Tuesday May 17, 2022

Ep 015 - What Are Employee Benefits?

Summary:

  • What You Need To Know, What You Should Look Out For [0:03:17]
  • What Are Employee Benefits? [0:05:08]
  • Generally, Large Companies Pay Less; Private Groups Pay More [0:06:56]
  • Let’s Start With Health Insurance [0:09:03]
  • Look Out For A Retirement Plan; 401(k) Vs 403(b) [0:12:29]
  • Next Up: Disability Insurance [0:15:48]
  • Life Insurance: Not Only For You But Sometimes For Your Spouse And Kids As Well [0:17:43]
  • Footnote On Insurances: Don’t Rely On Your Employer [0:18:44]
  • Other Benefits: Continuing Education, Concierge [0:20:24]
  • In Summary: Ask, Get, Compare, Decide [0:21:11]

 

 

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

 

Jon: Actually, it’s just Jon. Welcome to today’s episode of the Financial MD Show. Today, it’s going to be just me. Trevor is off in Jamaica doing some good medical work down there, and so today, I thought I would riff a little bit on something that every doctor needs to know about whether you’re in residency, fellowship, or you transitioned into practice. These are going to affect you, and that is your employee benefits. You could possibly be missing out on some big dollars here and not fully maximizing your benefits. So I’m going to tell you several tips – what they are, what you need to know, and how to fully maximize them and sometimes reduce taxes, which is always good. So, if you haven’t yet, subscribe and leave us a review. Share it with another doctor and share the love and the info. Here’s our show:

 

Jon: All right, welcome everyone to The Financial MD Show. We got a great show for you today. I’m excited because I’m all by myself, which is not necessarily a good excitement, but it’s excitement. I basically have to fill the time all by myself which is not impossible. In fact, it’s quite simple. I can talk for 45 minutes at a time – no problem – but it probably will be shorter. Most of my lectures tend to be quick and to the point so I’ll treat this kind of like one of my resident lectures and I do probably 100 of those a year so we should be fine. But this will be a little bit of a different format. Our friend, partner in crime, co-host and partner, Dr. Trevor Smith, is doing some mission work in Jamaica, slaving away for the kingdom, serving, and I’m sure he’s enjoying a little bit of beach time as well. So, we’ve checked in with him. He’s doing good. He sent me some pictures. Life is good for him. Life is good here in Financial MD world. We got a lot of great stuff going on. Lectures are happening all over the country. We’re doing workshops for the residency and fellowship programs, teaching financial literacy, getting the word out, getting residents to make smart financial decisions before they jump into the big six-figure income.

 

What You Need To Know, What You Should Look Out For [0:03:17]

 

 So we’re going to talk a little bit about that today, getting into this concept of employee benefits. Specifically, I want to cover what does employee benefits mean. You hear the words like group or qualified plan or employer plan – all these different things. I’ll break down what they mean, what’s kind of the mumbo-jumbo garbage jargon and what you need to know, what you should be looking for. We do a lot of lectures specifically on employment contracts to our residency and fellowship programs with our attorneys and so a piece of that talk is often on the employee benefits and understanding what role that plays in your job offer in your compensation. And so that’s not something to be ignored by any means. It’s something that you need to know more about and you need to take advantage of because there’s potentially some money on the table. As we’re putting this out there, we’ve got coming up a financial wellness – Prepping For Residency – so if you’re listening to this and you are in your final year, let’s say, you’ve just gotten matched during your last year of med school, we’re going to be doing an event that’s going to be both live and streamed. It’s going to be based out of Detroit, Michigan. We’re going to stream it. It’s on May 4th. So shoot us a message if you want an invite to that. It’s going to be kind of a guest panel so it’ll be myself. It will be a physician mortgage and physician loan specialist and we’re also going to have a realtor. We’re going to talk about a lot of things like getting your residency, buying a house, renting, other smart financial decisions to make along the way. So check out our website for that. Look at LinkedIn and other social media but the quickest and easiest way to get the info on the invite is just shoot us a message – info@financialmd.com.

