How to maximize your employee benefits

After 15 years in the corporate benefit industry, Katherine Rapp is pretty astute when it comes to predicting how many employees will show up for her volunteer sessions on workplace group benefits. If she offers free lunch, she’ll get more takers. Contests draw people, too. But if she is perfectly honest, Rapp, a vice president of retirement services for Corporate Benefit Analysts in Kitchener, Ont., will tell you that only 10% to 15% of eligible workers bother to attend. If the low numbers once surprised her, they don’t anymore. “You know, the biggest problem companies have is engaging their employees to give a hoot,” she says of corporate benefits ranging from dental plans to lucrative retirement savings programs. “It’s a very difficult environment to try and make sure people are doing the right thing for themselves and taking free stuff.” That’s right, Canada. Stuff. From your employer. For free. No strings attached. Yet, despite being offered generous corporate benefits worth hundreds or even thousands of dollars a year, many of us aren’t cashing in. According to Morneau Shepell, a firm that provides human resources and actuarial consulting services in North America, only about one-third of employees lucky enough to have access to a workplace pension plan bother to opt in. But what does that mean in dollars and cents? Take defined contribution (DC) plans, in which your employer provides free contributions to a set amount on your behalf each year (typically 3% to 6% of your salary). To qualify, all you have to do is make your own corresponding contributions, automatically deducted from your paycheque. Data released by Sun Life Financial in 2014 reported that Canadians missed out on as much as $3 billion by not taking full advantage of DC plans. Put another way, walking away from this type of employer matching program is, in essence, like turning down a 3% to 6% raise. Amazingly, we think nothing of brown bagging it or clipping coupons to save a bit of cash, but never bother reading our human resources documents to uncover substantial savings that have the power to create long-term wealth. There are obviously many reasons why we leave money on the table: We’re not always great savers in the first place; we’re given too many choices and become overwhelmed; sometimes we simply don’t understand our benefits; and, of course, there’s just plain old inertia. But it’s high time to kick these excuses to the curb! To help you zero in on some of the generous benefits you might be missing out on, we’ve created an overview of items you’ll want to double-check—and some stories to learn from other Canadians—to ensure you get the most out of your plan right now.

Employer Pensions

Ask Darrell MacDonald what financial advice he’d give young employees and the veteran film editor from Toronto is quick with a response: Start saving. MacDonald should know. “I’m over 50 and I’m scrambling,” he confesses. While MacDonald does have a small pension from the non-unionized animation studio he worked with for 23 years, he just wishes he hadn’t let his director’s guild membership pension plan go dormant for decades while he was an employee there. He was given the option to contribute but admits he was thinking short-term and wanted to spend more of his paycheque instead. “I’m not starting from ground zero, let’s put it that way,” he says. “But I probably would have a substantial amount of money sitting here now if I’d paid my guild dues all the way along.” Today, his retirement plan is to just keep working for as long as he’s healthy. While MacDonald’s story is perhaps unique to his industry, it still highlights the rueful reality of those who forgo making contributions toward pension plans over the long term. In a recent CPA Canada survey of people over 55, almost half of respondents wished they’d saved more money to prepare for retirement. So why not take advantage of a workplace pension if you’re lucky enough to have access to one? Surely by now everyone’s heard of defined benefit (DB) plans—the Cadillac of all workplace pensions—which are professionally managed and dole out guaranteed retirement income. In most DB plans, both you and your employer contribute. If you have the opportunity to opt into one of these, consider yourself very lucky, because these days more companies are now swapping DB plans for the aforementioned DC plan. The key difference is that DC plans expect employees to shoulder some of the investment risk: While your employer oversees and contributes to the program, your level of retirement income isn’t guaranteed. Instead, it’s up to you to decide how to invest the money, usually by choosing from among a menu of mutual fund–like options. While DC plans aren’t as desirable as DB plans, they’re still very much worthwhile. In addition to free matching contributions from your company, DC plans typically offer lower management fees that could help you hold onto more of your investment returns. If you’re passing up this type of opportunity, keep in mind that the typical mutual fund investor is unlikely to do better investing on his own—as the following chart illustrates. You're paid more than you think

