurance, take a look as the company may be able to take advantage of a group discount, making better rates for everyone.
Now that you know some of the terms you’ll see, you can make smart decisions regarding your benefits.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.