Benefits Going to Waste? Here's How to Cash In
Consider this scenario: Your employer offers you a pay raise — a nice one. Say, $12,500 worth. But you say, "Nah, I'm not really interested." How likely is that? Truth is this happens pretty often, says Gary Schatsky, CPA and president of ObjectiveAdvice.com: "Benefits offer you free money. You would never send a pay raise back to your employer — why would you pass on an effective increase in the form of benefits?"
That $12,500 figure, for example, is the average amount that The Methodist Hospital System in Houston spends on each of its employees in the form of retirement plans, among other benefits. “It’s about 25 percent of someone’s salary,” says Janay Andrade, Methodist’s director of benefits. And if employees don’t make use of their options — forgoing 401(k) matches or tuition reimbursement — that money goes to waste.
Here’s the good news: Despite consumer belt-tightening, only 11 percent of workers are planning to cut back on benefits contributions this year, according to a new survey from MetLife Inc. The bad news, of course, is that year after year, employees continue to pass up free money by not taking full advantage of their companies’ offerings. Here’s what you’re leaving on the table — and how to make sure you cash in.
Health Savings Account (HSA) or Flexible Spending Accounts (FSA)
For a lot of people, the idea of putting money into a pretax health care spending account seems risky — after all, if you lose track of paperwork, you could lose those dollars. As a result: “The most common benefit that is underused is the Section 125 Flexible Spending Accounts,” says Blaine Bos, a consultant with Mercer, a New York human resources consulting firm. In a Mercer-generated national survey, 83 percent of employers with more than 500 employees offered these accounts, but only 22 percent of eligible employees used them. And that’s a literal waste of money.
“It might take a few extra minutes to keep track of it, and you’ll be sorry if you lose the benefit, but the savings are substantial,” says Schatsky. “We’re not talking about sending in a 50 cent off coupon in the mail. If [you put in] $3,000 at a 35 percent tax bracket, it saves you $725.”
To take advantage, says Bos, start by anticipating charges for large procedures. For instance, if you’re planning to get eye surgery: “Go to a Lasik clinic and say, ‘What are you going to charge for this?’’’ suggests Bos. Next, review last year’s medical bills — including co-pays and items not covered by your plan, like eyeglasses. Once you have an estimate, divide that by the number of pay periods you have in a year (for many people, it’s either 24 or 26). At open enrollment, ask that that amount be taken out of every paycheck and put into your pretax medical spending account.
401(k) Matches
If your financial adviser offered a risk-free investment that returned 50 percent for every dollar you invest, you’d probably think he had gone nuts — or was adopting some of Bernie Madoff’s strategies. But this is the return that you can enjoy if your employer matches your 401(k) contributions at 50 cents on the dollar.
Yet even at Methodist, where employees are 100 percent vested from their very first day, there is a lackluster 60 percent enrollment rate. “We haven’t seen [enrollment] this low since 2003,” says Andrade. (See our recent story, “12 Dumbest 401(k) Mistakes.”)
Schatsky says he advises clients to take money out of savings to get those matches: “I would beg, borrow, and steal to get 50 cents on a dollar. What’s wrong with taking money out of savings? A 401(k) is savings. In one case, you’re getting an extra 50 percent rate of return. It’s probably the wisest investment you can make,” says Schatsky.
Transit/Tuition Benefits
According to a 2009 nationwide survey conducted by the Society for Human Resource Management (SHRM), 13 percent of companies offer pretax spending accounts to cover commuting costs, yet Schatsky says many people bypass them: “People just don’t do the math. If you’re saving $30 on taxes every month, it adds up. You’re being paid something for virtually no effort,” says Schatsky. “That’s a tradeoff most people should want to take.”
And for those looking to firm up their employment opportunities in the shaky economy, further education can be a wise investment — and it could be free, or heavily subsidized. “We have a tuition reimbursement plan — up to $2,500 a year for our full-time employees,” says Methodist’s Andrade, but she says only about 10 percent of employees take advantage — and of those, only 20 percent use the whole $2,500.
Health/Wellness Plans
There are few more valuable investments than your health — to both you and your company. According to the SHRM survey, 59 percent of companies nationwide currently offer wellness programs —ranging from on-site vaccinations to weight-loss programs — and a third offered gym reimbursement or subsidy. “A healthy employee is not only more productive and happy, but they cost the company less,” says Kelly Semrau, vice president of global public affairs and communication at SC Johnson, which is apparently a happy place: It boasts a 98 percent yearly retention rate of employees.
Getting employees to take advantage of wellness benefits can be a challenge, however. Even at SC Johnson, where the on-site fitness center costs employees a mere $8 per month to use, Semrau says 30 percent of employees don’t take advantage. And of course, if you’re not going to use the program, you shouldn’t contribute even a penny toward it. “The issue with gym membership is that people who are fitness conscious are absolutely going to take advantage. The rest of the world? It’s very spotty,” says Bos.
One tip for uncertain times: If your benefits accrue by calendar year, rather than incrementally, use them up as soon as you can — paying at the beginning of the year for a whole year of tuition or gym membership, for instance, instead of paying by semester or month. “If you can afford to pay the cost up front, go for it,” says consultant Tanisha Russell Day, who has worked for such firms as Merrill Lynch and founded Key HR Consulting in Teaneck, N.J. That way, even if you lose your job midway through the year, you’ll still have a discounted gym membership, and get the full year’s worth of workouts.
Vacation Days
According to a recent survey from Expedia.com, an estimated 34 percent of employees won’t take all of their vacation days in 2009 — adding up to 436 million days that will be given back. And lost days mean lost money — Expedia calculates the value of those unused vacation days at $63.33 billion nationwide.
Certainly, if you’re lucky enough to still have a job, you may be reluctant to leave your office dark for a week — will you look like a slacker? Or maybe you are storing your vacation days for better times, like a nice bottle of Bordeaux. But unlike wine, vacation days don’t get better with time: In fact, some companies are now reducing the number of vacation days they allow employees to roll over. “I’ve come in contact with so many employees ... [who are] looking at their rollover days and I have to say ‘You lost [them],’” says Day. So know your rollover policy, and plan accordingly.
Bottom Line: Pay Attention to Paperwork
These days, any conversation with HR can smell like doomsday. But sometimes, your friendly HR rep is trying to make sure you’re aware of benefits — after all, the company doesn’t want to waste money any more than you do.“A lot of new hires receive their packet overview and they don’t read it. It’s human nature, not wanting to read the fine print,” says Day.
According to the SHRM survey, the percentage of companies who reviewed their benefits annually grew from 74 to 81 percent between 2008 and 2009. So in addition to doing your due diligence when you first come on board, be sure to check throughout your employment for new initiatives or changes in old ones. “Usually the employer will start their employment material [each enrollment period] with what has changed,” says Bos.
And because more companies are communicating digitally, avoid treating HR e-mails as spam. You might just find out just how much you’re missing out on. “We have a 24-7 intranet,” says SC Johnson’s Semrau. “You can get your personal information on the Web site — how much your benefits cost and how much the company is paying for your benefits. For each individual, that’s upward of $15,000 on health, wellness, and welfare benefits.”
Finally, don’t forget your own transformations: “You should really read [all] the material, because your life may have changed since [your last enrollment],” adds Bos. Changes might include marriages or divorces, having a child, or even having a spouse lose a job. If you follow these guidelines, you’ll be sure your benefits package will, well, benefit you.
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