The HR Strategist: Bonus Issue - October 2015
In this issue:
- Comparing Health Plan Options During Open Enrollment
- 6 Common 401(k) Plan Misconceptions
- Paid Sick Leave Movement
- HSA Contribution Limits Increase in 2016
- Did You Know?
The decisions you make during open enrollment season regarding health insurance are especially important, since you generally must stick with the options you choose until the next open enrollment season, unless you experience a "qualifying" event such as marriage or the birth of a child. As a result, you should take the time to carefully review the types of plans offered by your employer and consider all the costs associated with each plan.
With most health insurance plans, your employer will pay a portion of the premium and require you to pay the remainder through payroll deductions. When comparing different plans, keep in mind that even though a plan with a lower premium may seem like the most attractive option, it could have higher potential out-of-pocket expenses.
You'll want to review the co-payments, deductibles, and co-insurance associated with each plan. This is an important step because these costs can greatly affect what you end up paying out-of-pocket. When reviewing the costs of each plan, consider the following:
- Does the plan have an individual or family deductible? If so, what is the amount that will have to be satisfied before your insurance coverage kicks in?
- Are there co-payments? If so, what amounts are charged for doctor visits, specialists, hospital visits, and prescription drugs?
- Will you have to pay any co-insurance once you've satisfied the deductible?
You should also assess each plan's coverage and specific features. For example, are there coverage exclusions or limitations that apply? Which expenses are fully or partially covered? Do you have the option to go to doctors who are outside your plan's provider network? Does the plan offer additional types of coverage for vision, dental, or prescription drugs?
HRi is here to help you review your options and further explain the coverage and features offered under each plan to help you determine which plan offers the most comprehensive coverage for you and your family.
401(k) plans and your company's plan design can sometimes be difficult to understand. Here are six common misconceptions about 401(k) plans.
1. If I leave my job, my entire 401(k) account is mine to keep.
This may or may not be true, depending on your plan's "vesting schedule." Your own contributions to the plan – that is, your pre-tax or Roth contributions – are always yours to keep. While some plans provide that employer contributions are also fully vested (i.e. owned by you) immediately, other plans may require that you have up to six years of service before you are entitled to all of your employer contributions (or you've reached your plan's normal retirement age). Your 401(k)'s summary plan description will have details about your plan's vesting schedule.
2. Borrowing from my 401(k) plan is a bad idea because I pay income tax twice on the amount I borrow.
The argument is that you repay a 401(k) plan loan with post-tax dollars, and those same dollars are taxed again when you receive a distribution from the plan. Though you might be repaying the loan with after-tax dollars, this would be true with any type of loan.
And while it's also true that the amount you borrow will be taxed when distributed from the plan (special rules apply to loans from Roth accounts), those amounts would be taxed regardless of whether you borrowed money from the plan or not. So the bottom line is that, economically, you're no worse off borrowing from your plan than you are borrowing from another source (plus, the interest you pay on a plan loan generally goes back into your account). But keep in mind that borrowing from your plan reduces your account balance, which may slow the growth of your retirement nest egg.
3. Because I make only Roth contributions to my 401(k) plan, my employer's matching contributions are also Roth contributions.
Employer 401(k) matching contributions are always pre-tax – whether they match your pre-tax or Roth contributions. That is, matching contributions, and any associated earnings, will always be subject to income tax when you receive them from the plan. You can, however, convert your employer's matching contributions to Roth contributions if your plan allows. If you do, they will be subject to income tax in the year of the conversion, but future qualified distributions of those amounts (and any earnings) will be tax free.
4. I contribute to my 401(k) plan at work, so I can't contribute to an IRA.
Your contributions to a 401(k) plan have no effect of your ability to contribute to a traditional or Roth IRA. However, your (or your spouse's) participation in a 401(k) plan may adversely impact your ability to deduct contributions to a traditional IRA, depending on your joint income.
