Open Enrollment: Which Benefits to Choose (and Which to Avoid!)

by | Sep 28, 2022 | Wealth Management

Open enrollment is the short enrollment period offered once every calendar year by companies that provide health coverage, special insurance, education incentives, and other job benefits. Open enrollment periods happen annually (typically in the fall) and last a few weeks. 

During the open enrollment period, employees have the opportunity to renew or change their health insurance plan, add greater health coverage, and add or opt out of a variety of additional benefits. And unless you experience a qualifying life event (like marriage, the birth of a child, or changing jobs), this is the only time you have the option to make these changes and adjustments. That’s why open enrollment can be one of the most important— and the most confusing!— annual financial events.

Before you complete your open enrollment forms this fall, let’s review the six most common benefits offered by employers, and who each benefit is best suited for:

1. Flexible Spending Account

The Flexible Spending Account (FSA) is one of the most misunderstood benefits offered by employers. When we review employer benefits with new clients, we often see them putting $100 to $200 a month into their FSA, even if they don’t have significant medical expenses. Unfortunately, FSAs are use-it-or-lose-it accounts. That means whatever you don’t spend on medical expenses this year doesn’t roll over into the next year.

If you’re a generally healthy individual who doesn’t have frequent doctors appointments or significant, predictable medical expenses, you may be contributing more than necessary to this account. FSAs can be a great, tax-efficient employer benefit, but only if you have steady medical expenses.

2. Life Insurance

Employer-offered life insurance is often very inexpensive, so it can be a particularly useful benefit for high-earning employees that have a spouse, children, a mortgage, or significant living expenses.

However, we see a lot of people buy more life insurance than they really need. Remember, the purpose of life insurance is to provide those who depend on you with financial assistance in your absence. So if you don’t have dependents or your spouse is a high earner, your hard-earned money may be better put towards investments or savings goals than paid into a life insurance plan.

There’s one other drawback to purchasing life insurance during the open enrollment period: these policies are typically tied to your employer. If you change jobs in the future, not only do you lose your current life insurance policy, when you purchase a new policy, it will probably be more expensive. That’s because the cost of life insurance is based on factors like your age, current health, and other risk factors. The later you purchase your policy, the more costly it will be, so if you don’t expect to work with this employer for the long-term, we may look into outside life insurance policies that move with you.  

3. Disability Insurance

There are two types of disability insurance policies. One can be valuable and is worth considering, and the other we usually suggest our clients opt out of during open enrollment.

Own-occupation disability policies kick in when you’re injured and unable to continue performing your current job. While this type of policy is rare, it can be a valuable investment for some individuals. We see this type of policy in the healthcare field or other very specialized careers.

Any-occupation disability policies are the most common. With this type of policy, if you’re injured and unable to perform any job in any field, that’s when you receive the benefit. We don’t typically recommend this benefit because few injuries fall into this disability category. As a result, receiving a payout from this policy is fairly uncommon.

4. 401(k) contributions and matching

During your next open enrollment period, you’ll have the opportunity to opt into your employer’s 401(k) program, if you haven’t already. You can also adjust your contribution amount and change the frequency of your contributions for the next year. At this time, it’s a good idea to review your company’s 401(k) matching policy and ensure you’re contributing the highest amount that makes sense for your financial situation.

Note: You can make changes to your 401(k) contribution at any point in the year— not just during open enrollment periods. And we strongly recommend meeting with your Cook Wealth advisor throughout the year to confirm you’re contributing the right amount at the right times, so you maximize your employer’s matching program and get the best benefits.

Want to learn more about maxing your 401(k) benefits? We can answer your 7 biggest 401(k) questions.

5. Health Savings Account (HSA)

If your employer offers an HSA option, I almost always recommend taking advantage of this great benefit. 

To be eligible for an HSA, you must choose a High Deductible Health Plan. That’s a health plan that mainly covers preventative services until your deductible is met. In 2022, that means a health plan with a deductible of at least $1,400 for individuals or $2,800 for a family.

An HSA offers great value for two reasons: You can make pre-tax contributions to the account, reducing your overall taxable income, and you can invest the money that’s in your HSA so it grows tax-free. Plus, many employers that offer an HSA option will also match some or all of your contributions, up to the annual cap. Just like with a 401(k), that’s a 100% ROI! And unlike an FSA, your HSA does roll over from year to year.

Your HSA benefit can be used to supplement your health coverage and cover costs your health insurance won’t (like dental or vision care). And unlike other tax benefits, your ability to benefit from investing your HSA funds isn’t impacted by your income level or household size.

If you work with Cook Wealth’s joint advisory and tax team, you’ll gain access to forward-focused tax-optimized advice just like this! 

6. Extra health, personal, and wellness benefits

During open enrollment periods, many companies offer a variety of extra benefits, besides health coverage, like pet insurance, tuition assistance, and gym memberships or discounts.

Depending on your situation, some of these additional benefits can be helpful. Tuition assistance, in particular, is a great benefit to take advantage of if you’re looking to grow in your career— or change career paths— in the future. And as of 2022, you can utilize up to $5,250 in tuition assistance totally tax-free (after that, additional tuition assistance is taxed as income).

As with any open enrollment benefit, it’s best to talk to your advisor about the right choices for your situation before you make changes to your plan. 

Navigate your open enrollment choices with Cook Wealth

At Cook Wealth, our advisors will walk you through every benefit your employer offers, helping you select the right choices for your family— and opt out of the unnecessary ones. We offer this open enrollment guidance as one of our many complimentary client services because choosing the right insurance and benefits is an essential step in your financial plan.

Don’t guess which health insurance plans, benefits, and incentives are best for your family. Jump on a quick, 15-minute call with our team to start the conversation.