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Employee Benefits

Guide to Open Enrollment, 2012

Customize your selections to save money and maximize coverage.

When you think about your job, you probably focus on your salary. But don’t overlook the value of your benefits package; for the average worker, it represents about 30% of total compensation. Some perks are freebies from your employer, but a growing number require you to share the cost. When you make your selections during this fall’s open-enrollment season, don’t waste precious cash on coverage you don’t need. We’ll guide you through your benefits menu to help you choose the best options for your stage of life.

Young and single

Retirement saving. Sign up for your employer’s retirement-savings plan as soon as you are eligible (or don’t opt out if you are automatically enrolled). Contribute at least enough to capture your employer’s full match (if your employer offers one) so that you don’t leave free money on the table. The younger you are when you start saving, the more your money will grow.

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Health insurance. Everyone needs coverage for unexpected medical expenses, but insurance premiums can eat up a big chunk of your paycheck, particularly when you’re just starting out. Lower your costs by raising the deductible, if that’s an option. Doing so can be a smart move for young people, who don’t usually need much regular medical care. New federal rules require most health insurance plans to cover preventive care; even with a high-deductible plan, you’ll still have access to some basic doctors’ visits and tests without paying additional charges.

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Or maybe you think your employer’s health insurance plan is just too expensive. Employees generally pay the same rates for group plans, regardless of their age and health. If you’re young and healthy, you should be able to find a high-deductible plan on your own for about $100 a month in most states (compare prices and coverage at eHealthInsurance.com).

If you expect to buy glasses or contacts next year or require dental care beyond routine annual checkups, see the next page for our advice on dental and vision plans and funding a flexible spending account.

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Transportation benefits. Stretch your commuting dollars by setting aside money in an account to pay for parking or public-transit costs (currently up to $230 per month). You pay no income tax on money in the account.

Married with children

Retirement saving. Despite all of your competing priorities, saving for retirement is still at the top of the list. Aim to contribute up to the maximum amount to a 401(k) plan ($16,500 in 2011; as we went to press, the IRS had not yet announced 2012 limits). Contributions to a traditional 401(k) lower your taxable income now. A Roth 401(k) offers no upfront tax break but provides tax-free money in retirement. Not sure which is best for you? You can split your contribution between the two accounts.

Health insurance. Now that you have kids, you have more medical expenses. Choose the option that best suits your needs: a low-deductible insurance plan that holds the line on costs by limiting you to a specific network of doctors and hospitals, or a high-deductible plan that reduces your premiums and may give you more flexibility to choose your doctors but increases your out-of-pocket costs. If you and your spouse both have access to health insurance at work, go with the one that provides the best coverage for your family.

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Health savings account. If your family health insurance policy has a deductible of at least $2,400 ($1,200 for individual coverage), you qualify for a health savings account -- either through your employer or on your own. HSAs offer a triple tax break: Money goes in pretax, grows tax-deferred and can be used tax-free for your deductibles, co-payments and other unreimbursed medical expenses. You can roll over your unused funds from year to year and take the balance with you if you leave your job. And some employers contribute to HSAs for their employees, which make them a sweet deal.

Flexible spending account. If you don’t have a high-deductible policy, you can’t open an HSA. But you could still benefit from an employer’s health care flexible spending account, which allows you to set aside money to pay for out-of-pocket medical expenses. Your FSA contributions escape state and federal income taxes, as well as the Social Security payroll tax. But you’ll need to spend the money by the end of the year (or by March 15 of the following year for some employers). If you don’t, you’ll forfeit the unused funds.

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Dependent care FSA. You can contribute up to $5,000 per household per year to a pretax account to pay for care for children under age 13 so you and your spouse can work or look for work.

Life insurance. When you have a family depending on you, the free life insurance coverage you get from your employer may not be sufficient. You can usually buy extra coverage at work, but if you’re healthy, you may find a cheaper policy on your own. (Compare costs at AccuQuote.com and LifeQuotes.com.)

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Vision plans. You’ll get the biggest bang for your buck if you use in-network providers and are satisfied with a limited selection of low-cost frames. Looking to make an eyewear fashion statement? Skip the vision plan and add extra money to your flexible spending account.

Dental plans. With several family members requiring annual checkups, you may want to take a closer look at your company’s dental insurance plan. Compare the total premiums you would pay over one year with the annual coverage caps -- often $2,000 or less -- to see if it’s worth the premiums. If not, put the money in your flex account instead.

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Other benefits. As your earnings increase, you may want to buy additional group disability insurance through your employer to replace some of your income if you are injured and unable to work for a while.

Empty nesters

Retirement plans. Once you turn 50 years old, you can stash extra cash in your workplace retirement-savings plans (up to an additional $5,500 in catch-up contributions, for a total of $22,000 in 2011; as we went to press, the IRS hadn’t yet set 2012 limits).

Health insurance. This is one of the most valued -- and valuable -- employee benefits. But costs keep rising -- with an estimated average 7% increase for 2012 -- and employers are passing on those additional expenses in less-obvious ways, such as boosting co-payments for medical procedures and raising costs for drugs. If you have a choice of plans, compare your total out-of-pocket costs for drugs and doctors’ visits during the year. The policy with the lowest premium could cost you more in the long run.

Health savings accounts and FSAs. These tax-advantaged health savings plans become more valuable as your medical needs increase and your tax bracket rises. If you have a high-deductible health insurance plan, you can contribute up to $3,050 to an HSA for the year (or $6,150 for family plans). HSAs can serve as additional tax-deferred retirement savings: You can use the money tax-free at any time for medical costs, and once you turn 65, you can spend HSA funds on anything penalty-free (but you’ll still owe taxes on nonmedical withdrawals).

Long-term-care insurance. The sweet spot for buying long-term-care insurance tends to be in your fifties, when you’re still young and healthy enough to get a good deal. Many employers offer group discounts of 5% to 10% on coverage to protect you from potentially devastating long-term-care costs, which are not covered by Medicare or traditional health insurance.

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