 

What Are Employee Benefits? [0:05:08]

 

So that’s what’s going on here. Let’s dive into employee benefits. If you’re listening to this whether you’re in residency or fellowship or training or you are into your attending position, there’s about a 90 to 95 percent chance that you have some sort of benefits, and what are benefits? Essentially, you’ve all seen the job offer in the contract. You may have gotten this 18-page employment contract and you kind of skimmed through to try to find that heading that said compensation or salary – that six-figure number that you’ve been waiting and slaving for years and years and a decade plus to get to. You finally get it, you see the number, it sounds good, great, accept the offer and you move on. What so many residents and fellows don’t look at is what can often be a large piece of the compensation is the employee benefits. Why is that? Well, let’s say you’re going to make 250,000 in your first year. Okay, that’s great, and let’s say you’re comparing job offers too. Let’s say you get two or three job offers. One is 250, one is 275. The 275 one sounds good, but if you were to look a little bit deeper, flip on through the contract more. It’s not always in there. A lot of times you have to ask for it but ask for what’s the benefits are. Here’s why: Employers often will spend a lot of money on benefits to try the three R’s – recruit, retain, and reward great physicians. So you’ll see these in a couple of different formats. You’ll see them in private practice and you’ll see them in hospital settings, and they tend to have some common denominators between the two.

 

Generally, Large Companies Pay Less; Private Groups Pay More [0:06:56]

 

In general, the large employer – the university, the hospitals – are going to have a lot more negotiating power and so they’re going to be able to get better benefits dollar-for-dollar for their employees than a small group or a private practice might, which means what you often see in these settings – and you guys can probably vouch for this just as much as I can – that the academic world and the hospital settings are going to pay less often than you’re going to make in a private group depending on your specialty and so they’re going to make that up in benefits, so they think. So, let’s dive into that. Let’s say we have two jobs that have even the same compensation, so we’re looking at two jobs – 250,000. You’re trying to figure out – everything else is the same – which job do I want? Let’s say, they’re same city, where you want to be, with your family, same hours, same kind of requirements, duties, responsibilities, etcetera, you’re definitely going to want to flip through the benefits. Step one: Look in the back. There’s either exhibit pages. Hopefully, they sent an attachment – a PDF – that says like 2020 at a glance, gives your benefits. Half the time you may have to reach out to the person you’ve been speaking to or to the HR person or whomever and get more details on the benefits themselves. They’ll often send you a PDF and it will go through all the details. So, you’ve asked for it, you found it, you’ve got the benefits handbook and you’re looking through it. So let’s find out exactly a lot of times they’re going to tell you what the employer pays but sometimes they won’t. So especially let’s start with this: Health insurance.

 

Let’s Start With Health Insurance [0:09:03]

 

Health insurance is one of your employee benefits. Now, it may mean a lot to you or you may be like me where it’s like, hey, if they’ve got coverage and it seems decent and fine, I don’t go too much into the details versus my wife who likes to know this kind of things. She is looking deeply into them to see what kind of health insurance is available to us, what kind of providers, kind of networks are they in – all those kinds of things. What’s the copay? What’s the deductible? All that stuff. So a quick breakdown on that – we’ll go deeper into health insurance in a subsequent show – but for all intents and purposes, you want to look at what the deductible is and if it’s a high deductible health plan – so if it’s over a certain limit, they call it a high deductible health plan – you can then get an HSA with it which honestly can be nice for a couple of reasons. Most employers with an HSA what we’ve seen for a lot of our physicians will put some money into the HSA for you. So they’re going to put 1000, 2000, 5000, whatever, into the HSA and then you might put some of your own money in as well but it’s basically going to cover the bulk of the deductible that you would have to pay. Deductible means you have to pay this much before the insurance company would start kicking in, and the idea behind it is that it’s meant to make you a smart shopper so you’re not just going everywhere, getting all sorts of unnecessary procedures with the really expensive physicians and not shopping around. So that’s kind of what the point of a deductible is. Now there’s also an out-of-pocket max. So what an out-of-pocket max means often once you reach your deductible then you’re going to be on the hook after that for maybe 10 percent and the insurance company will pick up the other 90 percent. So if your deductible is 5000 dollars but your out-of-pocket max is 10,000 then you’ve got to pay 100 percent up to 5000 then the insurance company would kick in and they have some rule it might be 10 percent or 20 percent – whatever what they call the cost-share, a copay is. But no matter what happens, an out-of-pocket max is basically like a stop max limit type of thing and so that means that you will not have to pay over and above this certain amount. If you get into some sort of situation where you have to go more than that, then the insurance company will pick up 100 percent. So that’s something to know. All right, along with that, you’re going to see vision insurance, dental insurance – those kinds of things. So just things to know, things that are often included in there and can be important and what you want to look at is what you’re going to have to pay for the premium, if anything, and then what the employer picks up and what the employer is going to pay, you can basically stack on top of your salary to say what’s the employer actually paying for me as an employee to work here. There’s the salary which is the vast majority of it but then let’s tack on the health insurance premium, that’s another piece.

