How much time do you spend reviewing your benefits before open enrollment each year?
If your answer is “not much,” you’re not alone. A recent survey by insurer Aflac (http://workforces.aflac.com/about-the-study.php) says that 90 percent of Americans choose the same benefits year after year and that 42 percent forego up to $750 annually by making poor choices.
Rushing through annual benefits updates or making such uninformed decisions in insurance, retirement or other workplace-based benefits are actually part of a bigger story. Open enrollment is just one part of an overall financial plan: Unfortunately, too many employees see it as the only financial planning they have to do all year.
In reality, a safe financial future depends mostly on the savings, investing and spending decisions you make outside the workplace. As many employers are looking to shrink or discontinue the retirement and health benefits they offer, it’s time to take a fresh look at open enrollment.
Here are 10 benefits mistakes you might want to avoid.
- Not having an overall financial plan. Your company may offer excellent benefits now. However, the Labor Department reports that average worker tenure at U.S. companies is only 4.6 years, so the biggest open enrollment mistake might be assuming your current benefits assure your financial future. It’s important to work alone or with qualified advisors to determine the right work-based benefits as part of overall spending, savings and investment activities throughout your lifetime.
- Making choices at the last minute. Your benefits are important and deserve time for consideration. Put your open enrollment dates on your personal calendar with a reminder a few weeks ahead of time to coordinate with qualified advisors if you have them.
- Forgetting to coordinate with your spouse or partner. Many employers are planning big changes to spouse/partner benefits. While the Patient Protection and Affordable Care Act (ACA) lets parents keep children on their health plans until age 26, more employers are instituting “spousal surcharges” or excluding spousal coverage altogether if they already have access to employer health insurance.
- Ignoring your state’s Health Insurance Marketplace. Even if you have employer health insurance, things change. If you lose a job or cannot stay on your spouse or partner’s health plan, it might be worthwhile to familiarize yourself with your state’s ACA-mandated health insurance marketplace ahead of time.
- Underestimating how big life events might affect your benefits. Salary changes, marriage, divorce, serious illness or starting a family are big signals to check your benefits, preferably well in advance of open enrollment. Think through every potential situation you might face and ask questions about how those changes might affect your benefit selections.
- Passing on flexible spending accounts (FSAs) and health savings accounts (HSAs). FSAs are workplace-based accounts that allow you to set aside money on a pre-tax basis to help you pay for healthcare and dependent care expenses during the calendar year. HSAs, if you qualify, also allow you to set aside pre-tax dollars in a qualified investment or savings account for long-and-short term medical expenses not covered by insurance. They don’t require you to spend out those funds every year. Your workplace benefits counselor, qualified financial advisor and Internal Revenue Service Publication 969 can assist with eligibility, types of accounts, contribution limits and tax issues associated with these choices.
- Leaving retirement selections unchanged. As the Aflac data indicates, many individuals don’t change their investment focus in self-directed retirement plans for years. That’s why reviewing options in advance is essential.
- Overlooking wellness options. Many employers pay for exercise, cholesterol screenings, weight loss, smoking cessation, immunizations or related benefits that can make you healthier, save money and possibly lower health premiums.
- Bypassing transportation breaks. If you drive or take public or company-sponsored transportation to and from work, you may qualify for specific discounts or tax deductions. IRS Publication 15-B covers these programs and how to use them most effectively.
- Forgetting education benefits. If an employer is willing to train you to advance in your career, don’t pass it up. However, get advice on the possibility of tax liability for these benefits. Separately, check out employer-sponsored education grant or scholarship awards for you or your kids – that can be free money.
Bottom line: Open enrollment is just one piece of a well-organized financial puzzle. Make sure your employer provided benefits choices compliment savings, investing and spending decisions you’re making on your own.
By Nathaniel Sillin