CHAPTER
10

Employer-Sponsored Benefits

In This Chapter

• Understanding employer-sponsored benefits
• How employer-sponsored benefits increase your compensation
• Finding the health-care plan for you
• Taking advantage of a 401(k) plan

If you’ve got a job that offers health insurance, a retirement savings plan, and other perks, consider yourself lucky. These benefits greatly increase the value of your earnings and give you an opportunity to save money for your future. The key, of course, is to take full advantage of savings opportunities. Research shows that most millenials who are offered savings plans through work take advantage of them, although many in this age group work in jobs that don’t offer benefits.

There’s a running debate in this country about the wisdom of linking jobs with health-care and retirement benefits, but the fact remains that more than half of Americans still get their health insurance through work, although that number has dropped during the past decade.

Let’s take a look at what employer-sponsored benefits are and why they’re so important.

What Are Employer-Sponsored Benefits?

An employer-sponsored benefit plan provides one or more types of benefits to employees at no or little cost. Typically, these benefits include health care and a retirement savings plan, although some employers also offer a life insurance policy, dental and vision care, education reimbursement, and other perks. Paid vacation is definitely a nice benefit.

Definition

An employer-sponsored benefit plan is a benefit or package of benefits an employer provides for employees. These plans vary from company to company.

An often-overlooked benefit employers pay is half of your contribution to Social Security and Medicare. If you’re self-employed, you have to pay both halves of those taxes.

Employee benefit programs are by no means a new concept in the American workplace. As early as 1875, the American Express Company offered a pension plan to employees. Montgomery Ward established a group health, life, and accident insurance plan for employees in 1910, and Baylor University Hospital offered a group hospitalization plan to its workers in 1929.

Employees benefit from these plans by getting discounted services, and employers get some tax advantages when they provide benefits. Providing benefits also plays a role in attracting and retaining good employees.

Benefits vary greatly, depending on the employer. An employee working for an insurance company in the Midwest might get basic health care for which she contributes part of the cost and 2 weeks of paid vacation, while someone who works for a tech company in Silicon Valley might get 4 weeks paid leave at the birth of a child, free meals every day, 100 percent paid health care, and the capability to bring his dog to work.

The Real Cost of Hiring You

At the end of 2015, the average pay for a civilian worker was $33.58 an hour, according to the U.S. Bureau of Labor Statistics. Of that amount, just under a third of the compensation resulted from benefits.

Wages and salaries averaged $23.06 per hour, and benefits contributed $10.52 an hour. So when you complain that your salary is too low, remember that you need to factor in your benefits as well.

Pocket Change

Google is consistently ranked one of the best companies to work for, with employee perks cited as one of the reason. Fringe benefits include free massages, haircuts, gourmet food, and doctor visits, as well as nap pods.

Millennials recently became the largest group of working Americans, and many analysts feel that their influence will greatly affect the business community. As baby boomers retire and more and more millenials take their places, employers will need to find innovative ways of attracting and retaining them. Polls have found that these benefits—some traditional and some not-so-traditional—are important to many millennials:

• Comprehensive benefits package, including health care and a retirement savings plan such as a 401(k) plan.
• Flexibility, such as the ability to alter work hours and work from home.
• A positive social atmosphere at work, including things like snacks, open workplaces, a laid-back dress code, and community game areas.
• Work-life integration, which is a step beyond work-life balance. Work-life integration occurs in an environment that supports the blending of personal and professional lives.
• Family-friendly policies such as paid parental leave, lactation facilities, and onsite or subsidized child care.
• Concierge benefits such as dry-cleaning services and catering.
• Mentoring services that provide feedback and help millennials succeed quickly.
• Education and training such as tuition reimbursement.
• Competitive wages and financial incentives such as bonuses are important to all workers.

Depending on the number and type of benefits provided, the cost can add up for employers. As a result, some companies have reduced workers’ hours to part-time to avoid paying benefits. Some industries, such as retail and hospitality, often don’t provide any benefits for workers.

Pocket Change

Sixty percent of millennials surveyed said they’d trade a higher salary for a great work atmosphere.

Employer-Provided Health Plans

Americans get health care in a variety of ways. For about 60 percent of us, our health care is provided through an employer. Employers with 50 or more full-time employees are required to sponsor plans. If you don’t receive health care through your employer, you’ll need to buy the Minimum Essential Coverage under the Affordable Care Act (ACA) or pay a penalty.

