WHO IS YOUR worst financial enemy? Got a mirror? For millions of American workers, their employee benefits play a significant role in their financial lives—and yet this noncash portion of their compensation is often undervalued, overlooked and misused.
I designed and managed employee benefits for nearly 50 years. During those years, I tried every form of communication I could think of to get employees to pay attention to their benefits. I retired with a sense of failure. Before I began writing this blog, I checked with a few former colleagues. Their response: “Not much has changed.” Lack of attention to benefit programs puts workers at immediate and long-term financial risk.
One professional I recently spoke with said, “We have advanced our education and selection tools by offering mobile access. Still, no one is reading or taking the time to understand their benefits package.”
Workers misuse, abuse or ignore their 401(k) plans. They fail to maximize both their own savings and the employer match, take too many loans and generally have no idea when it comes to picking investments. That’s a grim assessment, I realize. But it was true 10 years ago and it’s true today.
Even when workers are fortunate enough to have a pension plan, they generally don’t learn what it can provide for them and their survivors. In 1996, I started a cash balance pension plan for new hires. To this day, many participants insist they don’t have a pension plan: They focus on the accumulated amount in their notational account—and ignore the annuity payout.
It gets worse. When given a choice, workers typically choose the highest cost health plan, even when they don’t have the ongoing expenses to justify it. They equate higher premiums with better coverage—coverage they often don’t need. They lock in the cost of higher monthly premiums, which frequently are greater than the potential out-of-pocket costs they would have faced with a less expensive plan.
Meanwhile, many workers with a high-deductible health plan fail to take full advantage of a Health Savings Account. An HSA is a highly tax-favored vehicle that can not only cover out-of-pocket health care costs today, but also can be a great investment tool to pay for costs in retirement. What other vehicle will allow you to make tax-deductible contributions, accumulate earnings tax-deferred and withdraw the money tax-free? What you don’t spend while working can be carried into retirement. Once you’re age 65, you can withdraw funds for any reason without tax penalty—and, if the reason is medical expenses, the withdrawal isn’t subject to income taxes.
A 2017 survey says 108 million Americans have group life insurance through their employer. This is a good thing—or maybe not. The amounts provided by the employer tend to be low and, in my experience, this group coverage is often the only life insurance that employees have. Various sources estimate that 40% of Americans have no life insurance and, among those who do, the amount of coverage is frequently inadequate.
Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous blogs include Double Life, Age-Old Myths and Wait, There’s More. Follow Dick on Twitter @QuinnsComments.