When I accepted my first full time job which I would start after graduating from college, I was excited about having a job I knew I could build into a career. I was looking forward to moving to a city and being an “adult”, but I also had to think of the practical side of living on my own and being responsible for things I had not been previously, like insurance and retirement plans. Luckily, my education in personal financial planning had given me some idea of the types of questions I should ask of my prospective employer to make sure I was covered in all the key areas.
When you first start a job, you are told of several programs and benefits you are eligible for through your employer. These employee benefits can make a drastic difference in your overall compensation so it’s always important to review each benefit so you can maximize it for your specific situation. Employer-provided benefits are the backbone of your compensation package because they can help provide a financial safety net for you and your family. It’s important to know what benefits you have, and make sure you're taking full advantage of them.
Employer-sponsored retirement plans such as traditional 401(k) and 403(b) plans are a great option for saving for retirement. You can make pretax contributions (which generally reduce your taxable income) directly from your pay, and any earnings on your contributions grow tax deferred until withdrawn. In my case, the best option is a Roth 401(k) contribution, so the income is taxed at the low bracket I’m currently in, knowing I’ll be in a higher bracket in retirement.
Although the number of employers offering pension plans has been dwindling, in some industries pension plans are still commonplace. If your employer offers one, make sure you understand the rules for participating and becoming vested in your pension benefits.
No matter the type of plan, be sure to get all the “free money” available. There are different benefits to each account, but if you get a 3% match on an account, that could double your 3% contribution to 6% with no risk.
Health, life, and disability insurance
Employer-sponsored group health insurance is a very valuable benefit, especially if your employer pays a substantial portion of the premium cost. Employers may also offer low-cost group life and disability insurance that can supplement coverage you already have. Be sure to ask questions to understand the details of each plan and know your enrollment window, because it may only come once a year (barring any qualifying events, i.e. marriage, newborns, etc.).
Flexible spending accounts vs. Health Savings Accounts
Your employer may offer you the chance to contribute pretax dollars to a health and/or a dependent care flexible spending account. Your contributions aren't subject to federal income taxes or Social Security taxes (nor generally to state and local income taxes). You can use these tax-free dollars to pay for health-care costs not covered by insurance or for dependent care costs such as childcare. But there is a limited rollover amount from year to year so if you don’t use all of your contributions, you could lose them.
Health Savings Accounts (HSAs) also allow you to make pretax contributions that won’t be taxed if they are used on qualified medical expenses. Another great feature is the money in your HSA will rollover at the end of each year, regardless of the amount. You also have the choice to invest a portion of the account which gives you the option to use it as another retirement savings vehicle.
Sick leave, disability, and vacation policies
Your employer's sick leave and disability policies can make a big difference in your ability to take care of yourself and your family members, without jeopardizing your job. Having generous amounts of paid time off (i.e., vacation or personal days) will help reduce stress and allow you to take care of personal matters, and will ultimately benefit your employer through increased commitment and productivity.
If you work for a mid- to large-size company, it's likely that you'll have access to other employee benefits. One valuable benefit is an educational assistance program that will covers some or all of the cost of courses and job-related training that you may need to advance. Another is an employee assistance program that can help you deal with challenging personal situations such as divorce or elder care.
Fortunately, the traditional workplace is changing. Employers are increasingly recognizing that providing work-life balance programs are key to having a healthy, engaged workforce. All workers, regardless of gender identity or marital status, with or without children, can benefit from flexible scheduling such as working from home or a compressed work week that can help them meet personal needs and responsibilities.
While each of these are great benefits, every employers’ benefits vary, and the value each individual gets from them is different. That’s why it’s so important to ask questions to ensure you fully understand the complete package before committing to a new employment opportunity. Make the most of your employment to support the life you want.
This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.