Do any of the following appeal to you: High returns on your investment? No questions asked life insurance? Free massages?
Have you fully evaluated your employer’s benefits to optimize your participation? The below are some tips on what to consider when opting in and out of employer offered benefits.
Employer Sponsored Pension Plan
If you are fortunate to work for an employer that offers a pension plan, consider taking advantage if your employer has a program that matches your contributions.
There are two common types of pension plans: defined benefit and defined contribution plans.
If you are lucky to be part of a defined benefit plan, you will retire with a certain level of benefits based on the terms of the plan, which is a function of the employee’s earnings and years of service. An actuary determines the amount of the employer and employee’s contributions required to fund this plan based on the benefits.
A defined contribution plan, however, is a pension plan where the employer will usually match a certain percentage of the employee’s contributions. The amount of pension income that the member receives upon retirement is determined by the amount of contributions accumulated and the investment income earned.
Are you making contributions to your employer sponsored plan? If you feel like you are too stretched to save for retirement, you need to think about the return on your investment. If your employer is willing to match your contribution, you just made a 100% return. Does your 1% high interest savings account seem better? I don’t think so!
Take the time to review your employer pension plan and optimize your participation.
Group Life Insurance
Does your employer offer group life insurance? If so, are you aware of the policy and the costs involved? Some employers offer life insurance to employees based on their salary (for e.g. 1 or 2 times salary) for a group rate. This rate may be lower than the rate you have on your individual policy.
The group plan may not require you to have a physical check-up and/or provide medical information. When applying for an individual plan, however, the insurance company typically requires additional information from your medical history and sends a nurse to do a physical exam. This process may be invasive and, depending on your health, may significantly increase your premiums.
Think about the coverage you need and optimize it. Shop around and see what is best for you and your family. While you only remain covered under the group plan during your time with that employer, it may still be worthwhile to participate in the group insurance based on the rate.
Health and Dental Insurance
If your employer offers a health and dental plan and your spouse also has a plan through his/her employer, go over both offerings and the costs involved. Think about the coverage you and your family require and try to optimize it. For example, if your employer offers two plans, one with 80% coverage for prescription drugs and paramedical services and one with 50% coverage, and your spouse has the option to purchase 20%, 50% or 70% coverage, look at the costs involved with all options and choose what your family requires for the optimal cost.
Other Savings Matching Plans
Some employers offer additional savings matching plans, whether it be via TFSA savings, share purchases, or some other forms of investments. What this means is that for every $1 you contribute to this plan, your employer will match to a certain percentage. The return is likely higher than the return you could get with your personal investments before you factor in investment returns.
Optimize Your Benefits
While it may seem difficult to give away even more of your pay cheque, the benefits you receive may be cheaper through your employer, and the investment return (free money provided by your employer, even when factoring in any applicable taxable benefit) may be significantly higher than what you are earning with your money elsewhere. It is always worthwhile to look into all benefits provided by your employer and optimize your participation.
~ EverSavvy Financial
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