Open Enrollment, that time when you get a bunch of emails from HR but never seem to find the time to look into it, then, on the last day, you just keep things the same as last year…
I have had the pleasure of working with Snowflake clients this year, which includes walking through the Snowflake Open Enrollment package. I want to point out a few things that I noticed while reading through the long benefits guide, just to make sure any Snowflake employees haven’t missed it.
If you are reading this and you do not work for Snowflake, keep reading! Many of these features may be found in your own benefits. This is not a comprehensive list, but does cover a few of the key benefits.
1. Health Insurance Decision
This is one of the biggest decisions. If you have certainty about your medical costs for the year, it’s a pretty easy decision between the PPO plan and High Deductible Plan (HDHP) with HSA. But, for most of us, it’s a little harder to decide. Both plans offer an out-of-pocket maximum for a family of $6,000, but the PPO plan has a much much lower deductible. However, for many higher-income clients, this will actually come down to the decision between having a Healthcare Flexible Spending Account (Healthcare FSA) or Healthcare Savings Account (HSA).
1a. FSA vs. HSA
With the PPO plan, you have the option to save up to $2,750 into the Healthcare FSA, all pre-tax. Once you have committed to saving to the Healthcare FSA out of your paycheck, the entire annual balance is available to you on January 1st. If you do not use the FSA towards medical expenses throughout the calendar year, most of the funds will be “use it or lose it”. The Snowflake plan allows up to $550 of unused funds to rollover to the following year.
On the other hand, if you choose the HDHP, you can contribute to a Health Savings Account (HSA). This is also a pre-tax account, meaning that in essence the IRS is paying for a portion of your medical expenses. And, unlike an FSA, these funds are yours and will carryover each year, even if you leave the company. The maximum contribution is $7,200 ($3,600 for individual) and Snowflake puts in $2,000 for a family ($1,000 for individual) to get the account started. To max out the account, you could contribute another $200 per paycheck, for a total pre-tax savings (your portion) of $5,200.
HSAs get even better, when you consider it as a retirement savings vehicle. This is the only account that has the potential for “Triple Tax Savings”, avoiding taxes when you 1) contribute, 2) on investment earnings, and 3) when you withdraw for eligible costs. The Snowflake account is through HSA Bank, which I also use personally. At HSA Bank, you can invest into stocks and bonds on an account over $1,000, although I recommend keeping at least $3,000 in the HSA Bank account to avoid the monthly service fee and have cash available to cover your deductible.
Conclusion: If you are sure you’ll have low costs and don’t want to worry about a large deductible, consider the PPO plan plus put $550 into the FSA. But if you are in a higher tax bracket and/or want to use the HSA as a retirement vehicle, go with the HDHP w/ HSA plan and max out your HSA contributions ($5,200 per year in addition to the Snowflake contribution).
2. Life and Disability Insurance
Snowflake offers both Life and Long-term Disability Insurance to it’s employees at no cost, plus the option to purchase more life insurance. There are a few things to remember about the Snowflake plans.
Basic life covers up 2 times annual salary. Additionally, you can purchase additional “voluntary life” insurance up to $500,000. However, any life insurance over $300,000 requires evidence of insurability (EOI). So, if you are worried about your ability to qualify for life insurance, consider coverage up to $300,000 and you do not have to go through any underwriting.
The Long-term Disability plan at Snowflake is included but has one very important (and easily overlooked) provision. Long-term disability helps replace a portion of your income, 60% in this case, if an illness or injury causes you to be unable to work for more than 180 days. This sounds very useful, but the Snowflake plan isn’t as good as it sounds. If you are disabled for more than 2 years, the benefits will stop, unless you are completely unable to perform any occupation, anywhere. This means that if you are able to work ANY JOB, you will only receive benefits for up to 2 years under this plan, even if the salary is reduced by 90%. That is not a lot of coverage if you need it!
Statistically, a worker is more likely to require Long-term Disability than Life insurance before age 65, so this is especially important. You may want to supplement your company provided LTD coverage with an independent policy.
We work with independent insurance brokers for any insurance needs of our clients and, as fee-only advisors, we receive NO COMMISSIONS for any recommendations of any kind.
3. Traditional Pre-tax vs. Roth 401k
Snowflake offers both a Traditional Pre-tax and a Roth 401k option. So which do you choose if you are saving for retirement? Some basics:
· You will receive a tax deduction for savings to the Pre-tax Traditional, with a limit of up to $19,500 (more if over 50 years old). At retirement, you will be taxed on the full amount you withdraw at your tax rate at that time.
· For the Roth 401k, you are limited to $19,500 of savings, but all is after-taxes. In retirement, the full withdraw, including growth is tax-free.
· If you are maxing out your 401k, the Roth 401k allows you to save more money into the account because you have already paid taxes using outside money. The Traditional pre-tax should be thought of as a portion yours and a portion the IRS’s.
· In simple terms, you want to pay taxes at the lowest rate. If you expect to have higher tax rates NOW than in retirement, lean towards pre-tax contributions. If you expect higher taxes in retirement, go Roth.
For my clients with Stock Options and/or Restricted Stock Units, most choose the Traditional Pre-tax Contributions, since they project to be in a much higher tax bracket in 2021 than in Retirement.