Ten tips

Make careful choices when selecting employee benefits

By Compiled by LAURA T. COFFEY

© St. Petersburg Times, published October 22, 2000

Open-enrollment season for health insurance and other employee benefits begins this month. It might be easy to wait until the last minute to make decisions about your benefits for the coming year, but take time to evaluate your options and understand the alternatives.

1. Reconsider your medical plan. If you're not satisfied with your medical plan or primary care physician, inquire about new forms of insurance that might be a better fit for you.

2. Sock money away in your 401(k). Many employers will match the contributions you make toward your retirement savings in a 401(k). Find out how much money you need to contribute to receive the maximum employer contribution.

3. Save on taxes. Some benefits offered by your employer, such as 401(k)s and tax-free spending accounts, can reduce your taxable income and put you in a lower tax bracket.

4. Consider a health care spending account. If you put a portion of your pretax income into such an account, you can use it to pay for predictable, out-of-pocket health care expenses not covered by your medical plan. Consult with a tax adviser to be sure such an account makes sense for you.

5. Look into a dependent-care spending account. Like health care spending accounts, dependent care spending accounts allow you to set aside before-tax income and use it for child care and other dependent-related costs. Again, consult with a tax adviser.

6. Evaluate your life and disability insurance. Use the enrollment period as an opportunity to evaluate whether this is a good time to increase your life insurance benefits or long-term disability protection.

7. Investigate long-term care coverage. If you're injured or become seriously ill, long-term care insurance would pay for home health care, assisted living, stays at nursing homes and help with daily tasks. Such insurance can be quite valuable, but it does not make financial sense for people who qualify for Medicaid or who would qualify soon after entering a nursing home.

8. Study up. Read the materials provided by your employer, attend benefit fairs and consult with your primary care physician and your insurance provider.

9. Know what's available. Find out if your employer offers automated telephone enrollment lines, online enrollment or a special benefits hotline.

10. Meet your deadline. Pay attention to the deadline for submitting your enrollment choices. If you don't enroll on time, you'll automatically be signed up for coverage you may not want.

-- Sources: Hewitt Associates (http://www.hewitt.com); and Stanford University (http://hrweb.stanford.edu).

@0987$temp$

$STPT ID: +

Paper: Date: 10/22/00+

Page: 3H Section: BUSINESS +

Byline: HELEN HUNTLEY

Notes:

Q. Three days before the end of the month, I bought short-term bank CDs and municipal bonds. The confirmation slips say that the brokerage company acted as principal and that a $5 transaction fee was charged on each bond. I was surprised when the end-of-the month statement showed unrealized losses of 2 percent of the amount invested for the bond and about one-third of 1 percent for the CD. There was no drastic change upward in interest rates during the three-day period between purchase and reporting, so I can only surmise that the loss in market value represents the brokerage's charges. What's going on here

A. Commissions are not the only way brokerage companies make money on trades. And I'm not talking about the $5.

The "principal" reference means that the company was selling you securities from its own holdings. It makes a profit on the difference between the price it pays for securities and the price at which it sells them to you and other investors. This difference is the markup.

A brokerage company is required to disclose the markup for stocks on confirmation statements, but not for fixed-income investments. If you want to know, ask the broker how much the company is paying to buy that same bond from investors. This is the "bid" price.

"You should discuss this with an adviser," said Greg Ghodsi, a broker with Robert W. Baird & Co. in Tampa. "You want the person you're dealing with to make money so they can stay in business and keep taking care of you, but you should know what you're stepping into."

Markups vary with the type of bond, the maturity and the credit quality. Markups tend to be smaller on short-term, high-quality government and municipal bonds and larger on high-yield "junk bonds." The differences partly reflect variations in the risk the brokerage company takes when it buys bonds for its inventory. They also reflect competition or lack of it.

Ghodsi said a 2 percent markup would be about the most he would expect on a high-quality, long-term Florida municipal bond.

The best way to know whether you are being offered a good deal on a fixed-income investment is to compare its yield with the yields other brokerage companies offer on bonds of the same quality, maturity and call features. The same is true for CDs.

Be glad that your statements show these unrealized losses. Over the years brokerage companies have created a lot of grief for themselves and their customers by listing investments such as limited partnerships at original cost rather than at market value.

Q. I have more than $100,000 in E and EE savings bonds held in a trust with my daughter as the successor trustee. The property is to be distributed equally among my five children. Will she have to cash all the bonds at my death? What will determine the tax bracket on the interest?

A. Unless the trust language says otherwise, your daughter can choose whether to cash the bonds at your death. When a savings bond owner dies, there are three basic options for reporting and paying tax on the accrued interest income. The first is to include the interest on the bond owner's final tax return. The second is to include it in the estate. The third is to pass the tax obligation to the beneficiaries along with the bonds. When the time comes, it is a good idea to calculate the taxes all three ways to decide which one is best.

You also might consider cashing the bonds gradually before your death, particularly if you are in a lower tax bracket than your children.

Online money map

If you own stock options, check out MyCriticalCapital.com (http://www.mycriticalcapital.com). The Web site is designed to help investors balance risk against tax savings and profits when making decisions about exercising options.

Note to readers

Want help planning your financial future? We're looking for a family who would like to receive free, in-depth, personalized, professional advice on saving for college and retirement and managing finances. We will share the information with Times readers. To be considered, a family must have at least one child still living at home and be willing to be photographed. If you are interested, please contact me at the address below.

-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

© 2006 • All Rights Reserved • Tampa Bay Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright