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Money Guide – Company Benefits



The following is adapted from “Living in the Village: Build Your Financial Future and Strengthen Your Community” by Ryan C. Mack.

– HMO Plans Are The Least Expense Insurance Plans
– Not Every State Requires Employers to Offer Short-Term Disability
– Pre-Tax Benefits Are Good For You


– The Different Types of Health Insurance Coverage
– What to Consider When Buying Disability Insurance
– What to Remember When Reviewing Long Term Care Coverage

Open enrollment can be a pain. Most companies distribute large packets that bring you back to a bad novel off a professor’s required reading list. As painful as they are, you must develop the habit of reading them from front to back. Carefully reading your company’s benefits packet regardless of how boring, will prove beneficial to you and your family. In Money Guide: Company Benefits, we will cover common benefits and discuss how they work.

INSURANCE BENEFITS

Health Insurance
Two words: get it! Health insurance is one thing you don’t want to play around with. More than half of the bankruptcy filings in the U.S are due to medical bills that cannot be paid, according to “Health Affairs Medical Journal.” Safe is better than sorry- wouldn’t you agree? We’ve made a simple chart to help you compare health insurance plans.

Health Maintenance

Organization (HMO)

Point of Sale

(POS)

Preferred Provider Organization

(PPO)

Indemnity

Plan

Consumer Directed Plans

(CDHP)

Choice of Provider You must select a Primary

Care Physician (PCP) and

all care must be provided by PCP or specialists they refer.

You must select a Primary

Care Physician (PCP).

You may see an out -of -network PCP or specialist without a referral, but

you’ll pay more.

You don’t have to select a Primary Care Physician and can self -refer for specialty care. You have access to both in and out -of network physicians. The benefit levels are different and you may pay more for out-of –network physicians. You don’t have to select a Primary Care Physicians and can self refer to any provider. You can see any physician you choose.
Providers All providers are selected and contracted through HMO network. Only in-network providers are contracted through POS network. Providers contracted through PPO network. No restrictions No restrictions. If your plan is attached to a high- deducible plan in-network providers may be less expensive.
Networks Small cities usually have a limited number of options. Care obtained out –of- network will only be covered for emergency services. Similar to HMO but you have the option to go outside the network if your options are slim, but you’ll pay for it. Wider network than HMOs and you usually have nationwide coverage. Receive highest coverage when in network. You’ll share in more of the cost and pay a higher deductible when out-of –network. No Network No Network. If attached to a high-deductible plan network is similar to PPO.
Cost Low cost.

Co-payments for service but no deductibles or coinsurance.

More expensive than HMO. Higher co-payments for in-network and deductibles and co-insurance with out- of -network. Usually most expensive premium and have deductibles and coinsurance cost. Lowest premium. Coinsurance available after high- deductible is satisfied. Low premium in exchange for higher deductible. Some cost can be covered by tax- favorable accounts like Flexible Spending or Health Savings Accounts.
Claims No claims but preapproval may be required for special services. No claims for in-network.  You file claims for partial payment after deductible for out-of-network. No claims for PPO providers. You file claims for non PPO providers You file claims for reimbursements after deductible is satisfied. You file all claims. If attached to high deductible account the network may file claims for in-network providers.
Prescriptions Usually, a card program with a formulary (list of prescription medications that a drug plan will pay for) and different payments for generic, brand- name and non-formulary drugs. Normally has mail-order program for maintenance drugs.

.

No formulary (list of prescription medications that a drug plan will pay for). Prescriptions covered on percentage reimbursement with no discounts or mail order available. No formulary (list of prescription medications that a drug plan will pay for). If attached to high deductible plan card program may be available with co-insurance based on in or out-of network.
Reasons You May Select This Plan? Interested in low cost plan and are overall healthy and focus your healthcare on prevention. Want greater choice of providers than HMO and the option to go outside of network. Desire a larger network of providers than HMO or POS plans provide. Want

international coverage.

You want to see whatever provider your sole desires without restrictions. It’s the only option available. Because of the high cost of health care most would not select this plan if another option is available.

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Life Insurance

Companies will normally cover you at no cost for one times your annual salary. The Money Movement is in full support of taking that coverage but the buck stops there. We are strong advocates of owning your own policy. We know the insurance offered through your employer is 10 times cheaper but when you leave your job, you’ll lose your coverage along with that sweet premium. In your transition to a new job it’s highly unlikely life insurance is at the top of your priority list, but could something happen to you? Yeah…uh…maybe. For this reason you need to have a policy of your own that covers you at all times. If you’re strapped for cash and can’t afford it right now, we understand. When your finances are in a better position, revisit and be sure to review, Money Guide: Life Insurance before contacting an insurance agent.

