Salary is just one component of a job offer. Here's how to weigh the value of retirement plans, health insurance and other company perks.
Today’s high-employment economy can be great for job hunters with the kind of skills and experience that are in demand. Unemployment numbers are so low — 4.8 percent in the last Labor Department report — that companies hoping to hire the best talent need to find ways stand out. One way they do that is by dangling great job perks.
But not all perks are equal. Job seekers need to be able to identify the employment benefits with real value to their bottom line. Many attractive perks — ping-pong tables, bocce ball teams, juice cleanses and team-building beer bashes, to name a few examples — appeal to employees without a big outlay of money from employers. These perks are fun and may even contribute to a great atmosphere at work. But they may also serve to distract from the employer’s lack of more substantial benefits.
1. Stop! Take a closer look
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Canny job-hunters need to know how to identify the benefits that contribute to their bottom line. This category includes child care, medical and dental insurance, and telecommuting options, all perks that can help ease household costs. Measure their value in terms of the dollars they save you when assessing a job package.
Perhaps the most potentially important benefit is a retirement plan. It wouldn’t be easy, but you’d probably muddle through life with a weak medical plan or no employer help with child care. But, without no other means of support, you’re unlikely to muddle through retirement with no savings.
A plan with generous employer matching contributions is crucial to getting set up for later years when you cannot or will not be working full-time. In 2017, tax law allows employees under age 50 to make tax-deductible contributions of up to $18,000 per year to a 401(k). Over 50? Your contribution limit climbs to $24,000 a year. Make it your goal to get as close to those limits — with your employer’s help.
2. Look for the gold standard: an old-fashioned pension
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One benefit beats all the rest hands down. And it’s rapidly going the way of the dodo bird. We are talking about a pension, (aka a defined-benefit retirement plan) like the ones your grandparents — and maybe your parents — may have enjoyed. These old-fashioned retirement plans have nearly disappeared because they are expensive for employers. After labor unions lost strength, most companies jettisoned them in favor of savings-and-investment plans, shifting the job of money management and most of the burden of saving onto employees.
Pensions guarantee a lifetime payout — usually in the form of an annuity — to employees who’ve stayed on a job long enough (often five or six years) to be “vested,” or secured. (Money explains the value of defined-benefit plans and how they differ from defined-contribution plans, like 401(k)s.)
If you have a defined-benefit pension, by all means do not sell it, although you may see ads offering “cash for your pension.”
If you have a choice between a pension or another plan, examine the details but be prejudiced in favor of the pension.
“In 2015, only 20 percent of Fortune 500 companies offered a (defined benefit) plan (traditional or hybrid) to salaried new hires, down from 59 percent among the same employers back in 1998,” according to research by benefits advisory firm Willis Towers Watson. Among companies still offering these plans, many are freezing them or closing them to new hires.
Still, you’d be smart to make it a goal to find a job offering a defined-benefit pension. Federal government jobs are one good source. They offer a “basic benefit,” an annuity type defined-benefit plan, along with an employee-contribution thrift savings plan. State and municipal government jobs used to be another good source of pensions, but those, too, are disappearing.
3. Understand hybrid pension plans
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Defined benefit/cash balance retirement plans have some features of a pension but offer less security because the value of the benefit isn’t known before retirement but depends on the interest rate applied to account balances. Cash balance plans often let you take your benefit as a lump sum rather than as annuity payments, but if you do you can outlive your savings, warns the Economic Policy Institute.
California retirement plan consulting company Liden, Nestle, Soled & Associates explains its hybrid plan this way:
How does a Defined Benefit or Cash Balance Plan operate?
A Defined Benefit/Cash Balance Plan defines a benefit for an employee upon that employee’s retirement. A simple example is a plan that provides $100 per month for every year an employee works for a company: with 30 years of employment, that participant would receive $3,000 per month payable for their lifetime. The benefit in a defined benefit pension plan is determined by a formula, which can incorporate the employee’s pay, years of employment, age at retirement and other factors. In large part, it is driven by age.
For those desiring the maximum retirement contribution, these plans provide significant contributions to fund impressive pensions at retirement.
4. Be realistic about vacation time
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Who wouldn’t look twice at a job with great vacation pay or the chance to take unlimited time off. But it’s not hard to spot the downside of this seemingly generous perk. The culture at many of these workplaces can be so intense that you can take time off — theoretically — but few people do out of fear they’ll suffer in the esteem of higher-ups. Better by far is to find a workplace that authentically supports work-life balance and where employees feel comfortable taking off the time they’ve earned.
5. Assess stock options
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Employee stock options (ESO) can be dangled to sweeten a job offer. An option gives certain employees the right, for a time, to buy company shares at a predetermined price. The advantage of that is getting in on company profits — imagine if you had accumulated Microsoft or Google shares when they were super cheap. But buying shares in the company that employs you has to be assessed for risks as well as rewards.
First, find out the “vesting” period: This is how long you must be on the job before exercising your option to buy shares at the strike price.
Second, consider the tax implications: “Although ESOPs allow the employee to defer income, they also can add a significant amount to the employee’s taxes when they are vested or sold,” wealth manager Nicholas Olesen tells Bankrate. Stock option profits can push you into a higher tax bracket. You could become ineligible for using some deductions and for making tax-free contributions to some retirement accounts, he adds.
Third, understand the risk: In other words, buying too much company stock can mean putting too many of your eggs in one basket — your employer. It’s crucial to diversify your retirement savings investments, to protect you from poor earnings or crashes in any particular company or sector of the economy. You want to be sure that, if your company goes down and you lose your job, you don’t also lose your savings. (Learn ways to diversify your investments.)
Bankrate explains how to assess an offer of stock options.
6. Cost out a job’s benefits
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When you’re job hunting or weighing an offer of employment, assess the value of the benefits and salary together.
Read the fine print: Knowing that you’ll have medical benefits, or a retirement plan, doesn’t begin to tell you what those perks will be worth to you and your bottom line. If you’ve been given a job offer, make sure you can see the employee materials explaining the details of the benefit plan. Use those details to calculate the value of those benefits.
Do the math: When you are weighing a job offer, you need to assign financial value to benefits. You also have to consider the costs you’ll incur to take advantage of your benefits. Monster, the big job board company, gives this example:
Job A offers $30,000 a year and health insurance. Job B offers $32,000 a year and health insurance. Although Job B at first looks like the winner, reading the fine print on the health insurance benefit reveals that, between monthly premiums and higher out-of-pocket costs, Job A is the better option:
Job A: With a $30,000 salary and no annual cost for health insurance, your net salary is $30,000.
Job B: With a $32,000 salary and your annual cost for health insurance at $2,400 ($200/month times 12 months), your net salary is $29,600 ($32,000 minus $2,400).
Similarly, look closely and thoroughly at the retirement plan you’re offered to discern its value. It’s not a bad idea to enlist a friend, parent or financial adviser to help you think it through, as a second set of eyes may spot issues that would not have occurred to you.
7. Learn to negotiate
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If you don’t like the benefits you’re being offered … wait! Don’t walk away yet. Job offers are just that — offers. You don’t always have to take what’s on the table or walk away. There’s a third option: Negotiate for a better deal. Some say that there is virtually nothing in life that can’t be subject to negotiation. Check out “13 Tips for Success in Any Negotiation.”
What’s your experience negotiating for jobs and weighing employment benefits? Share with us in comments below or on our Facebook page.