Many employers used to cover the full cost of their employees’ health-care policies, but as the cost of coverage has risen, workers are increasingly being asked to contribute to the costs. In 2014, workers paid an average of just under $5,000 toward the cost of employer-sponsored health care for themselves and their families.

If the amount you have to pay toward your health exceeds 9.5 percent of your household income, you can opt out of that plan and buy it yourself from the Health Insurance Marketplace under the ACA (healthcare.gov). You’ll be eligible for a tax credit if you do that.

If you don’t pay more than 9.5 percent of your household income toward your employer-sponsored health care but want to opt out because you don’t like the coverage or another reason, you won’t be eligible for the tax credit. You can switch your plan if you like, but you won’t receive the credit.

Some benefits consultants believe employer-sponsored health care is financially unsustainable and will soon cease to exist. Employers instead will shift to a defined-benefits plan, in which employees will be given money with which to buy their own health care.

Pocket Change

In their book, The End of Employer-Provided Health Insurance: Why It’s Good for You, Your Family, and Your Company, Rick Lindquist and Paul Zane Pilzner, the president and founder respectively of Zane Benefits, make the case for the end of employer-sponsored health insurance plans. They argue that 90 percent of all businesses will stop offering health plans by 2025, switching instead to an employee health insurance stipend system.

That type of plan would get employers out of the insurance system but still enable them to provide a benefit to their employees. For now, however, if you’re covered with health care provided by your employer, be sure you carefully read and understand the policy. Know what you’re responsible for as far as co-pays, deductibles, prescription costs, and other costs.

You’ll need to consider all those costs, plus any amount taken out of your check to help pay for the plan, when you’re making a budget and figuring out your monthly expenses.

Employer-Sponsored Retirement Plans

If your employer offers a retirement savings plan, maximize that benefit by contributing as much as you can. This can be difficult when you’re paying back college loans and have other expenses, but the sooner you start saving for retirement, the better off you’ll be. You’ll read a lot more about 401(k) plans and individual retirement accounts (IRAs) in Chapter 21.

For now, understand that pensions—plans employers set up to provide payments to employees when they retire at no cost to the employee—have become very rare. And Social Security payments are covering a declining share of earnings, meaning younger workers will need to rely on their own savings when they retire.

Money Pit

When regular monthly Social Security benefits payments started being made in 1940, the life expectancy of a 64-year-old was about another 14 years. Today it’s 21 years. That and other factors are making it harder for Social Security to keep up and raises questions about the sustainability of the system.

Most millennials understand this and expect to self-fund their retirements. Fortunately, many employers are helping them by offering 401(k) plans with some level of matching contributions. Three quarters of millennials who have access to 401(k)s through work are making regular contributions to them.

The amount of employer-matched contribution varies from company to company. If you’re lucky, your employer will match your contribution dollar for dollar up to a certain percentage of your paycheck. The most typical match is for every dollar an employee contributes up to 6 percent, the employer throws in 50 percent. By taking advantage of the match, you get an automatic 50 percent return on your money. Even with that incentive, however, it’s estimated that one in every four employees does not contribute the maximum amount to get the full benefit of the employer’s match.

Companies trying to attract new hires in competitive marketplaces may offer matches or partial matches to contributions up to 10 percent or even higher. Not taking advantage of those opportunities while they’re available can have a real negative effect on your retirement.

Other Retirement Plan Options

If you’re among the half of all American workers who doesn’t have an employer-sponsored retirement fund, you can look into some other options.

About 17 states have addressed legislation that would create some type of state-sponsored retirement plan for workers who don’t have plans through their employers. These kinds of plans, in which contributions are automatically deducted from workers’ paychecks, are popular among younger people, according to a poll by Young Invincibles, a national advocacy group that works to educate young adults on issues relating to health care, finances, jobs, and higher education. Among all millennials who are registered to vote, 85 percent said they favored such a plan.

Another option for saving if you don’t have an employer-sponsored plan is myRA, a starter retirement plan launched by the U.S. Department of the Treasury. You choose the amount of money you want deducted from your check, and you’ll earn some interest on the savings. You can contribute up to $5,500 a year, and your investment is backed the U.S. Treasury. If you change jobs, your money moves with you. You can learn more about myRA at myra.gov.

If you don’t have employer-sponsored benefits, you’ll have to work harder to ensure you’ve got adequate health care and are starting to save some money for your retirement. If you do have these benefits, factor in their value to what you bring home in your paycheck. It’s not advisable to take a job just because it offers good benefits, but it should be a factor the next time you’re making a decision about accepting a position.