Meridian Blog

For many, Labor Day is part of a long weekend packed with parties and barbeques, marking the unofficial end of summer and the last day to wear white until next year’s Memorial Day. The holiday, however, has deeper roots, stemming from the late nineteenth century when labor activists pushed for a federal holiday to recognize the many contributions workers have made to America’s strength, prosperity, and well-being.

With the holiday this past weekend and the end of 2024 on the horizon, September is an ideal time to review your employer’s offerings and how they best suit your financial plan. Here’s a helpful checklist on Employer-Provided Benefits from FP Pathfinder.

401(k) and Other Retirement Plans

Many employers offer retirement savings plans, such as 401(k)s, SIMPLE IRAs, 403(b)s, and Thrift Savings Plans. These employer-sponsored plans are easy to contribute to, allowing individuals to set a percentage or dollar amount to be automatically deducted from their paycheck each period. These plans also have higher contribution limits compared to traditional IRAs. The 2024 limit is $23,000, with a combined employee and employer contribution limit of $69,000.

Many employers match employee contributions up to a certain amount, so not taking full advantage of the employer match is like leaving “free money on the table.” These plans are tax-advantaged; contributions to traditional 401(k)s or other qualified retirement plans are made with pre-tax dollars, reducing your taxable income. If you’re not in need of the tax benefit, consider contributing to the ROTH portion of your employer-sponsored plan if available. Although you won’t receive an immediate tax deduction, withdrawals during retirement will be tax-free.

Image credit: https://www.fidelity.com/learning-center/smart-money/what-is-a-401k

Learn more about 401(k) plans from Fidelity.

Health Insurance

Another common employer-provided benefit is health insurance. Employees typically choose between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO) for medical insurance.

An HMO allows you to visit doctors contracted with a specific insurance company. If you have a preferred doctor, ensure they are covered under your plan. HMOs can be more cost-effective, but you may need to be flexible with your healthcare providers.

A PPO offers more flexibility in choosing healthcare providers. While you can see doctors outside the PPO network, doing so may result in higher out-of-pocket expenses. However, you’ll face fewer restrictions in selecting healthcare providers.

Note: Open Enrollment
For those receiving employer-sponsored benefits, open enrollment allows employees to sign up for or change group-based insurance plans. Open enrollment typically occurs a few weeks before employers must submit enrollment forms to providers. For plans beginning on January 1, open enrollment usually starts in November and runs for at least two to four weeks.

Life and Disability Insurance

Employer-provided life insurance compensates your survivors for lost wages and income in the event of your death. Large employer plans often offer life insurance coverage of $50,000 or 1x salary as a default, with options to increase coverage based on your needs. Group plans tend to have lower costs and less stringent underwriting processes. This can be especially beneficial for those with dependents, growing families, or pre-existing conditions, as group life insurance can provide additional coverage that might be too costly through a private insurer.

Disability insurance offers income replacement if you become disabled, typically covering 3-6 months at no cost to the employee. Long-term disability coverage begins after short-term disability ends, ideally covering 50-70% of income. If your employer provides a long-term disability option, consider paying premiums with after-tax dollars so that benefits are non-taxable, enhancing income replacement during critical periods.

Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA)

Many companies offer Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) to help cover out-of-pocket medical expenses not covered by health insurance. Both offer tax benefits but have significant differences.

HSAs are available to those with a high-deductible health plan. Contributions are made pre-tax, and funds can roll over from year to year. Employers often contribute to an HSA, which can be used to cover health costs. Read more about HSAs here.

FSA contributions are also made pre-tax, but the funds must be used by the end of the calendar year. FSAs are ideal if you anticipate larger health or medical-related expenses, such as orthodontics, where regular health insurance may not cover the full cost. Employers can contribute to an FSA, though most do not.

See the differences between FSAs and HSAs with Napkin Finance.

Image credit: https://napkinfinance.com/napkin/fsas-vs-hsas/

Other Benefits

In addition to the benefits mentioned above, employers may offer the following:

• Incentive Stock Options (ISO) – An employee benefit that gives the right to buy stock at a discount with a tax break on any potential profit.
• Non-qualified Stock Options – An alternative form of compensation that allows employees to gain equity in the employer’s company, buying shares at a discounted price with the expectation of appreciation.
• Restricted Stock Units (RSUs) – A form of stock compensation where an employer grants company stock to an employee.
• Pension Plans – An employee benefit that commits the employer to contribute regularly to a pool of money set aside for payments to eligible employees after retirement.
• Employee Discounts
• Student Loan Assistance
• Wellness Benefits
• Counseling Programs
• Flexible Time Benefits

Be sure to review all your options and take advantage of those that best suit your needs. If you’re unsure how your benefits may impact your financial picture, consult your financial advisor.