What Is Inside Your Employee Benefit Package?

How many of you remember when you were first hired for your current or previous job? They went over your contract, said “sign here, here and here”, and still left you not knowing what your employee benefits are? How many of you are still unsure of what they are? If this is you, do not worry, you are not alone. This is common among so many individuals, especially those that are first generation. If your parents are like mine, their employers have truly never offered them benefits. My parents never had a 401K plan offered to them, menos a pension y ni se diga de group life insurance. They were just happy to have a job that paid and put food on the table. Some of our parents might not even qualify for benefits from their employers, so this is new to a lot of first generation folks entering the work force. There was no footprint of what benefits an employer should or could offer other than a salary.

Now, I know how overwhelming and intimidating these packages can be, and I encourage for you to read through it all, but here are some tips on what to look for:

401K

A 401K plan is a retirement plan that is offered by your employer. Note that not all employers offer a 401K plan. If they do, this will be on your employee benefit packet. Here are some notes on the details to look for in this section.

1. Is there a MATCH?
   • An employer’s match means that your employer will contribute a certain percentage to your 401K retirement plan based on the percentage you as the employee are contributing to your 401K from your paycheck.
   • For example:
     • If your employer matches up to 4% and you contribute 4%, this means you’re having a total of 8% going into your 401K plan (4% from you and the other 4% from your employer).
   • Each employer has a different matching schedule, some are a bit more complex. A more complex schedule can look something like this:
     • An employer will match 100% up to 3%, 50% from 3% to 5%.
       • If the employee is contributing 5%, then the employer will match the following:

• If another employee is contributing 4%, then the employer will match the following:

• This schedule will be listed on your retirement section of your benefit packet.

2. Is there a VESTED SCHEDULE?
   • A vested schedule will let you know the percentage of ownership you have over assets, in this case it can be applied to the retirement funds that were matched by the employer. An employee’s vested percentage increases for each year of service and eventually an employee becomes FULLY vested, meaning the employee can take 100% of the company’s match if they were to leave.
   • For example:
     • If an employee is only vested 25% after their first year and they decide to leave their employer after their first year, they will only be able to get 25% of their employer’s match. If their employer matched $10,000 in total, they can only take $2,500 and would have to leave the other $7,500 behind.
   • Typically the vesting schedule goes up 25% or 33% per year, but every employer is different. You can find your employer’s vesting schedule on your employee benefit package under retirement.
3. Is there a ROTH 401K Option?
   • Not all employers offer a Roth 401K option, but if they do this will also be listed on your Employee Benefit Package. A few things to note on this section are:
     • If you elect the Roth 401K option, your contributed will be directed to the Roth for after-tax contributions, BUT your employer’s contributions (the employer match) will still be directed to the Traditional 401K side which are pre-tax funds.
     • A Roth 401K is different than a Roth IRA in that:
       • You can take out a LOAN from your Roth 401K, unlike a Roth IRA where withdrawals will become distributions and can be subject to a penalty for not being age 59 ½.
       • There are NO INCOME QUALIFICATIONS to put money into a Roth 401K, unlike a Roth IRA.
       • A Roth 401K is subject to RMD’s (Required Minimum Distributions) that take place at age 72, unlike a Roth IRA where you RMD’s do not apply.

PENSION

A Pension is a retirement plan that will pay out a monthly paycheck upon retirement for lifetime. For example, Social Security is a pension plan. You pay into the system and once you qualify for social security, you begin to receive a monthly income. Some employers still offer their own pensions to their employees, however, it is becoming less common in the private sector. In the public sector, the common pension plans in the state of California are the California Teacher’s State Retirement System (CalSTRS) and the California Public Employees Retirement System (CalPERS).

It is important to know that a 401K plan is NOT a pension. A 401K plan will provide a lump-sum value upon retirement; HOWEVER, this does not mean you can’t turn this lump-sum money into monthly income. There are accounts you can rollover your 401K money into that can help provide this monthly income. You can initiate this rollover if one of the following applies:

• Upon Retirement
• Separation of Service from Employer
• Age 59 1/2

Group Life Insurance

Most employers, not all, but most offer group term life insurance coverage as part of their benefit package. This life insurance will cover you as long as you are a part of the group, hence the term “Group Term Life Insurance”. Things to note about this coverage:

• It tends to be very inexpensive
• No medical exam required
• Can cover you and your spouse along with your children, this can be at an extra cost.
• There is a cap to the amount of coverage you can get
• Coverage will end if you decide to leave this employer.
• This life insurance is temporary protection as long as you are employed with the employer and remain a part of the group.

Medical Health Benefits

When it comes to your health benefits, you will most likely have to choose between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO) medical insurance plan.

• HMO
  • An HMO allows for you to go to specific doctors that are contracted with your insurance company, the list of doctors is called a network. If you have a family doctor you go to, you can ask for the list of doctors that are approved or you can go to the HMO website to find a list of providers.
    • Things to know:
      • You usually have a primary care physician.
      • You will need pre-approval from the medical group to see a specialist. The request is submitted by your primary care physician.
      • You usually pay a co-pay for each service.
      • You may also have a yearly deductible, which is the dollar amount you must spend before your HMO kicks in and starts paying for services.

Here’s a link provided by the California Department of Managed Health Care where you can compare the quality of care from HMO’s and medical groups in California.

http://reportcard.opa.ca.gov/rc/hmorating.aspx

• PPO
  • A PPO is not as strict and offers more flexibility in doctors but could have more out-of-pocket cost. You are able to see a doctor that is not on the PPO list with the insurance company and receive partially covered services.
    • Things to know:
      • You usually pay a yearly deductible before the PPO starts to make payments.
      • You usually pay co-insurance or percentage of the bill from covered services and the PPO will pay the rest.

I encourage you to get curious and ask questions about your benefits. Ensure that not only are you getting a good pay for your hard work, but you’re also receiving benefits. It often costs an employer more to increase and upgrade their employee benefit package than to increase employee’s salary.

Cetera Investors is a marketing name of Cetera Investment Services. Securities and Insurance Products are offered through Cetera Investment Services LLC (doing insurance business in CA as CFG STC Insurance Agency LLC), member FINRA/SIPC. Advisory services are offered through Cetera Investment Advisers LLC. (CA Insurance License#: 0L17443)