You have a job offer dangling in front of your eyes. You love the job, admire the people you’d be working with, and think the salary is good. But, before saying “Yes” to a new job offer, make sure you consider the total compensation package.
“Salary is important, but it’s not the total picture,” said Mary Pat Oslund, project manager with the Investment Product Group for U.S. Bancorp Wealth Management. “Your benefits package can comprise up to 30-40 percent of your total compensation. So take the time to understand what benefits will be provided to you and what your responsibilities will be for any costs associated with the benefits.”
When most people think about compensation packages, benefits like salary, health (medical) and retirement (401(k)/403(b), pension plans, etc.) come to mind, but there may be many more:
- Life and disability insurance
- Dental and vision
- Health savings accounts/Flexible spending accounts
- Stock options, bonuses
- Paid leave (vacation/sick/holiday/family leave)
- Tuition reimbursement for advanced education
- Relocation expenses
- Perks – bus pass, parking stipend, gym memberships, cell phone reimbursement
If you are comparing job offers, do the math to determine the total worth of your benefits package. You may find the lesser paying job to be a better value.
“Benefits are something that a lot of young professionals dismiss when viewing compensation before accepting a job offer,” said Nicole M Montanez, Campus Programs Coordinator with U.S. Bank Human Resources. “Many don’t find it applicable to them at this point in their life. On the Campus Relations team, we offer college students jobs, and it is obvious that they are extremely focused on the specific number of the salary. We rarely get questions about the other benefits our company offers (but is instead something that’s viewed afterwards or very briefly).”
Some helpful considerations:
Many companies offer defined contribution plans such as a 401(k) plan. Make sure you understand how the plan works. Does your employer provide a company match for your contribution? How much of a match? According to Vanguard, the average employer matching contribution at a large company 401k plan is 50 cents on the dollar on the first 6 percent of pay.
Tip: Make sure you take advantage of the employer matching contribution, it’s like free cash.
When reviewing the company’s retirement plan, be sure to ask the following questions:
1. What investment options do I have? Options may be available from all stock investments to all bond funds. Many 401(k) plans will offer target-date funds, which include diverse investments based on your expected retirement date. If you’re not sure where to put your money, a target date fund might be a good choice. Keep in mind, every investment has a different cost and comes with a different amount of risk.
2. What are the fees? A majority of Americans believe that investing in their 401(k) is free according to a recent survey by the National Association of Retirement Plan Participants. Retirement plans are charged fees for administration, investment fees and services fees. You can’t avoid them, but you should be aware of them and consider taking steps to minimize them. For example, you can expect to pay more for actively managed funds than passively managed funds.
3. Is there a vesting schedule? Vesting refers to ownership of your retirement plan. If you’re fully vested, all the money in the account is yours. So, if you decide to leave the company, you don’t lose those funds. But if you’re not fully vested and leave your job, you’ll forfeit some/all of the employer contributions to your retirement plan. Vesting doesn’t apply to any money you contribute to the plan – that’s always 100% vested. Vesting schedules only apply to funds that the companies contribute on your behalf. Companies can determine their own vesting schedule. For example, you may be fully vested after a year or three years on the job, or you may become gradually vested over time (25% after one year, 50%, after two years, etc.)
Health insurance costs are noteworthy, and could be a significant part of the benefits package being offered. Be sure to discover all the costs and benefits to avoid financial surprises down the road. For example, some employees enforce a waiting period before bringing new employees onto their health insurance plan. If you’re not expecting this you could be uninsured for months.
Many companies offer high deductible plans, which are health insurance plans with lower premiums but higher deductibles than a traditional health plans. Be sure you know what services are covered even before the high deductible (for example, preventative services are covered but prescriptions might not be covered.) Does the company offer health reimbursement arrangements such as Health Saving Accounts (HSAs) or Flexible Spending Accounts (FSAs)? Make sure you understand how these plans work. For example, HSAs are only available to people who have high deductible health plans and with FSAs you generally need to use the money saved in the FSA within the plan year.
Benefits packages may include other offerings like:
Disability insurance. This is an often overlooked benefit that is important to consider. According to the Council for Disability Awareness, one in four of today’s 20 year olds will become disabled. Image becoming disabled, how would you pay the bills? Disability insurance may help replace your income.
Tuition reimbursement. If you’re considering going back to school for additional education, this benefit could come in handy.
Mary Pat Olsund is Project Manager with the Investment Product Group for U.S. Bancorp Wealth Management.
Nicole Montanez is Campus Programs Coordinator with Human Resources at U.S. Bank.