5. I have two jobs, both with 401(k)s. I can defer up to $18,000 to each plan.
Unfortunately, this is not the case. You can defer a maximum of $18,000 in 2015, plus catch-up contributions if you're eligible, to all your employer plans (this includes 401(k)s, 403(b)s, SARSEPs, and SIMPLE plans). If you contribute to more than one plan, you're generally responsible for making sure you don't exceed these limits.
6. I'm moving to a state with no income tax. I've heard my former state can still tax my 401(k) benefits when I retire.
While this was true many years ago, it's no longer the case. States are now prohibited from taxing 401(k) (and most other) retirement benefits paid to non-residents. As a result, only the state in which you reside (or are domiciled) can tax those benefits. In general, your residence is the place where you actually live. Your domicile is your permanent legal residence; even if you don't currently live there, you have an intent to return and remain there.
HRi offers a Multiple Employer 401(k) Plan (MEP) as one of our services. Our MEP also provides two certified financial advisors (Rusty Ward and Tom Halleron with Harbor Investment Advisory, LLC) at no additional cost.
Sick leave is time off from work that employees can use to stay at home to address their health and safety needs without losing pay. Some policies also allow paid sick time to be used to care for sick family members, to attend routine doctor or medical appointments, or to address health and safety needs related to domestic violence or sexual assault.
Paid sick leave advocates assert that providing paid sick time can reduce turnover, increase productivity, and reduce the spread of contamination in the workplace. Some studies even show that the cost of losing an employee (which can include advertising for, interviewing, and training a replacement) is often greater than the cost of providing sick days to retain existing employees.
Ten years ago, there was not a single law in the United States guaranteeing workers the ability to take a paid day off when they get sick. Now, paid sick leave is a fairly standard benefit for high-paid, salaried workers; about 82% of management and professional workers in the private sector and 40% of private sector service workers are paid when they are sick.
The paid sick leave movement's success began in 2006, when San Francisco became the first locality in the nation to guarantee workers access to earned paid sick days. Building on this momentum, more than two dozen states and cities have considered paid sick leave proposals in legislative sessions this year. In fact, paid sick leave laws are or will soon be in place in 23 jurisdictions across the country – four states, the District of Columbia, and 18 localities. And President Obama announced this Labor Day that starting in 2017, federal contractors must provide workers with paid sick time.
Earlier this year, the IRS announced in Revenue Procedure 2015-30, the annual contribution limits for health savings accounts (HSA) and the minimum deductible amounts and maximum out-of-pocket expense amounts for high deductible health plans for calendar year 2016.
Individuals who participate in a health insurance plan with a "high deductible" are permitted a tax deduction for contributions to qualified HSAs. These individual and family plans are designed to help taxpayers pay their qualified medical expenses in a tax-free manner.
To be eligible to contribute to an HSA, an individual must participate in a "high deductible health plan." The IRS has defined this term as a health plan with an annual deductible that is not less than a certain limit each year and for which the annual out-of-pocket expenses do not exceed a certain limit each year.
For calendar year 2016, the maximum allowable deduction for an individual with self-only coverage under a high deductible health plan is $3,350. For taxpayers with family coverage under a high deductible health plan, the maximum deduction is $6,750.
Also for 2016, a "high deductible health plan" has been defined as annual deductibles that are not less than $1,300 (self-only coverage) or $2,600 (for family coverage), and the annual out-of-pocket expenses cannot exceed $6,550 (self-only coverage) or $13,100 (family coverage).
For more information on the new HSA contributions limits, please contact your Client Services Specialist at 410-451-4202.
Please meet Michael Lanham; he has been part of the HRi family since 2010. As our HR Manager, Michael works closely with our clients on unemployment claims, hiring and terminations, workplace investigations, compensation analyses, and other complex HR issues including the Family & Medical Leave Act and Short Term Disability administration. As a Spanish speaker, Michael can assist clients and their employees with any needs they may have.
Here's a little information to get to know Michael better:
- Favorite color: Blue
- Favorite book: The Choirboys by Joseph Wambaugh
- Favorite movie: The Shining
- Favorite sports team: San Diego Chargers