If you’re just stopping by for the first time, this is a class in a series of classes over the next few months which will culminate in the development of a complete financial plan.  Stop by HERE for a complete list of classes currently available and HERE for more information about the website.

Class Objectives: To learn about some of the common employment benefits that can affect your financial plan.
Prerequisites: none
Handout: Employee Benefit Summary (click preview at end of class to download)
Assignment: (see below)

CLASS LECTURE

Throughout the series of classes, we have talked about many essential components of a financial plan. Many of these things you obtain from being an employee, including:

• Health and dental insurance
• Life insurance
• Disability insurance
• Health Savings Account (HSA) or Flexible Spending Account (FSA)
• Retirement plan (401k, 403b, 457 or TSP)

We are going to discuss a few other employee benefits that may have an impact on your financial plan.

Paid Time Off/Paid Leave

There is a huge variety of paid time off policies among employers. Some employers allow you to carry vacation time over from year to year, others have use-it-or-lose-it rules. It’s also increasingly common to have employers provide paid maternity or paternity leave.

The availability of paid time off affects your planning for disability insurance. If you are able to accrue several weeks of paid time off at a time, you will be able to cover the gap between when you have an event that triggers eligibility for disability insurance and the time that insurance actually starts paying your benefit. If not, you need to make sure your emergency account or cash reserve will cover your living expenses during this time.

In addition, there may be other rules about contributing to retirement plans and other employee benefits during the time that you’re collecting disability benefits. Although your focus will be on recovering, your financial plan will likely need to be adjusted.

Gym Memberships & Wellness Incentives

A great perk that your employer may offer includes complimentary gym memberships and participation in wellness programs. It’s great to have employers recognize the value of having employees that are healthy. Indeed, it’s been shown that wellness programs have an impact on health insurance costs, productivity and the number of sick days for employees.

However, it’s important to note as an employee that these benefits are taxable to you as regular income on your W-2. Specifically, the following are taxable benefits:

• Gym membership fees (whether paid by the employer directly or reimbursed to the employee)
• Wellness program reimbursements if made through a cafeteria plan
• Cash incentives for participating in a wellness program (gift cards, cash, etc.)

Note that not only are these benefits taxable for federal (and state where applicable) income taxes, they are also subject to FICA taxes. These benefits are still going to put you ahead, but you’ll want to make sure your budget covers the extra taxes.

Parking & Transportation

Those that work in downtown areas know how expensive it can be to just to park your car while you’re at work. Employers in these areas often provide a reimbursement for parking and as long as it meets the IRS’s “qualified parking” definition, up to $255 can be excluded from your wages for 2017. Other benefits that may be offered (but do not qualify for an exclusion) include bus passes, the use of a company car or even a bicycle commuting reimbursement.

Other transportation reimbursements beyond the $255 are includable in your wages for income and FICA tax purposes.

Tuition Assistance Programs

Advanced degrees can be beneficial to both you and your employer. For that reason, many employers offer tuition assistance programs. If your employer offers a program to help with tuition, you should definitely consider it! We talked about how expensive college is and ways to save for college. If you don’t have extra college saving, working for an employer that provides tuition benefits can be a great way to reduce the amount of student loans you would need to take out.

As long as the program is qualified, you can exclude up to $5,250 of these benefits from your income. Any amounts in excess of $5,250 are considered wages subject to income taxes. Note that these excludable benefits only include tuition, fees, and required supplies. They do not include meals and lodging.

Worker’s Compensation

A specific type of insurance that employers are required by states to have and pay into is worker’s compensation. This ensures that you, as an employee, are covered if you are injured while on the job without having to go through a legal process to be compensated.

If you have a physically demanding job, this will give you some peace of mind that you won’t completely lose your income if you get hurt. Workers compensation insurance generally replaces your income at 67%, but is not taxable. It also covers medical costs, retraining costs, and a benefit for your dependents if you are killed on the job.

For your financial plan, this will impact your consideration of disability insurance as well as life insurance. However, you will still want both of these types of insurance for the possibility of being seriously or fatally injured outside of your workplace.

Employee Stock Options

There are many employers that recognize the value of having their employee’s own part of the company. This encourages employees to act in the company’s interest and be more productive.

Employee stock options can seem complicated, but the basics are not too difficult to understand. An employee stock option is simply a right to buy some employer stocks at a fixed price. The quantity of stock is fixed as well as a set expiration date. Often there is a vesting schedule similar to retirement plans.

For example, let’s say you are given options to purchase 1,000 shares of stock at $10/share and these rights expire on 12/31/2022. If the current trading price is $8/share, you would want to hold onto these right until the trading price went above $10 per share, at which time they would actually be worth something to you.

As long as they are provided in a qualified Incentive Stock Option program, these benefits are not taxed until the options are exercised, meaning they are converted to shares of stock. At that time, they will be taxed for federal income tax purposes and possibly FICA tax purposes.

Stock options can be a considerable source of income and should be included when you are determining your investing plan. It is not advisable to have too much of your portfolio in employer stock, so you’ll definitely need to take a look at your portfolio allocation if you have or plan to exercise stock options.

Final Thoughts

While coordinating everything in your financial plan can be confusing, it’s important to include all the components that you have available to you in various situations. I highly recommend making notes about the employee benefits that are available to you and keeping these notes with your financial plan. For example, it would be beneficial to keep a summary of your paid time off policy in the disability insurance section of your financial plan.

EXAMPLE: THE SMITH FAMILY

Jim & Mary Smith do not have significant other employee benefits that will impact their financial plan, because Jim is a real estate agent and Mary works part-time, disqualifying her from many other benefits she would receive if she worked full-time.

HOMEWORK ASSIGNMENT

Your homework assignment is to determine the additional employee benefits that you have that may have an impact on your financial plan.

• IMPROVING -Look through your employee handbook and determine if there are any policies that impact your financial plan.
• INVESTED – Fill out the handout (download below) with a summary of your other benefits, as applicable.
• UNSTOPPABLE – Same as “invested” above, and make sure that you look into these types of benefits if you plan to switch jobs in the future. Also, make notes about each of your additional employee benefits in each area of your financial plan that is affected by the benefit (such as disability or life insurance).

HANDOUT: Employment Benefit Summary

What other types of employee benefits do you have that impact your financial plan?