Commentary by Geoffrey Zimmerman, CFP®, Mosaic Financial Partners, Senior Client Advisor
For many employed individuals and couples, open enrollment for 2014 group insurance and other benefits has either begun or will be starting October 1. This is a time when employees can make additions, changes, or reductions to their plan benefits. Careful evaluation of your available open enrollment choices within the context of your own financial situation, current circumstances, and life needs can help lead to making better choices for yourself and your family. The following options highlight the key choices available that can maximize benefits and minimize costs for employees and their dependents.
Group health insurance may offer choices between HMO’s, PPO’s, Buy Up plans, and High Deductible Health Plans. Plans offering the latter may also include the opportunity to use a Health Savings Account. Health Savings Accounts offer some interesting opportunities, as these pre-tax funds may be accumulated, used to pay for qualified medical expenses without any tax penalty, and unused funds rolled over from one year to the next.
Group Life Insurance is often another available benefit, and there is normally a level of insurance that can be selected without requiring medical underwriting, which may be useful for employees with pre-existing health conditions. For employees in good health, the cost per $1,000 of insurance may be less advantageous than pursuing coverage through a third party insurer. In addition, since group coverage normally terminates at the time the employee separates from service, employees who are considering (or possibly subject to) a change in employment should consider whether insurance will be needed (or available) if a job transition is likely in the coming year and, if so, to begin pursuing that option.
Group disability insurance, if available, is a useful choice, particularly for those households who would suffer financially from a temporary or permanent loss of income due to disability.Group disability benefits typically range from 50% to 66% of the employee’s gross salary (but may or may not include bonus, and may be subject to an upper cap).One particular element that should be reviewed is to see whether the company plan allows the employee to pay for disability insurance with after-tax dollars, as opposed to pre-tax dollars.Disability benefits funded from after-tax dollars are generally not subject to income tax, whereas disability insurance paid for with pre-tax dollars are taxed at ordinary income rates.
High ranking corporate executives may also have access to Non Qualified Deferred Compensation plans, (some may also be called Supplemental Executive Retirement Plans, or SERP’s), and/or Excess Benefit Plans.These types of plans supplement qualified retirement savings and benefit plans and give highly compensated executives additional options for tax deferred savings.Participation in these types of plans may involve substantial risks, so are not recommended for all who may be eligible.In the right circumstances, these plans may provide useful planning options when combined with other executive perquisites such as corporate equity compensation programs.
About Mosaic Financial Partners:The firm’s mission is to improve their clients’ lives by providing caring, knowledgeable financial solutions and customized advice to help their clients attain their lifetime goals and aspirations. Committed to helping businesses, families, and individuals in the greater Bay Area, MFP’s integrated team empowers all members of the community to make personal financial decisions and achieve their dreams.For more information about MFP go to www.mosaicfp.com or call 415-788-1952.