Episode: 10-12-2021 | Employee Benefits & Open Enrollment

Hosted by Kevin J. Zywna, CFP® and Allison K. Dubreuil, CFP®

Tips To Maximize Open Enrollment Benefit Options

Allison Dubreuil, Wealthway Financial: Good evening. Happy fall. Well, with fall comes another season for most Americans’ open enrollment season. So most people, most American workers, at this time, are facing open enrollment or needing to make a number of decisions when it comes to benefits. I was surprised to find that the typical number of decisions an employee has to make during open enrollment is over 17 benefits.

Kevin Zywna, Wealthway Financial: That is a lot.

Allison Dubreuil, Wealthway Financial: You think normally of health insurance, life insurance,

Kevin Zywna, Wealthway Financial: dental disability,

Allison Dubreuil, Wealthway Financial: I guess those all add up.

Kevin Zywna, Wealthway Financial: And then you get into your company retirement plan. Am I going to contribute? Yes or no? The answer to that, by the way is: yes. How much am I going to contribute? What am I going to do with the contributions that go there? So yeah, I guess, start thinking about it. Am I going to have my spouse on my benefits? What about beneficiary designations on the retirement plan?

Consider High Deductible Health Insurance Plans

Allison Dubreuil, Wealthway Financial:  It does add up. It’s a lot of decision-making responsibility in somewhat of a short window or short time frame. A lot of these decisions feed directly into protecting your financial well-being and your your physical health. So it is important to take some time to make sure you understand your options and you’re making the best decision for you and your family and you’re maximizing your workplace benefits. So a couple tips, things to watch out for, or some best practices, when you’re making the decisions during open enrollment. Don’t be scared off by High Deductible Health Plans. There was a study done recently of employees and the research found that most employees were naturally biased against High Deductible Health Insurance Plans. Just simply because of the title, high deductible health plan, just sounds scary.

Kevin Zywna, Wealthway Financial: It’s also the way that it is talked about and how it’s marketed. Especially with the government, the plans on the government insurance marketplace healthcare.gov. When you label something gold, silver, and bronze. We’re Americans. We don’t go for bronze, we go for gold. The gold are Low Deductible Health Plans, and then the bronze or High Deductible or Higher Deductible Health Plans. So there’s this perception that just because there’s a high deductible, it’s a bad insurance plan. That is absolutely not true. The deductible is a very personal choice that should be selected based on your lifestyle and how you use healthcare services.

PPO Vs High Deductible Health Insurance Plan Options

Allison Dubreuil, Wealthway Financial: Most employees will have the option to choose from a PPO (Preferred Provider Organization Plan) or a High Deductible Health Plan. The PPO option usually has a lower deductible, so you would pay less out of pocket when you use healthcare services. But the PPO comes with higher monthly premiums. So you’re paying more out of pocket every single month, whether you use health care or not. Versus the High Deductible Health Plan which has a higher deductible. So you pay a little bit more out of pocket when you use health care, but lower monthly premiums. So the decision between a high deductible health care plan and a PPO should be based on your use of the healthcare systems and your financial situation.

Kevin Zywna, Wealthway Financial:  Right. So people who are reasonably healthy and who are responsible users of the healthcare system. Meaning you don’t run to the doctor with every runny nose, and little sniffle and minor tummy ache and things like that. For people who are low users of healthcare services, then most likely, you could benefit greatly by a high deductible health plan with a lower monthly premium. And while accidents can happen to anyone at any time, you still have the protection with a high deductible health plan against the catastrophic – against the emergency room visit with the ambulance ride and two days in the intensive care unit type of thing. You’re still protected from the catastrophe of high medical expenses like that. But you have to be willing to assume some of the risk on the lower end of the cost structure so that when you do go for an office visit, and there might be some extra tests or some procedure, you will pay a little bit more out of pocket. But you also benefit from the bulk buying discount that a well designed insurance plan will provide you, even with a high deductible. So again, if if you are a relatively low user of healthcare services, then a high deductible health plan could benefit you greatly from a financial perspective.

