Your Guide to Open Enrollment

By Hightower Westchester on October 5, 2020

It’s that time again!  If you’re an employee with benefits or new on the job, you know that this means you’ve got some decisions to make for the upcoming year.  For most people this means reviewing your healthcare benefits to make sure you have the right plan for you and your family.  However, there are other elements in your benefits package that should also be reviewed to ensure that they are aligned with your financial and retirement goals.

Whether you accept the benefits or not, open enrollment can be a mandatory process at most companies.  It can be nerve-wracking, too!  We’ve put together this guide to help you make the best choices for you and your family this enrollment season.

Examine your retirement contributions

The first step is identifying if your employer offers a match to your defined-contribution retirement account.  If they do, do they match all or a portion of your contributions, and is there a certain percentage you have to contribute before they match?  If you are offered a match, and it’s financially feasible, you should absolutely contribute up to the match as it’s free money.

If your employer does not offer a match, you should still consider contributing to your 401(k), 403(b), or other similar accounts, because the more you contribute, the more you’ll save on taxes.  If you already contribute, you should check-in with your financial goals and see if you’ve been able to achieve the benchmarks you’ve laid out.  If you have, you may want to consider increasing your contribution amount for the upcoming year.

This is also a good time to look at the diversification of your portfolio and the investment options your plan administrator maintains.   A financial advisor can help you examine its performance and make sure your portfolio still reflects your risk-tolerance.

Lastly, make sure you are fully aware of all investment opportunities that your company offers, in case you accidentally glossed over them as you filled out your paperwork, and take advantage of any that fit your retirement goals.

Health care needs

Most companies do a good job of keeping employees informed about major changes to their health care plan.  With that said, open enrollment is the only time you can make changes to your health insurance coverage, unless you have a qualifying event such as getting married or having a child.  Given that, this is the perfect time to consider you and your family’s healthcare needs and decide exactly what coverage is necessary.

So, what’s step one?  You need to determine if your needs changed over the past year or if they will change in the upcoming year.  For example, if you are in your 20s, you may have been on your parents’ health insurance, but if you are turning 26 you will be aging out and you need to get coverage. Take some time to look back at the past year to see how often you went to the doctor for visits other than routine check-ups, whether or not you met your deductible, and what expenses you had to incur for things such as prescriptions, lab work, x-rays, or other imaging.  All of these things, with the addition of any foreseeable medical needs, will help you determine what your annual costs would be for each plan offered.

Step two is to review your open enrollment package to see if there are any changes to the offering from the previous year.  That could include premiums and deductibles for the plans but also detailed differences in the coinsurance and copayment amounts.  One of the more important calculations is the estimated out-of-pocket costs for each plan and the likelihood that you will meet those maximums.  This may change from year to year.  If you are healthy and single, a high-deductible plan may be a cost-saving option, since you rarely go to the doctor.  However, if you are planning on having a child in the next year, you may save money by choosing a lower deductible or more traditional insurance plan.

And the third, and one of the most important steps, is to add up and compare the costs of the different plans.  Once you’ve figured that out, you’ll be able to make an educated decision as to which plan would make the most sense for the upcoming year.

Please note that if your employer has switched insurance companies, you should also check to make sure your current doctors are still in-network as that will affect which plan will make the most sense for you.

Many employers offer options for dental insurance and vision insurance as well.  If the coverage is offered to you for free, then it’s a no-brainer to enroll.  With that said, if you have to opt-in for additional coverage, as with health insurance, it’s recommended to look back at the past year to see how you used these services, and how you’re likely to use them in the future, to decide whether it makes sense to opt-in for additional coverage.

If you are in good health, and your employer offers it, you should consider putting money into a health savings account (HSA).  This is money that will be available to you down the road, even in retirement, and depending on your plan administrator, will earn money in the interim once you reach a certain balance.

HSAs are considered tax-advantaged, meaning you can make contributions pre-tax AND withdraw them tax free, provided the withdrawals meet certain criteria.  If you don’t wind up using your HSA to cover medical expenses, you can still withdraw money down the road.  Keep in mind that HSA plans tend to have high deductibles, so if you are anticipating a major surgery or potential health complications, this might not be the right time to switch.