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Disability Insurance

Statistically, you have a larger chance of becoming disabled than you have of dying prematurely. According to the American Council of Life Insurers, one-third of all Americans between the ages of 35 and 65 will become disabled for more than 90 days. Many make the mistake of thinking that disability only comes from accidents; however, the majority of long-term disabilities are caused by illness (i.e. cancer and heart disease).

Disability insurance is an insurance that protects an employee from loss of income due to injury, illness or accident. Disability insurance falls into two categories: short-term and long-term. Short-term disability insurance usually will cover you for 90-180 days and long-term disability kicks in after that. Some states such as Hawaii, New Jersey, New York and Rhode Island mandate employers to provide short term disability for up to 26 weeks. Since companies provide coverage under a group policy you’ll get the most bang for your buck going with an option your company offers. When reviewing coverage consider the following:

How much coverage do you really need?
This depends on what you would like to pay for with your benefit. Is your spouse a homemaker and will continue in that role if you become disabled? Would you like to continue saving for your retirement? Is your teenager in private school or college? Are there monthly expenses you would eliminate if you were disabled? Obviously, the more expenses you compensate for, the more premium you’ll pay; therefore, a budget of your needs vs. wants is definitely necessary. Visit Money Guide: Budget to review the steps to creating a budget.

When do you want your benefits to begin?
The elimination period is the amount of time it takes for your benefits to kick in. This period can be as short as one month (or shorter), or as long as one year. Why would you elect an elimination period as long as one year? Simple:the policy is cheaper and you may be able to save enough money to cover your expenses during this time. Remember, insurance should never take the place of financial planning. The ideal scenario would be to opt for a long elimination period (perhaps 6 months to 1 year), save enough money to cover your living expenses during the elimination period, and obtain a disability policy that has a lower premium.

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How long will you need to receive benefits?
Some policies are designed to pay benefits out for only two years of benefits, others are designed to pay until the age of retirement. The longer you elect, the more expensive your premium will be.

What is the maximum benefit level the policy will cover?
Most insurance companies are reluctant to provide over 70% of your current income. As your income increases that figure decreases. This is because if you received 100% of your income for the rest of your life, what would be your incentive to go back to work? Cricket…cricket. That’s what we thought.

Do you need additional features on your policy?
There are features that can be added to your policy to make it much more beneficial to you. Check out these three:
• Waiver of Premium – This will ensure premiums are paid if you become disabled. This usually kicks in after 30 days and not all policies have this option so be sure check.
• Non-Cancellable Clause – This can be an expensive option to add to your policy, but it prevents the insurance company from being able to cancel, change the terms, or increase your premiums of your policy for any reason.
• Inflation Rider – This makes sure that the benefits that you are getting paid to keep pace with the cost of living.

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Long Term Care (LTCI) Insurance

Long Term Care insurance is a great way to protect the assets you’ve worked hard to accumulate. Age fifty is a great time to start thinking about purchasing a plan. To qualify for cheaper rates, you might even want to start looking at age 45. According to Americans for Long-Term Care Security, more than half of the US population will require long-term care at some point in their lives. With costs for long-term care on the rise, long-term care insurance is becoming more and more necessary. Keep these points in mind when reviewing the policy offered at your job:


Shop Around
Coverage can get expeeeeenSIVE, so having a plan available through your employer is a plus but it doesn’t excuse you from the tasks of looking around to ensure there isn’t another policy that’s a better fit. We recommend visiting the Long Term Care Insurance National Advisory Center and the National Clearinghouse for Long-Term Care Information to compare options available to you.

Cheap Is Not Always the Best – Just because your employer offers a great deal on LTCI, be sure to do your research on the company’s experience in the market. Many companies have a history of rate increases which can be detrimental during your golden years. Many companies offer rate guarantees, which can be a plus.

Know What You’re Purchasing – Some policies don’t offer coverage for home health care, but do offer coverage for care in a long-term facility. Also, there are various definitions for the word “facility.” What is your policy’s definition, and how comprehensive is it? Again, make sure you know exactly what you are purchasing with your hard-earned dollars.

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INVESTMENT BENEFITS

Retirement Plans
If your employer matches your contributions, you would be a FOOL not to take advantage of free money. We know all plans aren’t created equal so if yours has sucky investment options, pick the best of the worst or park your money in cash. It doesn’t have to be your sole investment vehicle, but at least contribute what’s necessary to qualify for every red cent your employer is giving up. There are no excuses for not participating in a plan when all or a percentage of your contributions are being matched. All employer sponsored plans have similar characteristics. Don’t get caught up in the names they simply refer to sections in the IRS code. Use our handy chart to familiarize yourself with each plan.