Allison Dubreuil, Wealthway Financial: Yes, and that, coupled with an appropriate emergency fund, is a really good plan for most people. If you have your typical emergency fund, which is a general rule of thumb of three to six months worth of living expenses, that would typically be more than enough to cover the deductible should some sort of emergency arise. And that is what an emergency fund is for something really unexpected  expense. Not an “the iPhone 13 just came out” emergency. One of the things your emergency fund is for is paying deductibles on your car insurance, your homeowners insurance, or your health insurance.

Kevin Zywna, Wealthway Financial:  That’s why the first fundamental building block of a solid financial plan or financial infrastructure for your family is to build up that emergency fund. Because that will be your catch all for these types of unexpected expenses. Plus it will give you peace of mind and allow you to sleep well at night to know that you have the basics covered. So the right emergency fund coupled with a high deductible health plan. You know, it’s a solid insurance plan. But what’s even better, is coupling a high deductible health plan with a health savings account.

Allison Dubreuil, Wealthway Financial: Yes. And we can get into those details. Know, though, that the bottom line with health insurance is that there’s no universal one size fits all. So just keep an open mind when you’re looking at your insurance options, because you might end up overspending if you’re not open to the high deductible health plan.

I Bond Vs CD Investment Options

Kevin Zywna, Wealthway Financial: We’re going to go up to Newport News and speak with Rich. Good evening, Rich. You’re on Dollars & Common Sense. Thanks for the call.

Rich, Caller: Oh, yeah, thanks for taking my call. My question is, I’ve been hearing a lot about I bonds recently giving better interest than CDs, and I wanted to see what you guy’s opinion was on that. Thank you.

Kevin Zywna, Wealthway Financial:  Rich, what’s your purpose for purchasing the I bonds? What type? How much of your money are you looking to invest in the I bonds?

Rich, Caller: Well, probably not more than 10k. Just somewhere to put that money. They’re going to give me a return better than a two or three year CD,

Kevin Zywna, Wealthway Financial: Than CDs, okay. Well, then that’s probably a good use of that money. We are in a historically low interest rate environment. The, bank accounts are paying less than 1%. Money market accounts less than 1%. CDs, you might be able to get over 1% per year when you do a duration. It’s got to be over a year, probably closer to three to five years there. So no one’s really earning much money at all, on the bank savings. In most cases, that’s okay. If you’re truly using your bank as a liquidity for an emergency fund. so you should not try to stretch for too much more yield. And any type of exotic instruments or high yielding bonds. However, I bonds, those issued by the federal government have a little bit of component of fixed interest rates, as well as some inflation protection built into them. So a very safe instrument, and something that should serve the need that you’re looking to fill there with basically short term money. Does that sound right?

Rich, Caller: Yeah. Thanks very much. I just kind of wanted to get an objective opinion on that. Thank you. Appreciate it.

Allison Dubreuil, Wealthway Financial: One little caveat there with I bonds. My understanding is you can’t cash them in within the first year. So just know that you would be locking that money up for a year. So if it is true emergency reserves that you never know when you’re going to need again, you might just want to keep that in the bank, even though it’s not going to earn much interest.

Rich, Caller: Yeah, absolutely. I fully understand that. Thank you.

Take Advantage of A Health Savings Account (HSA)

Allison Dubreuil, Wealthway Financial:  We’re talking about open enrollment decisions and open enrollment, tips and strategies. Our first tip was to not shy away from the high deductible health plan. At least give it a good look. depending on your health situation, your use of healthcare and your financial situation. A high deductible health plan, combined or used in conjunction with a health savings account can be a great strategy for most people that are healthy and have a good financial situation. And we’ll talk more about the mechanics of the health savings account and why that is such a good use of funds.