 

Look Out For A Retirement Plan; 401(k) Vs 403(b) [0:12:29]

 

After that, I often look at the retirement plan, that’s the second biggest cost to an employer because they’re going to put just straight up dollars in your account usually. Then again, this is usually. And typically, the universities tend to have the best matching in a 401(k) or a 403(b). Now what’s the difference between a 401(k) and a 403(b)? Really for your sake as the employee – nothing. There’s some difference on the employer side. Usually, a 403(b) is for non-profits; typically, non-profits – academic institutions, things like that, hospitals – but they can also have a 401(k). They don’t have to have a 403(b) and the 401(k)s are typically in the for-profit – the private groups, things like that. Either way, as of this recording, 19,500 is the max that you can put into it on your own which may seem like a ton to you right now if you’re still in training, but if you are an attending and you’re making 250,000 plus then that’s going to be a lot more valuable and you’re going to save on taxes. That’s one of the biggest deductions that a W-2 employee can have on what they call an above-the-line deduction. So that means that if you make 200,000, you put almost 20,000 into the retirement plan, you’re only taxed on 180,500 technically. So that’s something to know. But the value as far as compensation and what the employer puts in is all in the match or in the profit sharing or whatever they call it, that’s the piece where the employer is pulling money out of their accounts and putting it into yours and it can be high. Michigan State used to do this. It’s cut back recently in light of some other expenses they’ve taken on. Wayne State University does this where you put in a dollar, they put in two dollars. Usually, it’s up to 10 percent. So if you put in 5 percent, they’ll put in 10 percent for a total of 15 percent of your income going into the 403(b) but it’s only costing you 5 percent. So that’s super nice. If you put in 19,500 then that’s 38,000 that the employer is putting in. Boom! Stack that on top of 250,000-dollar salary, that’s 288,000. So that’s money right there, that’s something to think about. It’s not like something that you feel in your paycheck necessarily, but it’s still your money. It goes into your account. You’re just not using it yet but you’re going to be super glad that you did it when you get your retirement. We’ll go further into 401(k)s and 403(b)s in a different topic but basically you want to look at what the retirement plan is, what the match is, how much you have to put in to get the full match and we usually recommend you do at least that. Beyond that, how much you put in is totally up to you. You may have a different tax situation. You may be working with your financial planner to figure out something else, but in general, that’s free money and you can’t beat that.

 

Next Up: Disability Insurance [0:15:48]

 

So we talked about health insurance – that’s an employee benefit that can be expensive and costly and valuable to you. We talked about 401(k)s and 403(b)s. The next thing I would look at that cost money that ca be valuable is the disability insurance. Now we’ve talked to you guys enough but we’re not going to stop about how important it is to get the right disability insurance for you. Disability insurance with your own occupation that’s going to protect you as a specialist is super important but you first want to see what your employer is providing because it costs them something. Now they’re going to pay less for that policy than you would pay as an individual because they’re operating on a large scale group kind of bulk discount type of fashion. But it’s still there and it often covers between 65 and 70 percent of your income which is great. So then all you have to do is go out in individual marketplace to your Guardian or Principal or Ameritas. Get your own policy to bridge the gap in the other 20 to 25 percent. You’re going to be hard-pressed to find 100 percent of your income covered even between multiple policies because they look at each other. They communicate. They’re going to ask you how much you get it at work and limit what you get based on that. That’s something that can be a valuable benefit. It certainly reduces the cost you’re going to have pay for your individual policy and often that long-term disability at work is free or at least very cheap. So that’s LTD. Short-term disability – that’s another thing that basically would pay for the first typically 90 days to maybe 12 weeks that you’re off work and then your long-term disability would kick in but there’s a cost to that as well and that’s not something you’re going to just be able to go get on your own.

