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One thing a lot of people learned from the Great Recession — too many of us are living for today and forgetting to save for tomorrow. I spoke with Gary Breden, business performance advisor at Insperity, an HR consulting and service provider, and learned how you can take advantage of your company’s employee benefits to achieve short-term and long-term financial security.
Q: When starting a job, what should you ask an employer about benefits?
A: It depends on the workers themselves. The younger workforce is looking for flexibility. They like flexible schedules and green initiatives, they are not so much focused anymore on salary and benefits. But benefits being a big part of what they are getting or offered, you want to look at what the health care options are, 401K and if there is a match. The biggest challenge that companies face is the ability to communicate what the level of benefits are and what the value of those benefits are to the employees. Unless you have an engaged employee who understands the benefits side, they’re not really going to realize the full value or what the total package they’re getting, including salary, is really worth.
Q: Since the economic downturn, have you seen employers cutting back on benefits? Should job seekers expectations be lowered?
A: The expectation of a 401K match is gone. If you find it it’s more of an anomaly these days and it used to be more of a standard. There has been a change over the last couple years of the education, and primarily of the younger workforce, they were focused solely on the day-to-day finances, like am I going to be able to pay my rent? They weren’t thinking about retirement. That was about a third of the workforce. That’s escalated over the last couple years and it’s almost reaching 50 percent. The perception of a younger worker was that a good job for them was three to five years. They weren’t in this for the long haul. That’s starting to change. The recent number was 30 percent of the younger workforce is looking for long-term solution. They want a job that’s going to be a career, not a stepping-stone.
Q: What are some of the best benefits younger employees might not be aware of? How can they help you save money short-term and long-term?
A: Obviously the 401K is a big thing. Take advantage of it, set aside the money, get the pre-tax benefit. That’s going to be your biggest long-term savings advantage, both on the tax side and the ability for it to grow. It may not seem like a lot of money today to put aside 1-3 percent of your pay, but if you’re in this and you’re 25 years old, you’re probably looking at 40 years of investment. It can grow to be a fairly substantial amount. If you’re thinking that Social Security is going to be a means of retirement, it’s not. Even in my lifetime or your lifetime, it won’t be there for us. You can’t be planning on that.
Q: Can you explain exactly what a pre-tax benefit is?
A: If you’re making contributions into a 401K versus an IRA (individual retirement account) you set up on your own, those monies come out pre-tax, so they’re lowering your taxable wage. The amount of taxes that you pay in a calendar year is less than if you’re making a post-tax deduction into an IRA. You do get a top line deduction for an IRA contribution so you would be doing something, but there isn’t that immediate tax benefit of lowering your taxable wage base. Same as if your employer asks you to have a contribution towards health care, which is more prevalent these days. It used to be historically that an employer would like to offer benefits and not have the employees contribute, but the cost of health care has escalated so much that that’s not even a viable option today. One thing you may want to ask is do you have a Section 125 set up for your benefit plan, so that contributions you make towards health care are coming out pre-tax as well. Additional areas that employees can save money are if the company has an employee assistance program (EAP). Many of them these days are structured so that you can get legal assistance, financial planning assistance. So things that you may have typically had to go outside for and spend money on or talk to an advisor about, you can get those things for free inside of an EAP.
Q: Are employers still offering education assistance?
A: Some, though I would say a lot less than in the past. It is a great benefit if you can get at least a portion of your education reimbursed. One of the things we find, which is hard to believe, is that we’ve got about 20 percent of our clients that offer education reimbursement through us and less than 5 percent of their employees take advantage of it. And even a portion of that education reimbursement can be used towards, like for me personally, I could take $500 of that and just go to any sort of seminar. Something related towards work, something in the sales field. Even still, only 5 percent of the workforce is taking advantage. So that’s just lost opportunity.
Q: Could companies afford these benefits if everyone participated?
A: If you’re doing it on your own there’s got to be a give and take. If I’m giving you money to go further your career and your education, I want it to be applicable towards what we’re doing. If you’re an employee of mine and you’re taking a photography class, unless I’m in graphic arts I’m probably only furthering your personal life or your stepping-stone into what you want to do. You want to tie it back into the job relevancy. Otherwise it could be lost money (for the employer). It really comes back to the culture you’re building from an employer standpoint. That’s a huge win for employees to have that available, but on the employer side I want to have some sort of return on that.
Q: How do freelancers or self-employed people secure benefits?
A: At least until 2014 when we have health care exchange, you’re out shopping on your own. So you’re looking for an individual policy. It can be very expensive, depending on the level of coverage you want to carry. One thing that’s become more prominent for those individual plans is going to what’s called a high deductible plan. You have a higher deductible, you go see a doctor and its $200 and you pay that $200 up until you satisfy your deductible. What you can do is open a health savings account, make contributions into that and reduce your taxable wages or income tax at the end of the year. And it can be a lower cost option, its called consumer driven health care and it makes you a more educated user of your health care. It can be a more cost-effective solution.
Q: What is the best way to educate yourself about employee benefits?
A: If you’re a new employee, talk to your HR department, find out what benefits are available and take advantage of everything you can. Use pre-tax deductions like commuter benefits if you have to pay for parking or take mass transit to work. Talk to friends, family, people who can provide any sort of insight. The younger workforce hasn’t been exposed to a lot of this. You’re just coming out of school and you’re not used to looking at benefits and what they mean. Try and become educated as to the options that are available to you and what’s going to make sense for you. The old “one size fits all” benefits world doesn’t work anymore.
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