Health Savings Accounts: Dedicated Emergency Funds For Health Care Expenses

Kevin Zywna, Wealthway Financial:  The health savings account is like a dedicated emergency fund for health care expenses, at least initially. Long term, the health savings account can actually be used as a retirement saving vehicle. But its first and primary purpose is to be that dedicated emergency fund to fill the gap of that higher deductible. So if you’re willing to assume the risk of lower cost medical procedures, you’re going to pay for those out of pocket because the cost is below the deductible. But the money in the health savings account is set aside specifically for that purpose, and it has some great benefits.

Allison Dubreuil, Wealthway Financial: Before we talk about the HSA benefits, I want to go back to high deductible health plan. Because the definition to qualify for a high deductible health plan, and a health savings account is a $1,400 deductible for an individual and a $2,800 deductible for a family. Which if you have your emergency fund, if you have three to six months worth of living expenses set aside in the bank, those numbers shouldn’t scare you.

Kevin Zywna, Wealthway Financial:  Now the deductibles can be higher than that. But that’s as low as they can be to qualify as a high deductible health plan, which are not that high.

Allison Dubreuil, Wealthway Financial: No, that’s not that high. I think people assume it’s going to be like a $15,000 deductible.  But you have to have a high deductible health plan in order to use a health savings account. So something I’ll throw out there right away, because we get this question often. If you are on TRICARE, or Medicare, you are not on a high deductible health plan and you can unfortunately not use the health savings account. We get that question all the time because health savings accounts are so tax advantaged, they are triple tax advantage. So really better than any other savings vehicle even better than the Roth IRA. Because your contributions are tax deductible and your investment gains are not taxed. The money that comes out of the account, if used for qualified medical expenses, are not taxed either. So a triple tax advantage that you can’t get anywhere else. And there’s no phase outs. Anyone, as long as you have a high deductible health plan, you’re eligible to contribute.

Kevin Zywna, Wealthway Financial:  That means anyone at any income level can qualify for contributions to a health savings account and get the tax deduction, as long as they have a high deductible health plan. And that’s a rarity under current tax code. A lot of tax benefits get capped at certain income levels. So people who make above those income levels, then no longer get to receive that benefit. But currently, there is no income limit on health savings accounts. So anyone, any income level, and specifically, the higher your income, the better the tax advantages.

Allison Dubreuil, Wealthway Financial: So individuals, if you are just one person on a high deductible health plan, you can contribute, I have the numbers for 2022. Hot off the presses. You can contribute $3,650 per year for an individual or $7,300 per year for family. So more than one family member on the plan. And individuals over age 55 can add an additional $1,000 catch up contribution. And we recommend maxing this out even before your Roth IRA, your IRA, your 401K – if you’re treating this like a long term savings vehicle.

Health Savings Accounts: Long-Term Savings Growth Plans

Kevin Zywna, Wealthway Financial: So that’s the other component of a health savings account. While its primary purpose is to be your health care emergency fund to cover up that larger deductible so you can sleep easy at night knowing you have the bulk of any medical expenses covered. The secondary purpose of a health savings account is long term savings growth. And so the money that goes into a health savings account can eventually be invested for growth in a mutual fund or exchange traded funds. Or some people use stocks, I wouldn’t get that exotic but you can, if the company that sets up the health savings account allows it. But you can invest the proceeds for growth and continue to make these contributions every year, much like an IRA. And then at age 65, you can take money out of the health savings account for any purpose, it does not have to be exclusive to health care expenses. You can take it out for any purpose. But if it’s not for health care expenses, you do pay tax on the amount that comes out, but still a great benefit.

Allison Dubreuil, Wealthway Financial: Yes, you might be faced with a number of decisions right now about health care, insurance, life insurance coverage, retirement savings, a whole host of decisions that will have an impact on your financial well-being. So we’ve got some tips tonight on things to look out for and some ideas on how to maximize your benefits and maximize your financial resources. The first one we talked about was not shying away from a health deduct High Deductible Health Plan, which, if you use it in conjunction with a Health Savings plan can be a great strategy to make sure that you’re protected from catastrophe, from major health scares, but that you’re not overpaying for premiums, and you’re still building up a side savings account that would help you pay for any possible out of pocket health care costs, but also can be a bucket for spending in retirement.