 

Life Insurance: Not Only For You But Sometimes For Your Spouse And Kids As Well [0:17:43]

 

The other piece we’ll look at is life insurance, and it’s life insurance for you but many employers also offer the ability to get very cheaply life insurance for your spouse and sometimes your children as well. So this is stuff, again, they’re paying the price for some of that to help defray that cost. You may have to pay some, but whatever they pay is just something you can stack on top. Now, typically, they’re not going to give you a flat dollar amount. They’ll give you a multiple up to a certain cap. For example, Henry Ford will cover four times your annual salary so if you make half a million dollars a year and they cover four times in life insurance, that could be potentially a 2-million-dollar life insurance policy. But their limit is a million dollars, so no matter how much you make, you’re not going to get more than a million dollars in life insurance. But again, if you had to go get that on your own, that could be potentially fairly expensive. So nice benefit.

 

Footnote On Insurances: Don’t Rely On Your Employer [0:18:44]

 

I’ll kind of put a footnote on the insurances especially. Don’t rely 100 percent or even the vast majority on your employer group benefits or your perks that you have at work especially for your life and your disability insurance. Get life insurance on your own as well. Get disability insurance on your own as well. In fact, get a little bit more than you think you should because at any time employers can take away the life insurance. Let’s say, times are tough and maybe they were hit by a giant lawsuit; they’ve got to come back at different areas. Typically, they don’t cut pay first for employees. They’re typically going to cut benefits first. And so if they cut life insurance and you said, oh, I got a million bucks at work, I don’t need anything else, or let’s say you said, yeah, I need 8 to 10 times my income like Jon said, so I may get a million at work and I get another million and a half on my own in term insurance; that’s cool but if they take away that group insurance, you’re left with a million and a half of term insurance which is not as much as you need and then something could have happened in your health between now and you can’t get more insurance because on the individual insurance whether it’s disability or life insurance, you’ve got to get underwritten. You’ve got to qualify for that health-wise and you guys know better than I do as physicians, anything can change. We’re all just one doctor’s visit away from having some news that can change our lives. I stress that because we’ve seen it here. Life insurance, disability insurance – get it early. Lock that in and then you’re golden.

 

Other Benefits: Continuing Education, Concierge [0:20:24]

 

We’ve covered health insurance and we’ve covered retirement plans. We’ve covered life and we’ve covered disability insurance – all of those have a cost associated with them that the employer is picking up and adds on to what the actual value of the compensation and the job offer is. So, something to think about there: There are also other benefits. It may be helping to pay for continuing education. It may be paying for some other out-of-pocket things. There’s employers that offer a concierge type of service where the physicians and some of the more higher-level senior employees can have access to people that will get their dry cleaning done or go get their oil change in their car – things like that. Those obviously have a cost that the employer is picking up.

 

In Summary: Ask, Get, Compare, Decide [0:21:11]

 

So when you’re looking at job offers, look at the employee benefits. If they didn’t get it to you in the job offer or the employment contract, ask about it. Don’t be afraid to ask because that’s an important factor when you’re making a decision. Hopefully, like we recommend, you’re doing a few things. You’re doing the legwork ahead of time to get multiple job offers. The more job offers you get, the more you can come at it from a position of confidence saying, hey, this is my favorite job. I’m going to negotiate with this one, but if it doesn’t work out, that’s okay. I’ve got a lot of fallbacks. The second reason to get multiple job offers is it gives you some context to say, okay, this is my favorite one. I like this job offer but I want to get some other offers just to see what else is out there and see if this one is reasonable, usual, customary – those kinds of things. So get those multiple job offers. When comparing, don’t skip the benefits. They’re not just a nice thing to add on. They can be 50/60/70,000 dollars’ worth of compensation that a lot of people don’t think about.

 

Hopefully that was enough detail and information for you. If you have any further questions on these then email us at info@financialmd.com. Check us out on the Facebook community – Financial MD Community. It’s where doctors get together and ask questions and give advice and share ideas and learn more about some of the just quick questions that we’ve got or little tips or all those kinds of things. Hope that helps. Join us next time on the Financial MD Show where Dr. Trevor Smith will be back, a little bit tanner, and we’ll see you guys next time.

 

Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.

 

The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.

 

 

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