Open enrollment 2021: Make the most of your employee benefits
It’s open enrollment season—that time of year when you review employee benefits offered through your employer to adjust and update coverage.
This year has been far from typical, and this may be the right time to rethink what you and your family need. Generally, you can’t make changes to your benefits during the year unless you have a “major life event.” (Examples include getting married, having a baby, or losing health coverage that a spouse had.)
“Think of open enrollment as an opportunity to make several decisions that affect your overall financial picture, rather than a checklist of action items,” says Ashley Maher-Widen, manager of the life/disability team at Principal®.
“Employees often select the same benefits they had the year before. But our lives changed a lot this year, so spend some time reviewing and analyzing all that’s offered to you—recognizing that how you spend dollars on one benefit may impact your decision for other benefits.”
How employee benefits may change in 2021?
Employers surveyed by Principal® in September 2020 were asked how they will adapt their employee benefits offering moving forward, considering the impacts of COVID-19.
Among the findings:
32% plan to increase mental health/well-being programs.
29% plan to increase childcare support.
27% plan to increase healthcare benefits.1
Choices you may need to make for next year
If you’re deciding between two health plans, look at your total out-of-pocket (OOP) costs, not just the premium you’ll pay. Do a side-by-side comparison of co-pays, deductibles, the OOP max, how prescriptions are covered, etc.
If you have a spouse or domestic partner who has medical coverage, revisit whether it makes sense for one or both of you to be on that plan vs. what your employer offers. (If you have children, which plan provides better coverage for expenses you typically have for them?) Does it make sense for either of you to switch? Choose the right coverage that fits your family's situation, health-wise and financially.
Health Savings Account (HSA)
Quick definition: This account allows you to save for OOP medical expenses not covered by your HDHP plus you can carry forward the funds for health costs in retirement. These are triple tax advantaged plans, meaning you contribute on a pre-tax basis, earnings can grow tax-free, and withdrawals are tax-free if used for qualified medical expenses.
The IRS announced the annual limit for 2021 HSA contributions: $3,600 for an individual, and $7,200 for a family—a slight (1.5%) increase over last year. If you’re age 55 or older, you can make an additional $1,000 catch-up contribution. (Some employers make a contribution to your HSA, which is not treated as taxable income, but it does count toward your annual contribution limit.)
There are lots of rules around HSAs, so visit the IRS website to learn more.
Dental and vision insurance (and more)
If your employer offers dental or vision insurance, this is typically when you’ll enroll for next year’s coverage. Try to anticipate what your needs will be. Think your third grader may need new glasses? Is your teen begging to get braces? If you have a choice between a basic vs. a richer dental or vision plan, those are the types of considerations that can help you decide.
Flexible Spending Account (FSA)
If available to you, an FSA allows you to contribute some of your pay on a pre-tax basis to an account for reimbursement of qualified health care and dependent care expenses. Plan carefully when you choose the amount; unlike an HSA, what you don’t “use” in 2021, you lose.
The IRS limits how much you can contribute since it lowers your taxable income. Any changes for 2021 will likely be announced in October. (In 2020, the healthcare FSA limit was $2,750 per year, and a dependent care FSA limit was $5,000 per year, though your employer may have a lower limit.) Note: dependent care can include elder care in certain circumstances.
During open enrollment, you may be able to buy more coverage through your employer, with the premiums deducted from your paycheck. If you rely on an employer-provided life insurance policy, think through what you’ll do if you change jobs or lose your job. Often, you lose that life insurance with it.
Buying additional life insurance through work can be a simple, inexpensive option—especially when you’re younger. (The cost will typically increase as you get older, of course.)
“Benefit enrollment is a great time to do a side-by-side comparison and think long-term. Ask yourself two questions: What is the right amount of coverage to protect my loved ones? and What is the best way for me to get that coverage?” Maher-Widen says.
Open enrollment is also a good time to double-check the beneficiaries on your life insurance policy (and retirement accounts.) If you have life insurance through Principal, download the forms to choose or change your beneficiaries.
Do you have enough insurance?