Kevin Zywna, Wealthway Financial:  So I’ll just throw out there for the young, and healthy, typically those that are least likely to purchase health insurance -or if they purchase any health insurance, they almost always take a high deductible health plan. That’s not inherently bad or wrong. But just get yourself a Health Savings Account to pair with it and begin saving. Number one, primarily, for unforeseen medical expenses, and then to long term for retirement.

Allison Dubreuil, Wealthway Financial: In fact, if you have a good emergency fund, and you can pay for small out of pocket co-pays or healthcare costs and let that money build up in the health savings account. That’s a great strategy because you’re making tax-free or pre-tax contributions into the health savings account. And then you can take a deduction for expenses paid out of pocket, if you itemize. So it’s really the best of both worlds.

Kevin Zywna, Wealthway Financial: Just because you get a bill from the doctor’s office for $150, or you go to pick up some medication and the cost $75 doesn’t mean you have to pay for it out of the health savings account. You can pay for it out of your regular bank account and keep that money in the in the savings account and build for the future.

Wills, Trusts, and Transfer Upon Death Beneficiary

Kevin Zywna, Wealthway Financial: And we’re gonna do that after we take this caller who’s calling from West Point, Janice. Good evening, you’re on Dollars & Common Sense. Thanks for the call.

Janice, Caller: Good evening. I have a question about my will. I have a will. My lawyer has decided she doesn’t want to be a lawyer anymore. I would like to switch it to a trust. But I need to know what specific things might be different with a trust. I know that you don’t have to go through probate, which I don’t want to do. I’m not planning on dying anytime soon. But you never know. And I guess I just want to get it done.

Kevin Zywna, Wealthway Financial: Okay. So I commend you, Janice, for taking a state planning seriously. Not enough people do. As we all know, we’re all susceptible to the getting hit by the bus. Estate planning is a prudent part of all financial planning. So just want to stress that. So you indicate that you think you want a trust because you want to avoid probate is that the primary and or the only reason you want to have a trust?

Janice, Caller:  No, I want to make sure that whatever I have left after this president takes everything goes to my children, and no one else. Unless I choose to put them in my trust?

Allison Dubreuil, Wealthway Financial: Do you have any concerns? If something were to happen to you today, of this money going directly to them without any strings attached?

Janice, Caller: I don’t believe so. But I don’t want to go through probate. My husband recently passed away. He had a big trust. It was very simple to do. Just some papers to sign and that was it. And, you know, for one thing, I never have had a lot of money to worry about before. And if it stays in the stock market, I probably won’t have any money to worry about.

Kevin Zywna, Wealthway Financial: Come on. Now. Janice, that’s a whole other conversation. Talk about the long-term benefits of investing in equities, come on.

Janice, Caller: Oh, I love I love it.

Kevin Zywna, Wealthway Financial: Well, let me ask you this. You said you don’t have a lot of money. I don’t want a specific number.

Janice, Caller: I don’t have anything in cash. Everything is bound up in the stock market. I have my pension from the school district, which is tied up to my social security. So Social Security said they would not give me my husband’s Social Security because I guess because it’s tied up in state and city pension.I guess that’s why.

Allison Dubreuil, Wealthway Financial:  The Pension offset. You said your husband had a trust are some of your assets in his trust currently?

Janice, Caller: No, because they’re all mine now.

Allison Dubreuil, Wealthway Financial:  Okay. So you took them out of the trust?

Janice, Caller: Yes.

Allison Dubreuil, Wealthway Financial: Okay. But they are in investment accounts. It sounds like not much cash, all investment accounts.

Janice, Caller: Yes.

Kevin Zywna, Wealthway Financial: Okay. Are they in IRA investment accounts?

Janice, Caller: No, I’m too old.

Kevin Zywna, Wealthway Financial: Well, you could still have money in IRAs, regardless.

