Understand Your Benefits

Medical bagEmployee benefits are key to understanding your total compensation from your job. Benefits can increase the value of your salary by 20 percent or more. Before you accept a job offer or make a job change, carefully compare your benefits and the costs of working that specific job.

Some benefits are fully paid by the employer, while others require you to pay all or part of the cost. Either way, employee-sponsored benefits generally are cheaper than trying to get benefits on your own. 

Common types of benefits include:

  • Health insurance. Employer-subsidized plans, where your employer pays at least some of your premium every month, are ideal. You still have to pay part of the premium along with copays and deductibles, but your portion of the burden will be lightened by your employer’s contribution. Get to know how much your employer is contributing — not all employers cover the same amount. And brush up on your health care vocabulary. You can browse the Department of Labor’s Glossary of Health Coverage and Medical Terms to better understand your coverage. 
  • Dental insurance. Dental insurance often works in the same way as health insurance, with your employer picking up part of your premiums. You will be responsible for copays and deductibles, and you often must receive your dental care from a provider within your plan’s network in order for your policy to apply.
  • Pensions. Pensions are a retirement plan option where you contribute a certain amount of your income from every paycheck. After you have contributed long enough to be vested (meaning that you’ve worked at your employer long enough to earn the right to employer-provided contributions to your retirement savings plan), and depending on your salary and years of service, you will be paid a certain amount each month in retirement. You can learn more about pension basics at this CNN Money site.
  • 401(k) and 403(b) plans. 401(k) and 403(b) plans are tax-deferred plans generally offered through an employer. They allow you to invest with pretax dollars, meaning that your paycheck gets taxed after your contributions to these plans have come out. This leaves you with more take-home pay than if you invested in a Roth Individual Retirement Account (IRA), where all contributions are made after taxes have been taken out. When you start withdrawing money from your 401(k) or 403(b) plan, typically after age 59 1/2, you will pay taxes on those withdrawals. Many employers will match your contributions up to a certain amount, giving you free money toward retirement.

Know the Difference Between Pretax and After-Tax Benefits 

Tax formAny deduction from your gross pay is considered a pretax deduction. These deductions ultimately give you a higher net (take-home) pay. 

Employer-sponsored pretax benefits are called cafeteria plans or IRS Section 125 plans. Examples include: 

  • Accident and health (medical, dental and vision) benefits
  • Adoption assistance
  • Dependent care assistance
  • Group-term life insurance
  • Health savings accounts
  • Qualified 401(k) and individual retirement accounts (IRAs)

After-tax benefits will not lower your tax liability; they are deducted after taxes have been withheld. After-tax benefits include health insurance that does not qualify as pretax, Roth 401(k) and Roth IRA investments.

Employer-Sponsored Retirement Plans

Plant growing moneyRetirement plan offerings vary widely depending on the employer. Ask your employer’s human resources department to answer any questions you have about how the retirement plan works. 

Types of Plans

  • A traditional 401(k) lets you contribute pretax funds that are invested by your employer in an investment portfolio of stocks, bonds and/or mutual funds.
  • Your contributions and earnings on 401(k) contributions are not taxed when you put them into the 401(k), but you do pay taxes when these funds are withdrawn. 
  • Are funded with after-tax dollars (money that has already been taxed). Therefore, you won’t have to pay taxes when you make withdrawals if withdrawals are made after age 59 ½ from accounts that have been open at least five years.
  • Similar to 401(k) plans, 403(b) plans are an option for public school employees, some clergy and certain nonprofit employees. This plan allows a tax deferment on the amount you contribute to the plan.
  • Your employer contributes stock to the plan for your benefit, usually at no cost to you. Taxes are paid when your allocated shares are sold. 
  • Your company contributes to the plan on your behalf. When you retire, you receive the payout in regular payments or in a lump sum according to a formula based on income and years of service. These payments are taxable and are treated as income when you start collecting them (after you’ve reached retirement age). 
  • The TSP covers federal government workers and service members and 457 plans cover state and local government workers. Contributions by you (and your agency, if applicable) are pretax. If your plan offers a Roth IRA option, your contributions would be after tax.

Matching Contributions

Some employers match a portion of your contributions to 401(k), 403(b) or similar investments up to a certain level. Try to contribute up to the maximum that the employer will match because this essentially is free money. For example, if your employer will match up to 6 percent, then you should plan to contribute at least 6 percent to get the full benefit of the matching contribution.

Check Your Knowledge

Can you differentiate between the employer-sponsored retirement plans?

  Drag the term over the definition.


Employee Stock Ownership Plan (ESOP)

Pension plan

Traditional 401(k) plan

Roth 401(k) plan
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A retirement plan where the company contributes to the plan on your behalf and you receive payments during retirement.
Pension Plan
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Available to public school employees, some clergy and certain nonprofit employees.
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A plan in which your contributions and earnings are not taxed until they are withdrawn.
Traditional 401(k) plan
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Contributions are made with after-tax earnings, but any income earned on the contributions are tax-free.
Roth 401(k) plan
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Employer contributes stock to the plan for the benefit of the employee.
Employee Stock Ownership Plan (ESOP)

Recognize Perks Beyond Your Paycheck 

Bag money shirt train dog dumbell hamburgeMany benefits packages include other perks that can save you time and money, such as:

  • Monthly bus or rail passes paid for by your employer or sold to you at a discount reduces the cost of your commute.
  • The opportunity to work from home or telecommute cuts down on transportation costs. Flextime, the option to begin your workday earlier or later than the standard, can help you balance work and personal commitments.
  • A group discount or an employer-sponsored membership can save you money, and if the office has a workout facility, you’ll save time going to and from the gym too.
  • To keep quality employees up to date on relevant skills, some companies will pay tuition for approved educational expenses.
  • Employers can help you develop professional skills and may pay for you to attend classes, workshops or conferences in skill areas that enhance or improve your work.
  • Whether it’s a dinner out on the company’s dime or a weekly lunch for the office, getting a free meal is a cost savings.
  • You may be able to wear jeans and casual shirts either on specific days or as the usual dress code. This perk could save you from having to upgrade your wardrobe and can add a little comfort to your workday.
  • In some companies, well-trained dogs can accompany their owners to work, cutting out the cost of a dog walker or doggie day care.
  • Discounts on company products or partner programs can save you money on a variety of items, from clothes to food, depending on your industry.
  • If you’re able to customize your workspace decor, you’ll feel more at home. And when you work in a space you enjoy, you might be more productive.
  • A worksite child care center can provide convenience and peace of mind that your children will be well cared for.
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