How to Shop on the Clock

Remember that thick packet of company benefits materials the smiling human resources assistant handed you on your first day on the job? Neither do we. So go ahead and dig it out from the bottom drawer because there may be dollar bills adhered to nearly every page.

That stack of brochures and booklets may contain oft-overlooked benefits that can add up to substantial savings over time. The Certified Financial Planner Board of Standards encourages employees to review employer-provided benefits regularly and fill in the gaps with outside financial services or products. Go ahead, let your boss pick up the tab for things like doctors' bills, disability insurance, and baby-sitting. If you're reading this article on the boss's Internet connection, you might as well see what other bills are covered.

Discounted doctors' bills
Health care is probably the biggest money-saving benefit to working for The Man. While coverage isn't usually gratis, most companies ask employees to pay just a small percentage of the premiums based on the level of service you choose.

The most common medical plans are HMOs (Health Maintenance Organizations), PPOs (Preferred Provider Organizations), POSes (Point of Service plans), and Indemnity plans (where the employee pays out-of-pocket and is reimbursed).

If your boss is particularly generous, there are additional perks you shouldn't pass up. An FSA (Flexible Spending Account) lets you put away pre-tax dollars to cover expenses that aren't included in your health-care coverage. Co-payments, extra contact lenses, even dependent care costs can be paid for out of this account. (Our tax man Roy Lewis describes the rules in more detail.)

There's a certain amount of record-keeping required. You determine the amount of money you want deducted from your paycheck for the FSA. Any dollars that aren't used by the end of the plan year are forfeited. Employees must submit receipts for reimbursement.

Take a look at your credit card statements to get an idea of how much you might save. You might be surprised at how much you pay piecemeal over the year on expenses that are covered under FSAs. The savings -- an average of 28% on expenses, because of the pre-tax contributions -- are well worth it.

Salary safety net
Life and disability insurance are also offered by many forward-thinking employers. Group life insurance is often provided at no cost to employees, but you can purchase additional coverage (standard plans offer the equivalent of one year's salary) if accidental death or dismemberment tends to befall you or your family on a regular basis.

Group disability insurance isn't as standard of a perk. If your employer does not pay for coverage but offers discounted rates to employees, strongly consider it. If you suffer from a non-work-related injury, this coverage could net you up to 60% of your salary while you are unable to work. Short-term disability insurance kicks in when you must miss work for anywhere from eight days to six months. Long-term coverage applies to periods of disability from six months or longer.

As with warehouse clubs and white socks, huge savings can be had when buying in bulk. If you do not currently have life or disability coverage, ask your human resources department for information on getting a company discount. Then spend a little time comparison shopping.

Delayed financial gratification
Deferred compensation plans are a kind of "pay now, get paid back later" arrangement. They allow you to defer some of your current compensation until either retirement or some other time frame. Employees sacrifice some investing flexibility with such plans since many employers invest the funds in cash-value life insurance policies.

Taxwise, qualified deferred compensation plans work like a traditional IRA whereby the employee pays taxes only when she accesses the funds. The amount the employee and employer can contribute to the plan is limited.

In a nonqualified deferred compensation plan, there is no limit to the amount of money you can sock away. This option is usually available only to top company brass. There are a variety of plans that fall under this umbrella, each with its own tax consequences.

As with any investment, know what you're buying, and make sure it's the best place for your money. Sometimes it's better for your long-term financial health to invest outside of an employer-sponsored plan. Here's a general pecking order and guidelines of what money to put where.

Company ownership
Eyeing a seat on the board of directors? If you amass enough company stock you may get an invitation and a key to the executive washroom. Employee stock options entered the common lexicon in the 1990s. Employees (or sometimes only company executives) can purchase options at a preset price during a prescribed period of time. If the company's share price rises during that time frame, shareholders can sell (or "exercise") their stock and pocket a profit.

As too many employees discovered in the past decade, the road to instant riches is not paved with employee stock options. Taxes and timing issues can wreak havoc on your finances.

There are two types of options offered by employers -- ISOs and NSOs. You won't pay taxes on profits of ISOs (Incentive Stock Options) until you sell. However, when you buy (or "exercise") NSOs (Nonqualified Stock Options), the transaction is treated as taxable income by Uncle Sam. When you sell (hopefully at a profit), the profits are treated as regular income -- which usually is at a higher tax rate than that of capital gains taxes.

ESPPs (Employee Stock Purchase Plans) also offer options for purchase during a predetermined time period. Stock may be offered at a discount, and plans are either "qualified" (exempt from taxes at the time of purchase) or "nonqualified" (fewer tax breaks). If your company offers an ESOP (Employee Stock Ownership Plan), your employer purchases company shares for you, and the shares vest during the time of your employment. Those shares can be handed over to you when you leave or, occasionally, distributed earlier.

Finally, there are phantom (or "shadow" or "unit") stock plans. These options are doled out on a limited basis and are usually based on the company's share price performance. Most are qualified plans and are used as incentive for corporate executives.


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