• Bridget Sullivan Mermel CFP(R) CPA

How to Chose Employee Benefits: Must-haves and Safely Skip

Updated: Aug 21




When you have to chose employee benefits, there's a lot to consider. First-- on most people's mind--is what is a must have, one to consider, or a benefit that I can safely skip? You want to use the benefits that are the best and skip the ones that are a rip off or don't make sense to you.


To make things more complicated, your choices of which benefits to pick sometimes change over time!


Bridget Sullivan Mermel and John Scherer will discuss employee benefits, how to pick them, and what to skip on this episode.


We discuss choosing:


Health Insurance Life Insurance

Disability Insurance

401k or 403b amounts and

Employer stock plans


What's a good deal? What can you pass on?


Here are episodes we mention in the show: https://www.youtube.com/watch?v=ZoK55YZlwqw&t=1s


Bridget Sullivan Mermel's firm: https://www.sullivanmermel.com/


John Scherer's firm: https://trinfin.com/


Alliance of Comprehensive Planners: https://www.acplanners.org/home


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TRANSCRIPT


John: At this time of the year, lots of people are starting new jobs, and that means signing up for benefits when it comes to your new employer. By the end of today's episode, you're going to know which things are must-haves, as far as employee benefits, which ones you might consider, and then which ones you can really pretty much ignore. Hi, I'm John Scherer and I run a fee-only financial planning practice in Middleton, Wisconsin.


Bridget: And I'm Bridget Sullivan Mermel. And I've got a fee-only financial planning practice in Chicago, Illinois. And before we get going, please subscribe. It helps us with the YouTube algorithm and helps us reach more people. All right, John, so let's talk about signing up for your first job, or for any job, really. What do you suggest that people take a look at?


John: Yeah, it was funny. We were talking a little bit before. I've got some relatives. We're actually hiring somebody here at Trinity. These new jobs come in, especially for college grads at this time of year. And it's like, all right, now you have this big, thick packet of stuff that you get from human resources. You need to figure out what to sign up for, what's automatic, etc., and it can be kind of a jumble for folks, I think.


I’m looking forward to the conversation here about how you talk with people about benefits, Bridget, and the sort of things that we recommend people do. I thought maybe we'd start up with a big one: health insurance. For us in the Madison area, anyway…one thing is that health insurance is so unique to each area that you're in. So the things that we get here, we don't get a lot of questions about it, but it's one of those that, in my mind, there's not universal advice about. So it's like, “Hey, for each year, you need to sign up for health insurance…” and you want to be part of that.


I think the one piece of advice that I have is that in general, if there's a high deductible plan available, along with a health savings plan, those two go together. Especially if we're talking about younger people coming out of school many times that's the best of the options. Not always. Your mileage may vary, but if you have that high deductible health savings account, HSA option, that's often one of the places that really make sense. What do you guys see in your practice?


Bridget: Yeah, absolutely. The HSA makes sense, especially for people who know they're not going to have too many health costs. That puts the burden of paying on you a little bit more. And one of the things that we really recommend when people are first starting out is to get your emergency fund going. Then if you break an arm and you have to pay the deductible and maybe it's not in your HSA, yet you pay it. So that's the thing, is that I think sometimes people are thinking, deductible, deductible, how much I have to pay? And that's not necessarily the most financial savvy if you don't have a lot of health costs. Bu,t if you're in a situation where you do have a lot of health costs, then thinking about the deductible makes more sense.


Honestly, John, when we're looking at this, it's hard to help people on health insurance except for that because people are so much more aware of how they usually use the health system than I am. If they're insisting on their doctors…a whole list of things. So people can usually do a pretty good job of evaluating that themselves. So on medical insurance, except for the HSA, that's what I would say.


John: Yeah. And that's a really similar experience people know, as opposed to some of the other types of insurances and other things we're going to talk about. I've got experience with her. At least I have a sense for what that means for me. Let's talk a little bit about dental and vision insurance, a subset of the health insurance side of things. What do you talk about with folks? Do you end up giving much advice on those two benefits?


