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Successful Investing
Benefits Bonanza Is Over
by Andrew Leckey
It's
a sign of the times. The American worker, wooed by fabulous company
benefits during a booming economy, is now encountering much less
generosity. Firms no longer need to sweeten benefits to lure
or retain workers. They feel they can't afford such largesse
anyway.
In these trying times,
employees must understand and make smart choices in benefits
such as health and disability insurance. Despite a volatile stock
market, they should also continue to contribute to a diversified
mix of investments in their retirement plans.
Here are five trends
in benefits worth noting:
Deductible amounts
and co-payments that employees must foot for health care are
on the rise.
A recent survey by
two non-profit groups found that employees are paying 16 percent
more this year than in 2001. The cost of medicine and care is
escalating rapidly. Prevention and wellness benefits are being
introduced to add value to increasingly expensive plans.
Eight out of 100 workers
nationally have all medical expenses paid by their company. The
rest must contribute, ranging from a couple of dollars a paycheck
to nearly the total expense. In a typical arrangement the company
pays 80 percent and the employee the rest.
The new "personal
account," or "health reimbursement arrangement,"
is a response to rising costs and designed to make employees
more cost-conscious.
This employer-funded
account reimburses workers for out-of-pocket medical expenses,
including deductibles. Employers allocate $500 to $1,500 per
worker that they can use to spend on medical expenses. Once that
allowance is depleted, employees must pay any additional out-of-pocket
costs for that year.
The IRS has ruled money
provided by employers to these personal accounts will not be
taxed and that unspent funds can be carried over to later years.
Personal accounts must be funded solely by the employer and not
through employee salary reduction. This differs from "flexible
spending," or "cafeteria," accounts funded by
the employer, employee or both.
"It's promising,
but it scares me to hear it called a panacea for the health care
crisis, since only time will tell," warned Gary Kushner,
president of the Kushner & Co. benefits consulting group
in Kalamazoo, MI. "It would certainly ba a good deal if
you manage to stay healthy for several years and carry over money
until something serious happens."
The 401(k) retirement
plan, whose investors have suffered a two-year decline in asset
value, is undergoing changes.
Some employers are
cutting back or eliminating their matching contributions to these
plans. A typical match has been an attractive 50 cents on the
dollar on up to 6 percent of salary.
On the positive side, the number of 401(k) plans is on the rise, workers can contribute more, investment choices have been increased, and it's becoming easier at most firms to sell company stock more quickly than in the past.
"I believe Congress will significantly raise the limits of what you can put in your 401(k), probably to $15,000 pre-tax annually (from the current $11,000 with catch-up provisions for those 50 or older)," predicted Michael Scarborough, president of the Scarborough Group benefits consulting firm in Annapolis, MD. "I'd also note that the more robust a company's 401(k) matching is, the better the company is likely doing."
Stock options are becoming more optional.
Some companies are dropping "token" plans in which every new employee is given 100 or 200 options as sort of a signing bonus, say industry experts. One-fourth of publicly traded companies do give stock options to employees, but this number has remained flat in recent years due to stock market and economic troubles.
Savvy workers are setting priorities for their benefits rather than signing up and forgetting about them.
"Make a point first to use employee benefits to cover the big risks, primarily health insurance and disability coverage," advised Marilyn Capelli Dimitroff, certified financial planner and president of Capelli Financial Services inc. in Bloomfield, MI. "Dental insurance and vision care are nice, but the risk you're dealing with is more limited."
While it's great to receive some free life insurance coverage, Dimitroff would not pay for additional life coverage. It's likely a group rate includes employees who smoke or have pre-existing conditions, so you'll probably get a better deal on your own. Disability coverage is important because one in seven people become disabled for at least five years before reaching age 65.
If your employer offers more than one type of health coverage, evaluate each carefully.
"The biggest criteria for how good health coverage is involves deductibles, the point at which you have to start taking money out of your pocket," said Harold Evensky, certified financial planner with Evensky Brown & Katz in Coral Gables, FL. "Next, go over the quality of the various types of health coverage being offered, the facilities available and what you actually get for your money."
Some Evensky clients hold jobs primarily for health coverage, which would be too expensive if they purchased it themselves.
