Higher Ed Story: Benefit Must-Knows and Checklist
by Nathan Carmany, CFP®, Certified Financial Planner
Higher education changes as quickly today as the business world. New technology, new teaching methods, and changing standards for educators create an influx environment. Amid change, universities find it harder and harder to fund projects, deliver raises, and hand out scholarships with reduced government funding. Yet higher education faculty continue to give their best work, contributing to the advance of humanity, pushing social barriers, and sharing important research findings.
Even though our educators expend large amounts of energy, many do not take full advantage of the benefits the university offers. In a 2013 survey of higher education faculty, Fidelity found that 61% of younger faculty are likely to worry about their financial situation, and 71% of younger faculty feel less confident that they will have enough money to meet their financial goals (1.) The same survey found that only 54% of older faculty are confident they will have enough funds for long-term care in retirement. Both younger and older faculty note the importance of health care benefits (1.)
A 2015 survey from the College and University Professional Association for Human Resources (CUPA-HR) provides added insight into the healthcare environment (2.) Thirty-seven percent of respondents provide long-term healthcare plans, but few participants pay any portion of the premium. PPO plans are the plan of choice, with 83% of the universities surveyed. However, high-deductible plans (often accompanied by a health savings account or HSA) are gaining quickly, with 46% of the institutions offering this plan versus 17% in 2009 (2.)
Among other important landscape changes in higher education healthcare, the impact of the Affordable Care Act does not go unnoticed. Twenty percent of the respondents to the CUPA-HR made the following changes to plans for 2015 (2.):
- increased in-network deductibles
- increased out-of-pocket limits
- increased employee share of premium costs
- adopted or expanded wellness programs/initiatives
How do you see benefits changing at your institution?
Basics of Financial Planning
Most people engage in some form of financial planning, whether knowingly or not. For example, the FICA taxes withheld from your pay go towards programs like Social Security (not all educators pay into this program) and Medicare. Both address retirement needs like cash flow and senior healthcare. For current citizens, you are required to have medical insurance as part of the Affordable Care Act. Disability insurance is available as a benefit through the Social Security program.
Beyond retirement and healthcare, consider estate planning. States have rules in place to divide assets if you die and do not have a will.
To attract a qualified workforce, companies and universities improve benefits with programs other than those previously discussed.
As people work, we take advantage of the programs, expressing concern when benefits change or come to a close, when premiums rise, or when retirement plan matching stops. The concern surfaces as our daily lives become affected by the change. What about our wish to heighten and live the best life possible? This is where most people fall short. They live in the daily grind to make it through the week only to have it start over. When the employee approaches the subject from the perspective of using benefits for improving their life and as a means of taking care of family, they find benefits directly address most financial needs. The following are a few common areas that work benefits may address:
- Retirement - For higher education faculty and staff, a 403(b), 457, or 401(a) is a common vehicle used to save money for retirement.
- Healthcare Insurance - As previously mentioned, PPO and high-deductible plans often address the needs of university staff.
- Long-Term Care Insurance - Some universities provide long-term care. This is not a benefit to which everyone has access. Mid- to late-career faculty find this a valuable benefit.
- Disability Insurance - This insurance replaces income if a worker is no longer able to conduct the duties of his or her position. Policy features vary for each institution but address an often overlooked topic in the planning world.
- Life Insurance - Group life insurance is typically provided to employees at a low cost with a cap on coverage.
Three of the four topics listed above are insurance related. Higher education employees should understand the purpose of insurance, focusing on transferring risk from the employee to another entity. In this case, the loss of income, long-term care expenses, and current healthcare costs are the transferred risks.
Your Financial Plan
You understand the idea behind the benefits and already have an elementary plan in place, but wonder how the benefits may be leveraged.
First, we should gain perspective on directing the plan. Great plans start with an understanding of what is important and why it is important. Core value exercises, statements of purpose, and reflection on past events and future experiences all contribute to the creation of a fulfilling and happy life. After all, it is the point of leveraging our work and money.
Once you paint a clear picture of what a fulfilling and happy life looks like, address your current asset base and start asking questions. Are you saving enough? Are you exposed to unnecessary risks? If you die, how will your family be affected?
What better place to start addressing these questions than with your university benefits? You don’t have a salesperson pushing you to buy a product. The university completed a competitive analysis making the benefit economical. Access is normally easy to achieve upon employment; all you need to do is fill out the forms. The major pitfall comes in coordinating the benefits across your plan.