Plan 401(k) 403(b) 457(b) Public Plan 401(k) Roth
Administration For-profit companies and nonprofit organizations Nonprofit organizations exempt

under IRS code 501(c)(3)

State and local government agencies Nonprofit & For-Profit
Contributions $16,500. If your 50 or older you can contribute $22,000
Taxability Pretax contributions. Taxes on account are due at withdrawal. After-tax contribution.  No taxes are due at withdrawel.
Withdrawals Without Penalty 1. Age 59 ½

2. Death

3. Disability

4. Separation from service at age 55   or older

5. Distributions paid in the form of a lifetime annuity

6. Medical expenses to the extent deductible (above 7.5% of AGI)

All withdrawals are taxed as ordinary income upon receipt.

1. Separation from Service

2. Disability

3. Death

No 10% penalty tax for distributions of 457(b) money taken prior to age 59 1/2 if separated from service.

All withdrawals are taxed as ordinary income upon receipt.

1. Age 59 ½

2. Death

3. Disability

4. Separation from service at age 55 or older

5. Distributions paid in the form of a lifetime annuity

6. Medical expenses to the extent deductible (above 7.5% of AGI)

Withdrawals With 10% Penalty 1. Under 59 1/2

2. Extreme unforeseen financial hardship

(Click Here to read what Uncle Sam has to say about hardship withdrawals.

All withdrawals are taxed as ordinary income upon receipt.

1. Withdrawals above the contribution amount will be subject to penalty and taxes. This means accumulated interest can not be withdrawn.
Required Distribution Age April 1 of the calendar year you  reaches age 70½

Mutual Funds are the investment vehicle of choice for most retirement plans. Visit MONEY GUIDE: INVESTING for information on how to researching mutual funds.

Educational Plans
Your employer may offer the option of putting cash away for educational expenses through a 529 plan. These plans offer a great way to save and invest for your, a child’s, grandchild’s or other loved one’s higher-education expenses. Your money grows on a tax-deferred basis and is withdrawn tax free when used for a qualified education expense such as tuition, room and board and computers. While it may be convenient to opt for the plan offered through your employer, investigate your options before enrolling. All fifty states sponsor a plan and they usually come with a nice tax deduction, so before jumping into bed with your employer, visit savingforcollege.com to compare your employer’s plan with what your state is offering.

529 Plan Points to Remember:
• Tax-free withdrawals for educational expenses
• No age limit on beneficiaries
• Tax incentives in some states
• High contribution limits
• Account beneficiary can be changed at any time

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OTHER BENEFITS

We at The Money Movement love getting as much done with pre-tax dollars as possible. Here are two amazing benefits that you should take advantage of if offered through your employer and fit your financial plan.

Flexible Spending Accounts
To offset out-of-pocket healthcare and dependent care expenses, some companies offer Flexible Spending Accounts (FSA). FSAs allow you to set aside a pre-determined annual amount to pay for eligible expenses on a tax-free basis. Contributions to your account will be deducted from your paycheck and held in a special account to be used for co-payments, deductibles, daycare, babysitters and other similar expenses. All the money in your account must be used by the dates set by your HR Department or it becomes the property of your employer according to IRS regulations. If you snooze you lose, so be careful when electing your annual contributions. One of the features we love about FSAs is that claims are paid in full up to the amount of your annual contribution regardless of how much you’ve paid into the account. So if you’ve elected $2,000 for the year but only paid $200 into the account, but need major dental work that cost $1,500 you can have it done without actually accumulating the $1,500. It’s like medical layaway!

Flexible Spending Account Points to Remember:
• Tax-free withdrawals for medical and dependent care expenses
• Claims paid in full up to annual contributions
• FSA are use it or lose it accounts
• Contribution limits are set by employer until 2013
when the limit changes to $2,500 with annual inflation increases

Commuter Benefits
Most employers in big cities offer a Parking and Commuter benefit. The benefit lets you set aside pre-tax (there’s that word we love again) dollars to pay for eligible parking and public transportation expenses. Contribution limits for both parking and mass transportation are set by the IRS each year. Employers often allow you to contribute amounts in excess of the IRS limits but these contributions will be taxed.

Didn’t find what you were looking for in Money Guide:Company Benefits? Send us an email at info@moneymovement.org and one of our experts will get back to you.



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