Financial Planning Tips for 2022 Company Benefit Enrollment

By Brian Seay, CFA

Founding Partner, Capital Stewards

It’s the time of year when company deadlines are approaching for “open enrollment” in benefit programs like health insurance. It’s easy just to push the “keep my benefits the same” button, but it’s important to take a look at the offerings each year. The plans may change, and your situation will certainly change as your life evolves. Making the right benefit choices can be worth thousands of dollars each year, so spend a few minutes to get it right! Here are a few key things to consider:

Healthcare Tax Savings

Consider a high-deductible plan that is linked to a health savings account, especially if your health expenses are typically low. Keep in mind that deductibles only need to exceed $1,400 for an individual or $2,800 for a family to be considered “high.” In our experience, many corporate plans qualify for high-deductible tax treatment, which opens the door to Health Savings Accounts (HSAs). Health Savings Accounts are “triple-tax advantaged,” meaning that contributions are tax deductible, assets grow tax-free and withdrawals for healthcare expenses are tax-free. HSAs can be valuable for professionals with lower healthcare expenses, particularly early in your career before you have children. HSA contributions grow overtime and can be used later in life for your family or when your own healthcare expenses rise.

Disability Insurance

Everyone carries life insurance, hopefully low-cost term insurance. Few people carry disability insurance. However, according to the Social Security Administration, you are much more likely to become disabled (25%) before retirement than to die (14%) early. Depending on your field and the disability, that may mean a significant income loss over the rest of your career. Many companies offer the opportunity buy additional disability insurance, up to 75% of your base pay. We recommend carrying as much coverage as possible given the probability that you may need it in the future.

Life Insurance

Company benefits often offer the lowest cost life insurance around. Companies can pool the risk of their entire workforce together, which is an attractive proposition for insurance. Generally, the “standard” benefit is 1 or 2 times your salary. Meaning if you make $200,000, your life insurance benefit is $200,000 (1x) or $400,000 (2x). For professionals with families to support, often substantially more life insurance is required to cover the loss of your future income. Instead of going to a separate insurance company, look at your benefit package to see if low-cost options are available. We discussed how much life insurance to buy on the podcast earlier this year, here is the link to the episode if you would like a refresher.

Executive Liability

If you are an executive at your firm, or sit on the board of other companies, Directors and Officers Liability coverage is critical. These plans protect you in the event someone sues you or the company for mismanagement or financial related actions you took in your role. Remember, anyone can sue regardless of whether you acted inappropriately or not. The legal defense alone can be very costly. Typically, companies provide these plans for executives and board members, so be sure to check if you are in an executive role. Also, keep in mind that liability extends to public and private companies, so coverage is important regardless of the size or ownership structure of your company.

Retirement Account Contributions

Make sure that you are contributing enough to the retirement accounts offered by your employer. At a minimum, contribute enough to receive the maximum match each year. That is usually between 4%-6%, but it could be more so check your plan documents to be sure. Matching contributions are the closest thing to a free lunch in investing, so make sure to take advantage of those opportunities. Additionally, you may be able to contribute to a ROTH version of your company’s 401k, often called a ROTH(k). While you will pay taxes on contributions now, the earnings grow tax-free and withdrawals are tax-free in retirement. ROTH(k) savings can be especially valuable for professionals that expect their income, and therefore their tax bracket, to rise over the course of their career.

If you would like guidance on how to maximize your company’s benefits, schedule a short call here and we would be happy to discuss!