Year-end Planning

Don't be unprepared to make open-enrollment decisions

Shelly Schwartz, special to

For millions of working Americans, open enrollment — those few weeks out of the year when they may add, cancel or make changes to their elected employer benefits — is drawing near.

Some will select a different health plan or up their life insurance coverage, but many more will let their prior-year elections ride, a decision process driven mostly by inertia.

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They're making a big mistake, said Marcy Keckler, a certified financial planner and vice president of financial advice strategies at Ameriprise Financial.

"It's important to take full advantage of your employer's benefit plan because it's a huge value, and employees sometimes miss out because they don't fully digest what's available or they let whatever they're signed up for now carry over without stopping to take a look at their options," she said.

The majority of public and private organizations offer open enrollment in the fall so new benefit elections can take effect at the start of the year.

Because premiums, retirement goals and health status may change, it's important that employees review their coverage and contribution options annually, Keckler explained.

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For starters, employees should evaluate their health, life and disability plans to determine whether they and their family are obtaining the best available coverage at the lowest possible cost.

Spouses who both work, in particular, should explore whether it makes more sense to be separately insured — if both are offered coverage at work — or consolidate under the same policy. (Note: Some employers charge a penalty or extra fee to insure a spouse if they've declined coverage at their own workplace.)

If you opt for separate plans and you have children, just be sure one of you adds them to your policy, said Keckler.

To compare health plans, you must first educate yourself on the coverage available and how each plan works, said T. Michelle Jones, a CFP and vice president at The Bryn Mawr Trust.

For example, health maintenance organization plans, or HMOs, generally consist of a network of doctors and hospitals from which members may receive treatment.

Those who choose out-of-network providers pay full fare. Members are also typically required to obtain referrals from their primary-care physician before they can see a specialist.

Preferred provider organization plans, or PPOs, on the other hand, are more flexible, offering a larger network of doctors and hospitals from which to choose. Members pay far less by choosing in-network providers but may also receive partial coverage for using outside doctors. They may also typically see a specialist without obtaining prior approval from their primary-care doctors.

To determine which is right for you, Jones said, it's important to calculate how much you spent on medical bills in recent years and determine what type of treatment you received.

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What were your co-pays and deductibles? Do you frequently visit primary-care physicians or specialists? Does your doctor accept the health plan you are considering?

"Review the plan benefits to determine what it does and does not cover, so you'll know which works for you," said Jones.

Increasingly, many employers also offer a high-deductible health-care plan with an optional health savings account, or HSA, which may be the better bet, said Keckler at Ameriprise Financial.

"For those who can afford to pay for the deductible associated with a high-deductible plan, those plans can make a lot of sense," she said, explaining that the lower monthly premiums enable plan participants to build their cash reserves. "One thing I really like about that strategy is that you keep your money if you don't use it."

It's common for people to think about insuring their home or their health, but many people don't think about insuring their earning power, which is actually their most important asset.
T. Michelle Jones
vice president at The Bryn Mawr Trust.

Indeed, any unused savings accumulates for use in future years.

Better yet, HSAs offer a triple tax benefit. Contributions are made on a pretax basis, the savings grows tax-deferred, and any dollars used for qualified medical expenses can ultimately be withdrawn tax-free.

"It really is a tremendous benefit to people both for medical expenses you incur now but also for health-care expenses in retirement," Keckler said.

She notes, however, that those who predict higher health-care expenses ahead, such as costs associated with the birth of a baby or a preexisting condition, might be better served with a more traditional HMO or PPO.

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Before the open-enrollment window closes, you should also ensure that you and your family are protected by disability insurance. If your employer offers it, buy it, Jones explained.

"It's common for people to think about insuring their home or their health, but many people don't think about insuring their earning power, which is actually their most important asset," said Jones, adding that some people confuse worker's compensation coverage for disability insurance.

"Worker's compensation only provides coverage when the injury happens on the job," she said, noting disability plans cover your salary if you become sick or injured outside of work.

The Social Security Administration, citing studies, reports just over 1 in 4 of today's 20-year-olds will become disabled before they retire.

Unsure about insurance?

Remember, however, that disability coverage offered through employers may only be based on your base salary, which excludes bonuses. If annual bonuses comprise a significant portion of your income, consider purchasing supplemental insurance on the side.

Next on the to-do list during open enrollment is life insurance.

Roughly 58 percent of private industry workers were offered life insurance benefits by their employers in 2011, the most recent year for which data are available, according to the Bureau of Labor Statistics.

Many organizations provide coverage valued at one times their employees' earnings for free, but that coverage is typically only in place while they're employed.

You may separately be able to elect greater coverage if you contribute to the cost. Here, it's important to shop around.

"If you're young and very healthy, you may be able to get better life insurance coverage privately through an insurance professional, but you definitely want to take advantage of whatever additional coverage is offered by your employer as a starting point," Keckler said.

How much insurance you need depends upon your income, expenses and available resources, but many financial planners recommend five to 10 times your annual earnings.

Nonprofit life insurance advocacy group Life Happens offers a free online tool that can help you calculate your potential life insurance needs.

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Finally, while many 401(k) plans allow participants to make changes throughout the year, open enrollment is an opportune time to maximize your benefit, Keckler said.

For example, workers should ensure they're contributing at least enough to their 401(k) plan to receive the employer match, which is critical to reaching their long-term savings goals.

Nationally, the average employer contribution is 4.3 percent of salary, according to Fidelity Investments, which recommends employees save a total of 10 percent to 15 percent of their salary annually to ensure their nest egg is sufficient during retirement.

The maximum pretax contribution to a 401(k), 403(b) and 457 plan in 2015 is $18,000, but those 50 and older may make additional catch-up contributions of $6,000. (The limit on annual contributions for individual retirement accounts, or IRAs, is $5,500, plus an additional $1,000 for taxpayers who are 50 or older.)

Your 401(k) ... on autopilot

If you aren't saving the maximum allowed, consider earmarking a portion of any annual raise you receive toward that goal, said Keckler. You'll never miss the money if you don't put it in your pocket.

Many employers are also instituting automatic contribution increases of 1 percent to 2 percent per year.

"That can be a great strategy for helping people increase their retirement savings, because it puts your savings on autopilot," Keckler said.

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The decisions you make during open enrollment weigh heavily on your family's financial well-being for the next 12 months.

Do your homework, consider your options, and make the most of every benefit to which you are entitled.

"Take the time to stop and look at your options," Keckler said. "You don't want to miss that window."

– By Shelly Schwartz, special to