Our quick calculator can help you do the math.
Revisit your participation in these 3 benefits
Open enrollment is a good time to review other benefits that may be available to you.
Disability income insurance
You may have short- and/or long-term disability coverage as a benefit from your employer. But it may not be enough to cover your income if you’re unable to work due to injury or illness—most plans will cover about 60% of your income; that equals significantly less take-home pay after taxes (down to about 40–50% of your income).
First, find out if you have any coverage, and if you do, how much of your income it covers.
Then, talk to a financial professional, who may be able to help you get a larger amount of coverage, customized to what you need.
“Buying more coverage outside of the workplace means you’ll have disability insurance even if you change jobs, and you can increase your coverage as your income grows,” Maher-Widen says.
Is this a good time to change your deferral to your 401(k) or 403(b) plan? Are you contributing enough to get an employer match? Does your asset allocation still reflect your risk tolerance? Our Retirement Wellness Planner can help you see if you’re on track with your retirement savings.
Note that the IRS has bumped maximum contribution limits in the last five years; any changes for 2021 will likely be announced in October/November. So if you plan to contribute the full amount, you may need to adjust your contributions. If you’re age 50 or over at the end of the calendar year, you can also make a $6,500 (max) catch-up contribution (if allowed by your retirement plan).
Tip: If you participate in a retirement plan with services from Principal, have one of our IRAs, or have life insurance through your employer, you and/or your spouse have access to free online resources to prepare your own standard will, power of attorney, power of attorney for health care, living will, and more through our agreement with ARAG. To get started, create an account at principal.com/willprep.
Mental health benefits
It’s been a tough year, and employers recognize that. Look into an Employee Assistance Program (EAP) or other mental health benefits available to you. An EAP is a voluntary program that offers free and confidential assessments, short-term counseling, and referrals for work or personal problems. It may also be available to other members of your household, depending on your plan.
If you’ve changed jobs…
Wondering what to do with your retirement funds? In most cases, you get 30–90 days to make a decision, but check with your employer. Then you can generally choose among these four options:
- Roll your savings from your 401(k) into an IRA. Combining retirement accounts gives you flexibility in decision-making to help ensure your assets are supporting your goals. Learn how to start a rollover IRA.
- Move your money to your new employer’s plan. This is typically an option if you’re joining a company that offers a retirement plan and allows roll-ins.
- Keep your money where it is if allowed under your old plan. Check with your former employer if you have a lower account balance. Some retirement plans force you to take out a balance that’s under a certain amount ($5,000 is common).
- Cash out your account balance. There may be a downside, including immediate tax consequences. It may be tempting to have the extra money now, but there are better options for emergency cash than an early 401(k) withdrawal. Thanks to the CARES Act, you may have the option to make a penalty-free withdrawal if you’ve experienced adverse financial consequences as a result of specific COVID-19 hardships.
If you’re still unsure, read more about the pros and cons of each option.
One last thing
Review your paycheck withholdings and make any adjustments before the new year. Need help? There’s an IRS withholding calculator that will help you understand the impact on your paycheck.
- Have a retirement account from your employer with services through Principal®? Log in to principal.com to see if your contribution rate can be boosted in 2021. First time logging in? Here's how to get started.
- To learn about other ways to save for retirement, read "What to know about Roth IRAs and Roth conversions."
- Want to talk to a financial professional about life and disability insurance? Check with your human resources contact to see if there’s someone you can work with through your employer’s retirement savings plan. Or, we’ll help you find a financial professional.
1 The Principal Financial Well-Being Index was conducted online September 2-9, 2020, by Dynata, surveying 500 domestic business leaders from businesses with two to 10,000 employees that offer health insurance and/or retirement benefits.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
Increasing your 401(k) contribution does not guarantee you put yourself in a better spot.
Disability insurance has limitations and exclusions. For costs and coverage details, contact your Principal Life representative.
Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., 800-247-1737, member SIPC and/or independent broker/-dealers. Referenced companies are members of the Principal Financial Group®, Des Moines, IA 50392.