Points of Consideration for Benefits
Here are a few points for consideration as you review current benefits and examine new possibilities for next year:
- Retirement - How much should you be saving? Does your university have a 457, 403(b), or both? If so, can you save enough to max out contributions to both plans ($36,000+)? Do you have the ability to make Roth contributions to your retirement plan? If so, it may make sense to create tax diversification by having some tax-deferred contributions and Roth contributions. How will you manage the assets? Will you use a manager, target date fund, or self-direct? Pay attention to the cost of the funds you use. The more you pay, the less you might play.
- Health Insurance - What plans are provided in your benefits package: PPO, high deductible? Estimate your costs for use of the plan. If you use a high-deductible plan, explore your health savings account (HSA) choices. If coordinated properly, you may be able to use the HSA as a retirement supplement. Review the benefits section of your university website. Often, human resources (HR) will give details about the plan. Do not hesitate to contact HR with questions.
- Long-Term Care insurance - Long-term care remains one of the most complicated financial planning topics. The industry has been going through significant changes, from increasing premiums to existing classes of policies to creating hybrid policies (usually a life insurance policy or annuity with long-term care riders). How much does care cost in your location? How long do you think you will need the care? If you use the university policy, will you need to be underwritten? Are you in good health? What level of care do you want? Does the university policy have a conversion provision? Do you plan to self-insure?
- Disability Insurance - Many young and mid-career individuals do not consider disability coverage, yet it may be one of the riskiest areas (not being able to work) of your life. Late-career parties worry less about disability because retirement is often close. Does your university policy cover short-term, long-term, or both? Does the policy cover occupational or non-occupational injuries? How long is the elimination period? Will your emergency fund cover the elimination period? Does the policy have a conversion provision in case you sever relations with the university?
- Life Insurance - You likely already have basic coverage, usually 1-2 times salary. What amount do you need? Do you have large amounts of debt or college funding needs? Be aware that most group policies are term and the cost of insurance increases as you age. Are you in good health? If so, extra coverage may be cheaper if you buy an individual policy. Does your group life insurance have a conversion provision to a permanent or individual policy?
Other Possible Benefits
- Childcare - Does your university provide childcare benefits? If so, are the facilities close to campus? Do the employees work there as part of a degree requirement? Is the facility accredited? Are the workers employees of the university? When does the facility open and close? Do summer programs exist?
- Spousal Career Aid - A few Midwestern universities provide help for non-academic spouses in finding jobs and seeking employment. If your university provides this service, talk to the program directors and find out what connections they have with the local business community. This helps shorten the search.
- Geriatric Assistance - Mid- to late-career higher education employees must balance the needs of not only their own lives but their parents' lives as well. Check to see if your institution provides day care benefits for parents in need. (Check with the childcare facilities for services for senior parents.) Does the university have programs for seniors to “go back to school”?
- Sabbatical - Most universities provide the opportunity for faculty to conduct important research outside normal requirements. Do you understand your sabbatical requirements? Have you reviewed personal duties related to taking a sabbatical, such as renting your home or home maintenance while you are away? Will you need to rent another home at your new location? Will your benefits be active during your absence?
Remember, you profit greatly from university benefits with no pushy sales tactics, economical prices, and easy access. The difficulty remains in coordinating the benefits across your financial plan. Here is a list of next steps:
- Review what a fulfilling and happy life looks like for you.
- Identify your financial progress towards goals that help support your fulfilling and happy life goals.
- Review your university benefits to help heighten and promote your goals.
- Review your plan and benefits 3 months before open enrollment. This allows time for you to evaluate changes to benefits, circumstances, and needs.
On a parting note, be aware that your human resources department will not likely provide advice on which specific benefit or service you should use. Your retirement plan provider, while likely providing great service, will also be limited in addressing some of these issues.
- Fidelity Investments® Higher Education Faculty Study: Executive Summary of Key Findings of Those 55 and Older. Oct. 2013.
- College and University Professional Association for Human Resources 2015 Employee Healthcare Benefits in Higher Education Survey. 2015.
Nathan Carmany, CFP® works for Watermark Wealth Management, LLC in Indianapolis, IN. Nathan enjoys meeting people and learning about where they come from, where they are going, their current challenges and helping them move forward. He can be reached at ncarmany(at)thewatermarkgrp.com