Still, some people are hesitant to opt into any type of workplace program simply because they don’t trust their employer or the pension plan itself. That mistrust is unwarranted. Fred Vettese, chief actuary of Morneau Shepell, explains that defined contributions go into a trust fund that’s protected, even if the employer goes bankrupt. Although the investments reflect the market and will rise and fall like any other investment, poor employer performance won’t affect it. A lot of skeptical employees may also think there’s a catch when it comes to matching contributions in pension plans. (There’s not.) But here’s some good news for pension procrastinators: If you haven’t previously enrolled in your company’s plan, some employers will allow you to “buy back” contribution room you’re eligible for. In other words, if you worked for one year before signing up, you might be allowed to contribute a set amount based on your salary and age. In some cases, the same applies to other periods when you may not have paid into the plan. These include: unpaid leaves of absence, maternity and parental leaves, or even periods of seasonal and contract employment before you were allowed to buy into the pension plan. Buying back unused room not only increases the annual pension total, but could even allow you to retire a year or two early. Not sure if your company’s plan allows buybacks? If in doubt, ask.

Group RRSPs and Company Shares

Instead of pension plans, some workplaces may offer group RRSP or Tax-Free Savings Account (TFSA) programs, in which employers match contributions made by employees up to a set limit. These work very similarly to DC plans—the main difference being that DC plans have legislated “lock-in” restrictions against taking the money out prior to normal retirement age, whereas group RRSPs and TFSAs don’t. (That flexibility may appeal to you.) Often, these types of group plans will offer cheaper investment management fees than those offered by the bank. But even if your company’s group plan comes with high fees attached, it still might be worth it if they’re matching your RRSP purchase by 50% up to a preset limit. Generally speaking, if your employer offers a group RRSP- or TFSA-matching program, don’t walk, run, to sign up. Keep in mind too that companies that don’t offer matching programs may still offer access to low-cost mutual funds which will be professionally managed and rebalanced for you annually at a much lower rate than the 2.5% fee your bank’s standard mutual fund offerings tend to charge. Company shares or options are also sometimes offered after an employee has been with the company for some time or to give them an incentive to sign on. Their value follows the market, so if your company’s shares go up, you could see your nest egg grow. One (significant) caveat: If you find yourself allowing your investment portfolio to fill up with your employer’s stock, that’s an extremely risky proposition. Instead, it’s wiser to cash out some of your stocks from time to time and invest them in other products such as low-cost, market-tracking mutual funds or exchange-traded funds (ETFs) to diversify the risk.

WATCH: WTF is an Employe Stock Plan?

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Health & Dental

Last year Kristin Doucet, an editor for the Ontario College of Teachers in Toronto, found herself at loose ends over her daughter who was dealing with serious social issues at school that were having an impact on her mental health. Frazzled, worried and unable to fully focus on her job, Doucet booked an appointment with her organization’s Employee Assistance Program (EAP) and went to the boardroom to get some privacy for the call. She ended up talking to a trained counsellor for 45 minutes and came away with a game plan to help her daughter. Feeling much better, she got back to work with a clear head—and no fee required. Had she made an appointment with a child psychologist, that service would have set her back about $185 (the typical rate for an hour-long session in urban centres). EAPs, which are usually part of a corporate health-care plan, can help employees with a plethora of emotional and practical conundrums—from marriage counselling to finding a new general practitioner. And don’t worry, these services are not only free, they’re also strictly confidential. Sadly, Doucet says, many people don’t take advantage of them or even know the services are offered. Take employer wellness offerings, such as programs for weight loss and stress management: 45% of employee benefit plans include these programs today. Some companies, such as Accenture Inc. and IMAX, even offer subsidies to employees who are undergoing in-vitro fertilization treatments, which typically cost anywhere between $10,000 to $17,000 in Canada. Yet according to the 2015 Sanofi Canada Healthcare Survey, which tracks employer-sponsored health benefit plan data, only 11% of employees said they “definitely” used the free services available to them, while another 23% “kind of” or sometimes did. Big mistake, according to Doucet. “Having a robust health plan with an EAP is worth more than an increase in pay,” she says. If you’re married or in a common-law relationship, also pay attention to how your health and dental plans can complement each other. Families with separate workplace plans may not realize they have overlapping coverage and can make claims on both for spouses and children. Often, individual plans will only cover a portion of certain medical expenses like dental surgery or prescription drugs—but by taking advantage of your partner’s benefits, chances are you’ll wind up with close to 100% coverage. There are rules about which insurance company you submit to first, though. You must first file a claim with your own insurance provider, after which your spouse can then submit the outstanding balance to their provider. For kids, when there are two plans, the parent with the earlier birth date in the calendar year pays first. And don’t forget paramedical services, such as chiropractic, massage, physiotherapy and psychological/counselling services. (Believe it or not, subsidized counselling services can include job counselling—so if you’re not happy with your current employer, they could, in fact, assist you financially in finding a new job.) Paramedical services are the second-most used corporate benefits after drug plans and often offer up to a set amount each year (typically $500). Another way to save? Always check your claim payback amount. Benefit providers can make mistakes, so if you see a number that doesn’t make sense, make a call.