Bridget: If you look at it, it depends on if you're going to use them or not, first of all. So I think that's the biggest thing. Will you use this? Do you get new glasses every year or two? Do you get an exam every year? Do you go to the dentist a lot? So if you're going to use it, they're okay. If you know you're going to go get a lot of dental work done, then definitely get the dental insurance and vision. Honestly, I think it almost serves as a discount program more than an actual benefit. So you still end up paying a bunch to get glasses. I have both, actually, and that helps me use it because I think going to the eye doctor is good.


In the past, I haven't necessarily done it, but now, when I have dental insurance, I think, “Okay, I paid for it.” So it's kind of an extra incentive for me to go to the dentist. It's always an incentive for me to do healthy things because I don't want to be wasting money. That's just my own psychology. So I would say that for many years I didn't buy it, and now I have it because my husband likes to have it. It's an interesting thing to have changed my mind on, too, but it just really kind of depends on your circumstances.


John: Thanks for sharing that, Bridget. I want to just pull out a couple of things that you mentioned, particularly that your husband likes it. And you use the word psychology in there at one point. Your description is really similar to how I talk about it with folks, but I think that's a feeling side. We talk a lot about that. It's not just about the numbers. And similar to you, I think those are somewhat limited benefits. But boy, it can be nice, it can have a good feeling and it can maybe incentivize some healthier choices like going to the dentist. So I recommend for people, “Hey, if it feels good and it's not too expensive, go ahead and do it. Don't look at that as a must have and something that you're crazy to opt out of.”


One thing with dental at least, that we see, is that it covers a lot of the basic things. Yet, if you need any real work done, oftentimes the dental doesn't cover exactly the things that you want your dental insurance to cover. So it's sort of an in between spot. But, golly, it can be nice to have that security blanket feeling. If it's not costing an arm and a leg, then there's benefit for that, as far as I can see.


Bridget: Yeah, exactly. So it's interesting to have changed my mind on it because I did take a look at it just from a financial point of view and it wasn't a winner. But when I looked at it as, “Oh, no, this encourages me. This kind of games me to do a healthy habit.” I'm totally comfortable with it now.


John: Yeah, that's great. One of the other benefits that people have through work oftentimes is life insurance. And we talked about this in detail in a recent episode, but getting the coverage, sort of the base amount of coverage through work certainly makes sense. As we talked about before, if somebody feels like they need some more coverage than what's offered through work, oftentimes getting it on their own can make sense. So that's one of those—the free stuff, yes. The other stuff—evaluate that. And again, we spent the whole episode digging into the details on that.


Bridget: And then we get accidental death and dismemberment—the things that people are really afraid of. Dismemberment. It's like a scary word.


John: Have you ever read one of those benefits? You sign up and it says, “Well, if you lose two legs, you get this much money, or one arm and one leg, or I don't know if there's two legs in one hand. Really interesting as you read through those.


Bridget: It's the things that are very unlikely, extremely unlikely, don't really cost that much and would be covered anyway, but people are really afraid of them.


John: Right. And from the life insurance, the accidental death, as a younger person, probably, you're more likely to die from an accident than a health thing. I get why the appeal is from that side of it. However, listen, if you need this much insurance, does it matter whether you get cancer or hit by a truck? No, you need this much insurance. And so that's why usually those things are ones that you can pretty much ignore, in my opinion anyway.


Bridget: If they give it to you, great. If you don't get it, no problem. It’s not something you pay for.


John: That's right. And then sort of related to that is disability insurance that oftentimes you get through work. And we had a good discussion about that earlier. And as we look at things—at least the people that we talk to pretty often—a lot of times there's no choice. Sometimes you can choose, but often it's sort of, “Hey, here's the benefit. You sort of get what you get.” Coverage, if that's the case, is good because you get coverage on a large group, right. So the pricing is pretty effective.


But similar to life insurance, as I look at it anyway, that oftentimes means you do need more. Looking at an outside company can make some sense if you're making a little bit more money. The problem is it's expensive and it's hard to get. So usually it’s “Hey, get the coverage through work, but at least consider outside coverage.” That’s how we approach it.