The IRS announced on May 21 that HSA contribution limits for 2021 are going up $50 for self-only coverage and $100 for family coverage, giving employers that sponsor high-deductible health plans plenty of time to prepare for open enrollment season later this year.1  The annual limit on HSA contributions will be $3,600 for self-only and $7,200 for family coverage. That’s about a 1.5 percent increase from this year.1

Another benefit some employers offer is a flexible savings account or FSA.  If your employer offers a flexible savings account, you’re eligible regardless of which health plan you choose.  An FSA is another good way to save pre-tax dollars for health-related costs, but your savings generally must be used during the calendar year.  Some employers may offer a $500 rollover limit or extend the reimbursement claim deadline two months into the next year, but generally the account is use it or lose it.

If you have kids who will be under age 13 for at least part of the year, check whether your employer offers a dependent care FSA.  These accounts allow you to use pre-tax dollars for some childcare costs, but make sure you understand the rules.  Not every type of expense is covered.  Please note that you can’t move funds between your FSA and the dependent care FSA, so keep that in mind when calculating how much money you want to be deducted from your paycheck for each.

Finally, you need to consider how your benefit elections will affect your take-home pay.  It is important to realize that many of the benefits will come out before your taxes.  This lowers your taxable income and may make it so that you do not notice the changes as much.  Money that you take out for your HSA or FSA to help cover things like medical expenses and daycare may reduce your take-home pay, but not really affect you because you were already budgeting for the expenses.  It is essentially, a more efficient way to cover these expenses.  You may also want to consider how the cost of using your health insurance will affect your budget.  It is a good idea to have money set aside to cover your deductible, no matter how large or small, so that you can use your health insurance when you need it.  This is where financial planning and budgeting becomes important.

Life & Disability Insurance

You should always accept any free life insurance coverage that your employer offers, but in most cases, that life insurance only offers one to two times your annual salary, when in reality, most people need 10 to 12 times their annual salary in life insurance coverage. So what that boils down to is that your life insurance coverage through work most likely isn’t enough and you should consider purchasing additional coverage.

Your employer may offer the option to purchase additional coverage during open enrollment, but it may be better to purchase your own personal life insurance.  Getting your own life insurance policy will not only give you the opportunity to shop around and find better rates, but your personal policy also won’t be tied to your employment.

If you purchase life insurance through your job and then leave your job, you might have the option to convert your work coverage to a private plan, but in all likelihood, it will be much more expensive than if you had simply purchased your own personal plan in the first place.  Since we’re on the topic, it’s always recommended to purchase life insurance early because life insurance prices go up on average 8% to 10% every year you age.

Disability insurance is another type of coverage that you should opt into if it’s a free offering.  With that said, most employers only offer short-term disability insurance so open enrollment is a good time to evaluate whether you need additional coverage like long-term disability insurance.

Group disability insurance offered by employers are often capped at a low benefit amount and have more coverage restrictions than an individual policy.  It’s a good idea to have a supplemental individual policy to fill in the gaps and have with you throughout your career.

Double check your beneficiaries

When was the last time you updated your beneficiaries?  Probably not since you first signed up for your benefits.  Open enrollment is the perfect time to make sure your beneficiary information is up to date.

While you’re at it, make sure the language in your will, provided you have one, reflects the same intentions as your listed beneficiaries.  Remember, your listed beneficiaries supersede the language in your will.  If you have had significant changes in your life, (divorce, second marriage, etc.) this would be a good time to make sure you know who is getting what.

Even if you haven’t had any drastic life changes, now is a good time to look at your estate plan.  If your children are in different tax brackets, for example, dividing your assets evenly among them will mean the IRS takes a bigger share.

As always, your retirement is not a “set it and forget it” kind of deal.  Think of your open enrollment period as your annual checkup, meet with an advisor and make sure your investments remain aligned to your financial goals.

Key 2020 Open Enrollment Dates

The 2020 Open Enrollment period runs from Sunday, November 1, 2020, to Tuesday, December 15, 2020.

If you don’t act by December 15, you can’t get 2021 coverage unless you qualify for a special enrollment period.

Plans opted into during Open Enrollment start January 1, 2020.

Richard Flahive – Private Wealth Advisor and Director of Research & Planning – Hightower Westchester

914.825.8639 – rflahive@hightoweradvisors.com

References

Miller, S. (May 21, 2020) IRS Announces 2021 Limits for HSAs and High-Deductible Health Plans. Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-2021-hsa-contribution-limits.aspx