Benefits guidance with your success in mind
Employer sponsored benefits are a valuable and important resource. Taking advantage of these benefits can help improve your families financial health. At Coherent, we can provide guidance on your workplace benefits.
401k and 403b Plans
Tax deferred employer sponsored retirement plans offer a significant benefit to employees. At Coherent we are able to provide guidance on employer sponsored retirement accounts such as 401k and 403b plans. You always maintain custody and control of your employer sponsored retirement accounts. You remain the named fiduciary of the assets in your account. We can guide you in implementing any proposed changes with your plan administrator. Important factors we consider helping you with your specific plan include:
- Does the company offer a matching contribution?
- What is the vesting schedule for employer contributions?
- How do you determine what the best investment choices are within the plan?
- How to design your overall investment allocation?
- How much should you contribute considering your other financial needs and goals?
Employee Stock Purchase Plans (ESPP)
An ESPP offers the employee of a publicly traded company the opportunity to purchase your company’s shares through payroll deduction [during a 12 or 18 month offering period]. In general, the company will buy shares at six-month purchase periods. The plan may offer you the ability to buy company stock at 85% of its closing price on the lower of the first day of the offering period or the last day of each purchase period. The 15% discount is a compelling benefit you should investigate unless you cannot afford the reduced paycheck from the ESPP payroll deductions.
Restricted Stock Units (RSUs)
RSUs are a form of employer compensation where the employee receives shares of company stock over a vesting period and distribution schedule. When the RSUs are vested, the shares are assigned a fair market value and are considered as taxable income. Usually a portion of the shares are withheld to pay the income tax liability. The employee is entitled to the remaining shares and can sell these shares at any time. Over time, valued employees may build up significant overlapping RSU grants which presents a planning and investment diversification opportunity.
Employee Stock Options
Certain employees may be granted stock options which provide the right, but not the obligation to purchase a set amount of company shares at a pre-determined price. In addition, there is typically both a waiting period for vesting and an expiration date for the stock options. The value to the employee of vested, in-the-money options can be realized via a “cashless exercise”. This transaction is done through a broker that allows you to borrow enough funds to exercise the options and simultaneously sell the corresponding number of shares to cover the purchase price, including any commissions and taxes. Since stock options have both a time and price component, you should consider the various tax implications and planning considerations.
Non-Qualified Deferred Compensation Plans (NQDC)
With a NQDC arrangement, employees can elect to have a portion of their earnings “deferred” from current income to a future date. This may be beneficial to employees who are in a high current tax bracket and anticipate being in a lower tax situation in the future. Employers have discretion in providing NQDC plans to certain employees. This benefit may be offered to senior management, key employees and other highly compensated workers. Employees pay taxes on deferred compensation at the time the compensation is eligible to be received. NQDC can be a strategy to help pay for future goals or retirement planning.
Other Employee Benefits
Employers may either pay for, or help subsidize life insurance for employees and their family members (e.g. spouse and minor children). This may be a simple way to gain basic access to coverage, however it may not be the most cost effective in the longer term. Ask your benefits department to provide information about cost of insurance. Typically, there is an insurance table showing cost per $1000 of life insurance coverage, divided into five-year age groups.
Work place benefits may include short-term and long-term disability coverage to cover a portion of your lost income. Various studies have discussed the higher likelihood of an illness or injury causing a disruption in income versus death prior to age 65.
Health Savings Accounts (HSA)
HSA are available to employees covered by high-deductible health care plans. There has been a recent trend for employers to shift health care costs from the company while trying to help create a more “informed” health consumer. HSAs enjoy preferential tax treatment under the tax code, a “trifecta” of tax benefits.
- You get pre-tax status for payroll HSA deductions, a current tax deduction for contributions.
- Future growth is tax-free for qualified medical expenses.
- You can accumulate contributions to be used as tax-free withdrawals for future retirement health care costs.
All the funds in the HSA accounts belong to the employee so if you leave your employer, the account can remain intact.
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