Janice, Caller: I had a 403B, it kept going down and down and down. And I finally switched to a bank and it kept going down and down and down. I said I’m going to pull it out. They want me to pay a whole bunch of money to pull it out.

Kevin Zywna, Wealthway Financial: Sounds like an anuity there, at a bank probably.

Allison Dubreuil, Wealthway Financial: Yeah. Okay.

Janice, Caller: Well, anyway, I don’t have a 403B. I just have money in stocks. I have a lot of money in stocks.

Kevin Zywna, Wealthway Financial: Do you have less than 10 million in stocks?

Janice, Caller: Pretty close.

Kevin Zywna, Wealthway Financial: Oh, all right. Well, very nice. Then there could be an estate tax.

Allison Dubreuil, Wealthway Financial: Yeah, well, we’ll say this very generally to start. If all of your money is in an investment account, it is possible to add beneficiaries to the investment account so that at your passing, it would transfer directly to your beneficiaries and not go through the probate process without the use of a trust.

Janice, Caller: Oh, Okay – well that would be nice

Kevin Zywna, Wealthway Financial: Just know that option exists. And it is very quick and its costless essentially. And by quick, I mean a matter of weeks or maybe a month that the money can transfer to heirs who are properly listed as beneficiaries on an account. Anybody who is listed as a beneficiary supersedes (comes before) any instructions in a will or a trust.

Janice, Caller: Well, all right then. I do have one of those. One of my investments is a Virginia tax-free bond and it is transfer on death.

Allison Dubreuil, Wealthway Financial: That is exactly what it is called when you have a brokerage account or sometimes a bank account. Transfer upon death is a way to add a beneficiary. So if you have “transfer on death” on all of your investment accounts, probate is not a concern for those assets.

Janice, Caller: Okay, I don’t have it on all of them. So I guess I’d better put it on all of them.

Allison Dubreuil, Wealthway Financial: Yes, that would be one option. You already said you don’t mind if the money goes directly to them, so that is the most cost-effective, quickest way to ensure that your assets pass directly to your beneficiaries at death without the extra cost and administration of a trust.

Now a trust could be a good strategy for other reasons. I haven’t heard you say anything that would suggest a trust would be needed. But if your assets grow above the estate tax exemption, which is $11.6 million, then there may be some other reasons for trust planning.

Janice, Caller: Well, if it gets that high – I’m staying!

Kevin Zywna, Wealthway Financial: Just know, Janice, you have some options here, outside of a trust that sounds like they could accomplish most of your objectives. We aren’t anti-trust. Most people think they need a trust when they don’t really need a trust.

Janice, Caller: Well, I don’t want to spend the time trying to find another lawyer and paying another lawyer.

Kevin Zywna, Wealthway Financial: It doesn’t hurt to have a check-up with an estate planning attorney – which we always recommend. Especially if you are going through some flux with the passing of your husband. It would be a good idea to go get a second opinion to express your desires and your wants. And then find out what the response would be back. Just know that a trust comes with a cost to set-up and a lot more administration to properly fund and stay on top of while you are alive. It will help smooth the estate planning purposes for your heirs if you had a complex estate or you had complicated wishes on what to do with your money. That’s where the benefits can come in with a trust. Like Allison said earlier, a beneficiary designation on your accounts could probably accomplish what you are looking for a lot faster, a lot easier, and a lot cheaper.

Janice, Caller: Does the beneficiary have to be in the state of Virginia?

Kevin Zywna, Wealthway Financial: No.

Janice, Caller: Ok. If they are executors of the will do they have to be in the state of Virginia?

Allison Dubreuil, Wealthway Financial: They don’t have to be. It would be easier for them to administer the estate if they were in the area. But if you do put beneficiary designations on most of your assets then the executor would only be probating anything that didn’t have a beneficiary. So that would be your house, your car, and personal effects.

Janice, Caller: Ok. Maybe I should just list out the things I want my children to take and put that in there too.

