It's Open Season on Employee Benefits: Financial Professional Recommends Five Questions Every Employee Should Ask During Open Enrollment

by Lesley Politi on November 14, 2008

It’s Open Season on Employee Benefits: Financial Professional Recommends Five Questions Every Employee Should Ask During Open Enrollment

Last update: 8:56 a.m. EST Nov. 13, 2008
CORNELIUS, N.C., Nov 13, 2008 /PRNewswire via COMTEX/ — Open Enrollment, the opportunity to review insurance and accounts benefits coverage for the upcoming calendar year, is here. For many, the ever-increasing choices can make the evaluation process complex and difficult. However, Andy Smith, Senior Partner with Cornerstone Financial Partners, believes that by not investing the time to make informed choices, workers may be leaving money on the table and putting their future at risk.
To help simplify the decisions at hand, Smith suggests starting with five basic questions.
1. Is the 401(k) account properly allocated? “For most workers, the 401(k) will be the primary source of income in retirement, so it’s important for investors to review their portfolio and rebalance when necessary,” says Smith. “Unfortunately, the majority of employees who contribute to a 401(k) put the account on auto-pilot.” According to the Financial Engines National 401(k) Evaluation, 69 percent of the nearly 1 million 401(k) participants surveyed have portfolios with inappropriate risk and/or diversification. Additionally, 36 percent hold high concentrations of company stock, and 33 percent fail to contribute enough to receive the full company match, leaving money on the table. The most costly mistakes were made by plan participants with lower salaries, lower plan balances, and those closer to retirement. “Consumers need to ensure their goals, timeframe, and risk tolerance, match their portfolio’s asset allocation,” Smith recommends.
2. How much is in company stock? If a portfolio includes company stock, Smith recommends that the company stock should account for no more than 10% of an account. While pension plans are restricted from investing more than 10% of assets in company stock, there is no similar restriction on 401(k) plans. However, the Pension Protection Act of 2006 has made it easier for employees to diversify out of company stock. The act gives employees the right to sell publicly traded company stock received as a matching contribution in a retirement plan account after three years of service for original matching contributions, and immediately for employee contributions.
3. Is there a better choice for health insurance? While health plan choices were once divided between traditional and managed care, companies are beginning to provide more choices, including a Consumer-Driven Health Plan (CDHP) that combines a High-Deductible Health Insurance Plan (HDHP) with a tax-advantaged Health Savings Account (HSA) that can be used to pay deductibles and other out-of-pocket expenses.
Tax-advantaged HSAs allow individuals choosing a high-deductible health insurance plan to deposit tax-deductible funds into an account to pay for current health care needs and save for future medical bills. For 2009, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,000. For family coverage, the maximum annual HSA contribution for 2009 is $5,950. Individuals age 55 and older can also make an additional “catch-up” contribution of $1,000 in 2009. Contributions grow and are distributed tax-free for qualified medical expenses.
4. Are Flexible Spending Accounts being fully utilized? In addition to visits to the doctor, the cost of eyeglasses, dental work, psychologist visits, even cough syrup can be run through the plan.
Some companies also offer a dependent care Flexible Spending Account (FSA) which allows contributions up to $5,000 a year.
5. Is long-term care coverage necessary? According to the American Association for Long-Term Care Insurance roughly one-third of men and one-half of women age 65 and over will require some form of long-term care. A growing number of employers offer group long-term care insurance as a voluntary employee benefit. One of the advantages of buying long-term care insurance through an employer is often an increase in coverage options that would have been more difficult, or more expensive to obtain on the open market. “Most company plans allow family members to purchase the same insurance at the same rate provided to the company as a group,” says Smith. “However, the downside of buying into a group plan is that the choice of companies and products is limited.”
Smith advises married couples to review both spouses’ benefits to find any gaps or overlaps in coverage. “It’s possible to save money or improve coverage simply by moving the family to a spouse’s heath plan,” says Smith.
About Andy Smith and Cornerstone Financial Partners
Andy Smith and his partners at Cornerstone Financial Partners have a combination of over 50 years of experience providing comprehensive financial planning strategies for business owners and executives, as well as wealth management programs for athletes and entertainers. They are committed to providing a balanced, comprehensive and personal approach to their client’s investing and financial interests.
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