Open Enrollment: Not as Scary as You Think

Do open enrollment decisions have you feeling overwhelmed? The decisions you make during this window may affect your finances all year. Here are several widely offered benefits and planning opportunities worth your attention.

Health Insurance

Employees often have several health insurance plans during open enrollment, making it hard to choose the best fit. Generally, people who rarely visit the doctor, don't take costly prescriptions, and don't expect expensive procedures can benefit from a high-deductible health plan (HDHP). Frequent healthcare users can save money by choosing a low-deductible plan, like a PPO (preferred provider organization).

HDHPs come with higher deductibles, lower premiums, and a health savings account (HSA) component. Lower premiums, plus employer HSA contributions, can make this the less expensive option. PPO plans include lower deductibles and higher premiums, with no HSA component. However, if you expect higher health care expenses, paying higher premiums can mean lower out-of-pocket medical costs, making this a more beneficial option.

When comparing health insurance options during open enrollment, consider anticipated healthcare usage, in-network vs. out-of-network care providers, known prescriptions, and the health savings account component.

Disability Insurance

If your employer offers short- and/or long-term disability insurance as an employee benefit, consider yourself lucky. According to the Social Security Administration, 25% of 20-year-olds in the U.S. can expect to take disability-related leave before retirement.

Disability insurance covers a portion (typically 50% - 70%) of income if the insured becomes ill or injured and unable to work for a period. Electing the maximum disability coverage available is a no-brainer, especially if dependents rely on your income. Take note of any caps on the policy. For example, the policy might cover 60% of your income up to $1,000 per week.

If your income is more than $1,000 per week, then the coverage isn’t replacing 60% of your income. This coverage is often much more cost-effective as a group benefit than individual coverage, making it easy to elect and maximize during open enrollment.

Life Insurance

Employees can often purchase additional life insurance coverage through their employer during open enrollment. Group life insurance can be an easy, cost-effective way to get coverage, especially for those who may not have an individual policy.

If you have dependents and haven't purchased any additional life insurance outside your employer, take advantage of this benefit during open enrollment. While the right amount of coverage depends on each family's situation, a good starting point is ensuring enough coverage to pay off outstanding debts, such as a mortgage, home equity loan, car loan, or credit card balances. Many families should also consider replacing several years of income, funding future education expenses, and helping maintain their family's lifestyle in the event of an unexpected loss.

In addition to employer-provided coverage, consider purchasing your own level-term life insurance policy. Employer coverage is often tied to your job and changes if you switch employers. An individually owned term policy stays with you regardless of where you work.

Additionally, level-term policies have fixed premiums for the policy duration. At the same time, employer-sponsored group life insurance is often subject to age-banded pricing, causing premiums to increase as you age.

Retirement Plans

At minimum, contribute enough to your employer-sponsored retirement plan to receive the full employer match. Many employers offer a matching contribution, often 3% or more, when employees contribute a certain percentage of their compensation. If you do not contribute enough to qualify for the full match, you are leaving valuable employer contributions on the table. Before considering other savings options, make sure you are taking full advantage of this benefit.

If your employer's retirement plan offers both traditional and Roth contribution options, consider your current tax bracket compared to your anticipated retirement tax bracket. Traditional contributions provide a current-year tax deduction, while Roth contributions offer tax-free withdrawals in retirement.

Review your beneficiary designations during open enrollment. Major life events such as marriage, divorce, births, or deaths may warrant updating the beneficiaries listed on your retirement accounts.

Dependent Care FSA

Do you have children in daycare? If your employer offers a Dependent Care Flexible Spending Account (FSA), take advantage of it. A Dependent Care FSA allows you to contribute up to $7,500 per year on a pre-tax basis (for single filers and married couples filing jointly). You can use funds to reimburse eligible childcare expenses, such as daycare or nanny costs, for meaningful tax savings on expenses many families already incur.

Dependent care FSAs are generally subject to use-it-or-lose-it rules, although some plans may offer grace periods or other provisions. Be sure to understand your employer's specific deadlines.

Summary

The benefits discussed in this article are important but not an all-encompassing list of the employee benefit options that could be available. Take time to understand available options and determine how they can benefit your situation each year. However, if you do feel overwhelmed, seek advice from a qualified financial advisor.

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