Kevin Zywna, Wealthway Financial: You absolutely can do that. When it comes to personal effects like that, having a separate list of who you would like to get your special earrings, or the furniture that has been passed down through generations. We find the more specific people are, the less confusion it causes items.

Allison Dubreuil, Wealthway Financial: Tell them to go through the house and put a sticky-note on what they want. I’ve heard of that one time.

Janice, Caller: Ok, well that is a big burden off of my shoulders, frankly. I appreciate it and I’m glad you’re on. I try to listen every time you are on.

Kevin Zywna, Wealthway Financial: Thank you, Janice. We appreciate the phone call.

Kevin Zywna, Wealthway Financial: Tonight we are talking about employee benefits and some tools you can use to maximize those benefits.

Group Life Insurance

Allison Dubreuil, Wealthway Financial: All right, well switching gears a little bit on to another benefit that you may have to make decisions on and that is group life insurance. So I think many people overlook group life insurance and life insurance planning is important. I think it’s often maybe misconstrued. So we can maybe clear up some thoughts on life insurance planning and what you may need and what Group Life Insurance may be able to do for you.

Allison Dubreuil, Wealthway Financial: We talked at length about health insurance and health savings plans. Let’s switch gears a little bit and talk about group life insurance. Let’s start with the purpose of life insurance. The purpose of life insurance is to replace an income stream. It is to protect those who rely on your income to live. That could be a spouse, or a child. But it is not the sole purpose of paying off your debts or your mortgage or long-term savings. I just want to clear the air of the most important purpose of life insurance. It is to replace an income stream.

 Kevin Zywna, Wealthway Financial: Another general comment… if other people in your household are not producing income, then they probably need little to no life insurance on their lives. It’s rare that your children would ever require life insurance coverage. Then, depending on your spouse and how much he or she works out of the home, depends on the income they bring in might determine the amount of life insurance coverage. As Allison said, primary purpose is to protect an income stream, not your actual life.

Allison Dubreuil, Wealthway Financial: How much life insurance you actually need is very personal. It depends on your family situation, like Kevin just said, it depends on who’s earning what, and how many dependents you have. I’ll give you a real general rule of thumb. It is smart to partner with a financial advisor who can do comprehensive financial planning for you and help you determine the real true need for life insurance.

But a general rule of thumb is to think about having 5-10 times your annual income in life insurance coverage. That’s a real basic formula used. That number may need to increase or decrease depending if you wish to send your kids to college or how much other savings you have.

Life insurance should be a temporary need. If you are doing your financial planning properly and saving and building your nest egg, you should only need life insurance during those early years – when you are trying to build up your nest egg.

And that’s why getting life insurance through your employer, if offered, is a great way to get the coverage you need. Because with group coverage, you don’t have to go through underwriting, usually if at all. And you usually get pretty inexpensive rates. So that’s the first place to check for coverage when you need life insurance coverage. See what is provided to you automatically. Most employers will provide some sort of benefit. And then see what you can purchase supplemental coverage for you and your spouse (if your spouse needs coverage as well).

 Kevin Zywna, Wealthway Financial: Just know that in most cases, though – life insurance coverage ends when employment at that company ends as well. There are some exceptions to that. And in some cases, you can port that insurance with you, meaning you can take it with you. But it is not a requirement that that is the case and employers have to offer that benefit to you. They may not offer it to you, it is an add-on benefit to you.

Beware of Voluntary Insurance Benefits

Allison Dubreuil, Wealthway Financial: Watch out for other voluntary benefits. More specifically, you may have the options for hospital indemnity, critical illness, accidental death and dismemberment, all sorts of different, very specific, very niche insurance coverage. Make sure you know what they cover and make sure they are appropriate to you. Even if they are not much cost. You may not need every sort of insurance that is offered in your group plan.

Kevin Zywna, Wealthway Financial: Life insurance is almost a definite at some point over most people’s lives, especially when they have families. Disability insurance is another one overlooked but frequently needed, more so than life insurance. But those other niche ones, very low probability of use, probably aren’t going to use them.