Employer-provided fringe benefits (insurance, 401K contribution, a company car, subsidized meals, etc.) may be a significant part of your overall compensation. The U.S. Department of Labor estimates the mix of compensation for the average private industry worker is 73 percent for wages and salaries and 27 percent for fringe benefits.
From my experience, here are the eight most common mistakes with fringe benefits and financial planning:
- Failing to review beneficiary choices. Your choices of a beneficiary for your retirement plan or group life insurance don’t automatically change just because you have married or remarried. Some surviving spouses have been surprised when they learn that they have not been named as beneficiary – because of negligence.
- Assuming the HR department will take care of everything for you. The trend is for more and more choice (and the burden of making the choice) upon the employee. Be proactive.
- Leaving your 401k contribution the same each year. Consider increasing the percentage every year soon after a pay raise.
- Failing to take advantage of available employee fringe benefits. Make sure you know all the available benefits.
- Holding too much company stock in stock option plans or retirement plans. Talk to those who suffered great misfortune at Enron. Stay diversified.
- Failing to review your fringe benefit choices annually. Your family circumstances change, and new options are frequently added to your company’s plans. Stay informed.
- Contributing too much to flexible spending plans. Estimate conservatively what you will spend for medical expenses or childcare. Otherwise, you’ll be buying three pairs of glasses in December.
- Failing to obtain professional consultation outside the company. Let me help you review your options, such as choosing a pension payout option or Roth vs. traditional 401k. Many decisions made at your employer have lifetime implications.