Bridget: Yeah. And if you want us to dedicate an episode to this topic, let us know. Please add it in the comments because we'll definitely expand on this issue. But I think for when we're just talking about starting out with benefits, saying get what they offer you is a good beginning. If you have the option to get it pretax or after tax, I would suggest just getting it after tax so that if you do get benefits, it's not taxable. But that's what I would say. And I agree with John that if you need it and can get it outside, that's great. But then that's another topic.


John: I love that idea. Hey, if you drop a note in the comments, if this is of interest, we can dig into this. There are some intricacies and if it's important to you we can give some good background information. The one thing that popped into my head, Bridget, I did want to say is that if you don't have any coverage through work then you definitely should look outside as far as trying to get some through different places. Again, we can dig into that, but drop a note in the comments and we'll do a whole episode if that's of interest to you.


So I think that kind of covers the insurance side of things as I was thinking about it. The other big one of course was 401K or company retirement plan. That to me is a must do, especially at a minimum, to get the company match. Maybe our viewers think, “Yeah, that makes sense.” But it's amazing the people that we talk with, at least in our office, aren't taking full advantage of the match. It is literally free money that you're getting. You save and then you get free money in addition to whatever investment return you get. So that one, for me anyway, is a no brainer. Get the company match and if you're younger and starting off really consider that Roth option. Those are sort of the two big highlights there for me.


Bridget: I would totally agree with you. I don't even have anything to add on that topic. I can't believe I can stop talking. 😊


John: Mark that one down in the notes. I got it all down on that one. 😊But it's funny though, it is such a plain spoken, “No, hey, you've got to do the 401K. Get the company matches.” The same thing with simple or whatever your company plan is. It's a great deal. The other thing that I thought of is that sometimes we have clients, especially if they work for a larger company, who have an ability to buy employer stock. They call it an employer stock purchase plan and you can buy it at a guaranteed discount. So the ones that we've seen, each of these plans is different, unlike a 401K or a simple retirement plan where they're all sort of the same. This one can be really different, but if you have it, take a hard look at that because it can be a big benefit.


Bridget: Yeah, I've seen that they work. Although you need to be somebody who likes to keep track of things. That's what I would say because the companies typically can be so-so with that and then they get bought and then you have no records and then it's… you need to keep track of it. But otherwise you generally get it at a discount. It's very particular to each company.


John: Yeah, and that's such a great point, Bridget. The ones that we've seen, at least recently, you can get a guaranteed 15% return or something similar to that. When you break down the details, you go, “Holy, man, that is awesome!” But exactly your point, and thanks for bringing that up, it's that keeping track, the record keeping. These accounts that we've seen aren't through a regular brokerage account. There is a different kind of weird reporting and it can be a hassle. It's not completely free. So you might say, “Hey, golly, there's a really good benefit. I can make some money.” Balance that with, “How much are we talking about in actual returns?” versus “There's some hassles that go with this thing, too.”


Bridget: Yeah. And most of these companies, if you move through the ranks, they're going to end up as part of your compensation. It's going to be a stock. So it's not like you'll never get in on the action. So that's what I've seen. So if you want to buy more it will probably be bigger part of your compensation than you would ever think of buying. It's going to be part of your life eventually. It's not like, “Oh, I want to get in now.” And I think there's also a case to be made that you're adding extra risks to your life because you're already working for this company and so you're at risk for whatever they're up to.


Then, if you buy stock with your money, then you're adding extra risk to your life. So when people do buy and play stock, I usually try to get them to sell it as soon as they can. And the limited research that I've seen on it indicates that, yes, selling it as soon as you can lock in the gains and pay long term capital gains on it is the most benefit. But again, that takes some record keeping. So it's got to be the person that likes doing that and not the person that doesn't. There's different acclimations.


John: That's great information. I agree with those things. And maybe that's a good place to sort of circle up and wrap these things up, that employee stock purchase. There's a couple of them to consider out there: 401K and health insurance, absolutely get. After having this conversation, you're equipped with some information to be able to make some intelligent decisions as you think about your job.


And if you know anybody else that is maybe getting out into the work world or is changing jobs, please share this with them. And as a reminder, Bridget and I are members of the Alliance of Comprehensive Planners, a group of fee-only holistic financial advisors across the country. If you like what you hear on our show, visit acplanners.org to find an address advisor in your area.


Bridget: And please subscribe. See you next time!

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