by Richard Friedman, The Ayco Company, L.P.

Fall is open enrollment season at most companies and making an appropriate medical coverage election may be the most important year‐end decision for most employees. Yet, on average, employees spend less than an hour reviewing their employer’s enrollment material. There is now evidence that how a company communicates this information can greatly influence the actions taken by employees. But there are several other year‐end action items that individuals also should review.

Getting into a regular habit to take affirmative action can avoid major problems. For example, many now change the batteries in their home smoke alarms once a year and have home air filters checked annually. And there are certain employee benefit‐related actions that should be reviewed and possibly changed periodically, if not annually. Here are our “top five” year‐end reminders, which incorporate mistakes we have seen all levels of employees make – from the recently hired employee to long‐term senior executives. 

  • Review Beneficiary Designations – When was the last time you confirmed who is the beneficiary designated for all benefit and compensation plans? As many may not realize, benefits which allow for a beneficiary designation do not pass pursuant to a will. Most plans provide a default beneficiary if none is designated, but all individuals should review their designations at least every few years or in the event of a major change in family circumstance (divorce, marriage, birth of child). In addition, most companies do not coordinate or regularly inform employees of their designations. Some may be changed online while others may require completing a paper form.
  • Make Smart Deferral Elections – Review whether you are maximizing the company match made to your 401(k) plan (and perhaps any excess 401(k) plan). It’s not too late to increase contributions if needed to reach the pre‐tax/Roth contribution maximum for 2016. But be careful if contributions were made to plans at more than one employer to avoid overfunding. After‐tax contributions are now more valuable due to the new rollover rules. These should be considered, if available. It also makes sense to review asset allocations made to qualified and any nonqualified plans at least annually.
  • Take Advantage of FSAs and HSAs – Make sure that all amounts elected for 2016 to go into healthcare and dependent care flexible spending accounts are recovered before the deadline. This also will help in deciding how much to elect for 2017. Health savings accounts can be used to pay for current or future medical costs or can be the best retirement savings vehicle there is. If you are covered by a high deductible health plan, review when cash flow will permit fully funding account for 2016 (and 2017).
  • Insurance – Not enough or too much? – Now can be a good time to review whether you have sufficient life insurance for yourself and spouse. Often, open enrollment can be an opportunity to increase coverage by a certain amount without proving insurability. Costs need to be considered, as well as what type of life insurance makes the most sense. The same is true on long term disability coverage as well as long term care insurance.
  • Income Tax Withholding Early Review –Tax projections and a check on federal and state tax withholding can be a money-saver. Review with a tax advisor whether you will be subject to penalties based on tax withholding and any estimated payments made for 2016. Supplemental wages are subject to flat rate withholding, which can be significantly less than an individual’s marginal tax rate. By checking this now, there is still time to take corrective action to avoid penalties or at least to be aware of a possible tax payment required next year. Special care should be taken for those employees who travel for work and need to file and pay taxes in multiple jurisdictions or foreign jurisdictions. Of course, anyone planning to retire (or leave employment) in the next year should be reviewing a number of other matters. But this is our “quick pick” list of items that should be reviewed in addition to making appropriate annual open enrollment elections.

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