Can Employees Maximize Their Benefits?

Employees need guidance to help manage their employer-sponsored benefits, particularly benefits for retirement and healthcare.  As these benefits have become more complicated, employees have become more confused.  But, maximizing these benefits is critical as these benefits are the foundation of many Americans’ long-term financial wellness:

  • Employers offer the 401(k) accounts (and other so-called defined contribution retirement plans) that are critical for building a retirement nest egg.
  • Employers offer health benefits that protect most working Americans and their families if they get sick.
  • Employers offer a variety of benefits through payroll deductions, from withholdings for life insurance to special accounts that can help people pay for things from parking to transit to childcare.

But, workers find these benefits difficult to use.  And, workers need guidance to maximize their employer-sponsored benefits.

After all, workers are left to make critical decisions about how much to contribute to 401(k) plans and how to invest the money.  When they retire, they must figure out to ensure they don’t outlive their savings.

Furthermore, employer-sponsored healthcare keeps getting more complicated.  There are new high-deductible health plans that let workers invest in a health savings account but require them to pay for more of their own care, and Congress recently expanded health flexible savings accounts, another great way to cover healthcare costs.  But, when I talk benefits professionals, they tell me most workers don’t know the difference between a flexible spending account and a health savings account, which is too bad because they are missing out on the huge investment and tax benefits of a health savings account.

Finally, other payroll benefits, particularly childcare flexible spending accounts can be difficult to use because the funds are largely use or lose, and workers need to evaluate if there are other tax benefits that are better.

Given all this complication, is it any surprise that employees are not confident in their ability to manage their benefits. In fact, fewer than 50% of the people we surveyed were extremely or very confident they could optimize the value of their employer-sponsored benefits. Lower-income workers are even less confident in their ability to manage their benefits, which makes sense since they are much less likely to be able to afford a financial planner.

In sum, employees need guidance so they can maximize their employer-sponsored benefits, and, without it, their financial health may be at risk.

Aron Szapiro is director of policy research for Morningstar. Szapiro is responsible for developing research reports on policy matters, coordinating official responses to regulatory proposals, and providing investor-focused comments on policy issues to clients and the press. He also chairs Morningstar’s Public Policy Council. 

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