Insurance

While overlapping coverage is great when it comes to workplace health and dental plans, watch out that you’re not doubling up on insurance, says Jason Heath, a fee-for-service planner at Objective Financial Partners Inc. in Markham, Ont. Heath says he often sees it happen where people already have their own insurance policies but don’t bother checking to see what their employer benefits provide. In the end, you may wind up paying twice for the same coverage or too much in one area. “A lot of people have no idea what kind of insurance they have,” Heath says. Moreover, he adds, if you and your spouse both have insurance benefits, examine each plan closely and decide if scaling back on one is in order—it could save you some unnecessary expenses.

Little things (that add up)

Read through your benefits manual and you might be surprised by some of the more unusual perks you never knew were there. They can add a chunk of change to your household bottom line. For instance, financial services companies are known for offering employees discounts on everything from credit cards to mortgages. Large media corporations offer extra discounts on cable, wireless and magazine subscriptions. Some employers even offer discounted legal fees of 5% to 10% through their EAP’s referral service, which can provide much-needed savings during expensive divorce proceedings. (Every $500 counts, right?) Other niche benefits we know are out there that can save you some cash? Discounted gym fees, yoga classes and health coaching (anything from personal training to diet counselling). Legal firm Deloitte LLP even gives a generous $20,000 subsidy that helps cover the cost of adoption. Of course, don’t forget parental leave top-up payments. Younger employees should see if their employer offers them. Receiving, say, an extra $300 a week on top of what Employment Insurance provides is a godsend for families struggling to pay for everything from diapers to daycare for their older kids. You can even get a little creative with your benefits. Barbie Ladd, an insurance analyst from Fergus, Ont., turned accrued banked vacation days into days hanging out on the beach in the Maldives off the coast of India a few years ago. She cashed in 20 of them to help offset the cost of the $13,000 trip. She’s also cashed in vacation days to pay for home renovations. Most other employees save up and use their banked days, she says. “But not me. I’m cashing them in now. Why wouldn’t I? It’s free money.”

A (savings) tale of two employees

Think you can beat your company’s group defined contribution (DC) plan by investing on your own? Fred Vettese, chief actuary for Morneau Shepell, isn’t so sure. Matching contributions by your employer and lower management fees in DC plans can make a huge difference over the long haul. To drive the point home, Vettese ran the calculations for two employees: ”Sally,” who invests 3% of her salary in her company’s DC plan of low-fee mutual funds (MER of 0.5%), which her employer matches. And “Tom,” who invests 3% of his salary in standard mutual funds (MER of 2.5%) on his own, but receives no matching. Both Sally and Tom are 35, earn $60,000 annually, and expect to retire at 65 (receiving standard raises along the way). Below we show how their portfolios differ after 30 years, despite both earning an average return of 6% (before fees). By age 65, Sally’s account sits at about $410,000, while Tom only has around $151,000. How Tom and Sally fare