Open enrollment is the annual period, typically during the fall, when employees and other benefits recipients sign up for important employee benefits such as health insurance for the coming year.
For workers, open enrollment may also be the time when they’re allowed to update elections for life insurance, disability insurance, flexible spending account contributions and other important employee benefits.
Choices made during open enrollment will often be locked in for the subsequent year unless the worker experiences a qualifying event that allows them to change their status during the year. Qualifying events can include marriage, the birth of a child or job loss. So it’s imperative that workers understand the benefits on offer, anticipate any lifestyle changes and take time to evaluate thoroughly. What worked best for you last year may not work for you this year.
(Note that some employers have permitted workers to make midyear changes to 2020 benefits such as flexible spending arrangements, or FSAs, due to the coronavirus pandemic.)
Additionally, experts note, workplace benefits are worth real money. In fact, employee benefits accounted for nearly one-third of employer costs for compensation, according to a September 2020 report from the Bureau of Labor Statistics. Your benefits package is a major component of your total pay, so evaluate it carefully during open enrollment. “It’s amazing how much we overlook the employer benefits that are offered,” says Leston Welsh, head of business segments for Prudential Group Insurance.
Here’s how to ace the major components of employee open enrollment.
When most people think of open enrollment, they’re thinking of open enrollment for health insurance. For many individuals and families, the choices they make in the fall will determine their health insurance premiums, out-of-pocket expenses and whether they’re adequately covered when they visit the doctor.
If you’re relatively healthy and want to lower your monthly premiums, a high-deductible health care plan may be worth considering. In exchange for lower premiums, patients pay more out of pocket but are entitled to tax-free savings, growth and qualified withdrawals from a health savings account, or HSA. “They have a triple tax advantage,” says Rose Swanger, principal for Advise Finance in Knoxville, Tennessee.
To get the most value out of your HSA, Swanger recommends not using it during your working years if you can afford health care costs out-of-pocket. Instead, she says, treat it as a retirement health care account to fully take advantage of tax-advantaged growth.
If you’re tied to certain doctors, require more complex medical treatment, have a child who’s prone to injuries or sleep better at night knowing you’re robustly covered, a lower deductible plan may be the better call.
You’ll also need to determine whether you have sufficient dental, vision and other supplementary health insurance coverage.
Your employer may offer group term life insurance, which generally requires minimal (or no) screening and application process. Up to $50,000 of this coverage is tax-free compensation to the employee, but expect to pay taxes on anything above that, Swanger says.
Open enrollment is the time to evaluate whether you’re enrolled, or need to be, in your company life insurance plan. It’s also a savvy time to think about whether your workplace plan is enough. It may be worth supplementing with a private life insurance policy.
Often, workplace life insurance may only allow you to buy the insurance for a one-year term. Private insurance can be structured to include longer terms that can last through retirement, career changes or job loss. Those may be features that suit your financial needs.
“Most people are job hoppers. When they leave the company, they lose all the years they paid the insurance premium for absolutely nothing,” Swanger says. “Do carry private life insurance. Do not count on work insurance as a security blanket because when you leave, that policy dies with you.”
For many workers, COVID-19 has thrown that reality into sharper relief, as laid-off workers discover during a global pandemic that they lose their life insurance benefits when they lose employment.
Disability insurance will cover a portion of your salary if you’re unable to work. Policy details and definitions of “disability” vary depending on the plan, so evaluate your employer’s disability insurance offerings, especially if you’re a young worker.
Take note of who’s paying the policy premiums, says James Bayard, a certified financial planner in Baton Rouge, Louisiana. If you’re paying with after-tax dollars, benefits will be tax-free to you if you ever need to cash in. If the employer pays, taxes will be taken out of any distribution. That’s important because it may make a policy promising to cover 60% of net pay feel more like it’s covering, say, 45% after taxes, Bayard says.
Note the elimination period, too. That’s the time during which you’ll need to wait for the disability policy to kick in after experiencing a qualifying disability. If it takes several months, you’ll need to have sufficient emergency fund savings to supplement your lack of income until you start receiving checks.
[Read: How to Build an Emergency Fund.]
Flexible Spending Account vs. Health Savings Account
Flexible spending accounts and health savings accounts are both tax-advantaged health savings accounts that allow you to save for qualified medical expenses with pretax dollars.
Deciding between an FSA and HSA will depend on what kind of health insurance plan you have.
HSA users must have a high-deductible health insurance plan, which is defined as having a deductible of $1,400 or more for singles and $2,800 or more for families in 2021. If you don’t carry a high-deductible health care plan, consider an FSA if it’s available to you.
An FSA for health care can accept contributions of up to $2,750 in 2020, and an FSA for dependent care expenses is also available for up to $5,000. You don’t need a high-deductible plan to qualify, but if you don’t use your benefits before the year ends (or a grace period expires), you’ll lose the money you set aside.
The maximum annual contribution allowed for an HSA is $3,600 for an individual and $7,200 for a family in 2021. Catch-up contributions of an additional $1,000 are allowed for those age 55 and older.
Your retirement savings decisions, such as your contributions to your 401(k) plan, aren’t locked in annually the same way insurance benefits typically are, but open enrollment is still a great time to review your investment selections and max out contributions before the tax year ends. “Make sure your investments are suitable to your situation,” Bayard says.
While you’re at it, take a moment to review other employee benefits. Don’t overlook wellness benefits, such as health screenings, standing desks and fitness activities. If you’re looking to start a family, note whether your employer offers adoption reimbursement or coverage for fertility treatments. If you want to go back to school, evaluate the tuition reimbursement offerings. Are you taking advantage of the myriad perks and extras that attracted you to your employer in the first place?
Remember, too, that your spouse and children are impacted by the decisions you make during open enrollment. This is a collaborative time during which you’ll want to discuss options with your spouse and may also want to check in with your financial advisor. “If you have someone who you’ve consulted with regularly, definitely reach out to them,” Bayard says. “It offers a huge planning opportunity and builds the relationship.”
Open Enrollment During the Coronavirus Pandemic
Don’t forget to reevaluate your benefits needs in light of the COVID-19 pandemic, which is likely to stretch into 2021 and may impact choices on health insurance, child care benefits and other open enrollment elections.
“Employees tend to select the same benefits that they had the year before,” Welsh says. “But we anticipate a shift this year due to changes in our working and living situations. They will need better information and more time to analyze how a different set of benefits may be better suited for their ‘new normal.'”
Here are some employee benefits to reevaluate during the coronavirus pandemic:
— Health insurance. Sufficient health coverage is essential during the pandemic. Expect to see moderate premium increases this year, a greater focus on virtual care and even new mental health services.
— Child care benefits. COVID-19 has changed the child care calculation for many families, with parents out of work or child care facilities closed, so keep that in mind as you determine your 2021 dependent care FSA amounts.
— Life insurance. The coronavirus pandemic may have you facing your mortality in very real and uncomfortable ways. Take this moment to consider your employer health insurance offerings and what would happen if you were to lose your job — and your life insurance along with it.
— Disability insurance. You may also be considering the realities of a long-term illness for the first time. “COVID-19 exposed how vulnerable individuals are to income disruption, which disability insurance protects when we are unable to work,” Welsh says. Use open enrollment to determine whether your disability insurance offerings are sufficient, whether you can cover the elimination period and what your plan for an extended illness is.
When questions arise, sit down (in person or virtually) with a family member, human resources representative or financial advisor to determine your best options and do what you can to protect yourself medically and financially in 2021.
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Benefits to Evaluate During Employee Open Enrollment originally appeared on usnews.com
Update 10/01/20: This story was published at an earlier date and has been updated with new information.