At this time of year, you probably receive your benefits package from your employer. As you evaluate them, don’t overlook their value as you consider your overall compensation.
According to the Bureau of Labor Statistics, benefits accounted for around 32% of employer costs of compensation in 2019, with salary making up the other 68%.
Put another way, the total compensation that you earn from your job is not just your paycheck — in fact, a lot more goes into it.
Most employees know what they earn on a weekly, bi-weekly, or monthly basis, but there is often less clarity when it comes to the benefits they are entitled to through their employer.
Fortunately, many employers provide total compensation statements on an annual — and in some cases, quarterly — basis that provide a more complete picture of compensation. On it, you can find things like your base salary along with bonuses and company-paid benefits with their dollar values.
At least annually, you should review your benefits package to determine just how much these ‘extras’ contribute to your well being. And there is no better time than what I refer to as Benefits Season.
To help make sense of it all, let’s take a look at some of the more common benefits that companies offer and how the value of those offerings could affect your overall wealth.
What Benefits Packages (may) Include
For comparison’s sake, while we’re reviewing common benefit offerings, let’s break down the differences as a component of total compensation by comparing a hypothetical newlywed couple — Ross and Rachel — who both earn the same amount in base salary ($64,430 per year), but have significantly different benefits packages.
We’ll begin with Medical Insurance.
Medical Insurance
Medical insurance is often the most significant component of your benefits. In fact, according to the 2019 Milliman Medical Index, the cost of healthcare for a typical family of four covered by an average employer-sponsored PPO plan is $28,386, with employers typically picking up 59% of the cost.
Of course, these numbers can vary significantly depending on the employer and the amount they are willing to subsidize — to which our friends Ross and Rachel can attest.
For example, Ross’ plan pays 100% of his health insurance premium (which equals $2,500 per year) and contributes up to 85% of the coverage for their kids (which equals an additional $1,750). Rachel, on the other hand, only has 85% of her health insurance premium covered (equals $2,125 per year) and that number drops to 60% for the kids (equals an additional $875).
Dental & Vision Insurance
Everyone knows how important medical insurance is to cover the costs of illnesses and injuries, but there are two other kinds of health insurance that are also important for your well-being: dental and vision insurance.
The next time you have a cavity filled or need a new pair of glasses, you’ll be grateful you have the coverage to offset some of the costs.
Typically, dental coverage pays in full for preventative care and half the cost of certain procedures — up to a predetermined limit per family member per year.
Vision insurance plans are similar, in that they generally provide coverage for eye exams and preventative testing, but only cover a portion of lenses, frames, contacts, and elective procedures.
In the case of Ross and Rachel, their dental and vision plans are identical and provide coverage for up to $1,500 in dental and $500 in vision expenses.
Health Savings Account (HSA)
A Health Savings Account (HSA) is like a personal savings account, but the funds can only be used for qualified healthcare expenses.
As a perk of employment, more and more employers are offering HSAs in conjunction with high deductible health plans. In many cases, they are contributing to the employees’ HSAs, as well.
Ross’ company, for example, contributes $1,500 to his HSA, and he has additional contributions of $50 withdrawn from his paycheck on a bi-weekly basis. Rachel also has an HSA plan, but her company contributes slightly less — at $500 per year.
Life Insurance
Employers often provide a small amount of term life insurance coverage for free. Your plan may cover a fixed amount, usually $50K, or an amount equal to one or two times your annual salary. In addition, you may find supplemental life insurance is available for a low, additional cost.
For Ross and Rachel, both of their company’s provide term life insurance in an amount equal to their annual salary.
Disability Insurance
Disability insurance is a type of insurance that will provide income in the event a worker is unable to perform their work and earn money due to a disability. These amounts vary widely.
In Ross’ case, his employer offers a policy that provides a $2,500 per month benefit (after a 60-day elimination period) which cost $200 per month, for which the company pays the entire premium.
While Rachel’s job doesn’t cover disability insurance, they offer it as a voluntary benefit — which allows employees to purchase coverage at a group rate. In her case, this amounts to the same monthly benefit as Ross ($2,500), however she has to pay the $200 monthly premium out of pocket.
Retirement Plan Matching Contributions
Employers may choose to contribute to an employee’s retirement plan by matching a certain amount of what the employee contributes. This is a great way to build your retirement that doesn’t impact your cash flow. Sometimes, we refer to it as ‘free’ money.
Ross and Rachel’s employers both offer a fairly common matching policy whereby they will match 50% of the first 6% of their salary that they contribute. Assuming they both take full advantage of the match, their respective employers would contribute 3% of their salary to their retirement plans, or $1,932.90 per plan.
Student Loan Benefits
Student loan repayment as an employee benefit has been growing in popularity over the last few years as the average student loan debt for those graduating with a bachelor’s degree has climbed to over $29,000.
To put that into context, for a student loan of $10,000 with a 6.75% interest rate, an extra $100 per month in company-paid student loan benefits applied towards the principal could help pay off the loan in 55 months instead of 120 and save $2,144 in interest.
Ross’ company offers this benefit and provides $100 per month toward student loan debt — which he has signed up for and is consequently on track to have his final student loan payment completed within the next 24 months. Rachel’s company, on the other hand, doesn’t offer this benefit so she has been diligently making additional payments toward her student loan debt so, she too, can be finished paying it off in the next two years.
Financial Wellness
Full-disclosure – I’m totally for this one. Financial wellness programs are one of the best, yet most underutilized employee benefits that companies offer. I mean, if you’re fortunate enough to have access to employer-paid financial coaching and guidance, it’s like having a financial planner on retainer all year long — which on it’s own could easily cost thousands of dollars per year.
This benefit alone could help maximize the value of your other employee benefits, as well as take your personal financial plan to the next level.
Fortunately, this is offered through Ross’ job at an annual benefit amount of $2,400.
Alternatively, Rachel’s job offers a once-per-year meeting with a “financial advisor”, but she found the advice more closely resembled that of an insurance salesman and decided not to continue after her first year with the company.
Other Voluntary Benefits
In addition to the items listed above, your company may offer other voluntary benefits such as gym memberships, pet insurance, pre-paid legal assistance, and more.
The value and cost can vary quite a bit, but because they are group plans, the cost is often much lower than what you would pay by purchasing them individually.
Adding It All Together
So how much are the benefits for our hypothetical couple worth?
| Ross | Rachel | |
| Base Salary | $64,430 | $64,430 |
| Medical Insurance | $4,240 (*includes kids) | $3,000 (*includes kids) |
| Dental Insurance | $1,500 | $1,500 |
| Vision Insurance | $500 | $500 |
| HSA Contribution | $1,500 | $500 |
| Disability | $2,400 | $0 |
| Retirement Plan Contributions | $1,933 | $1,933 |
| Student Loan Contributions | $1,200 | $0 |
| Financial Wellness | $2,400 | $0 |
| Total Compensation | $80,113 | $71,863 |
In the case of Ross, his total compensation is $80,113 — with benefits totaling nearly 1/4th of his total compensation.
Whereas Rachel, while not too far behind, has a slightly smaller total compensation package of $71,863 — with benefits totaling 12% of her total compensation.
What’s your total?
Clearly, benefits can amount to a significant portion of your compensation and should be closely analyzed on at least an annual basis.
So, what’s your estimate of what your employee benefits are worth? Add up the items and divide the total by your salary and bonus. When you look at those numbers, my guess is that you’ll appreciate those benefits more.
Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.
Your Financial Mom blog posts are not meant to be legal, accounting or other professional service advice. Content represents the opinion of the author only. Pathfinder Planning LLC is not responsible for the accuracy or validity of content contained in third-party comments.