Benefit Decline
by ::G @ 2013-02-03 15:19
In revisiting my payroll deductions as part of re-budgeting for the year, I was reminded of how much my actual employment benefits have declined in the past couple years.
Previously, with IBM and Hitachi, we were given a "cash balance pension" in lieu of a real pension. This accrued 5% of the employee's salary in a retirement fund. Then there was the 401(k) match, 50% of the employee contribution, up to 6%, i.e. 3% maximum. That is, if the employee made use of the 401(k) match, he would be saving a very respectable 14% a year. Finally, the medical plan had a deductible of $200 in-network.
In 2011, Hitachi suspended its cash balance contributions, freezing accrual at a nominal interest rate of around 3%. Furthermore, they only funded the contributions at 80%, the minimum required by law.
Then when GST was acquired by WD, they further altered the benefits. The 401(k) match declined to 50% up to 5%, i.e. 2.5% maximum. The medical plan was switched to a high-deductible plan, euphemized as a "consumer-driven" plan, with a family deductible of $3750 and out-of-pocket maximum of $6000. The monthly premium went down slightly, but since the high deductible was intended to be offset by the use of a Health Savings Account (HSA), the deductions for medical coverage pretty much doubled. WD contributes $1000 to an employee's HSA (with family) so the effective deductible is $2750. There are also "incentives" such as annual health assessments and biometric screenings that generate additional contributions. However, these result in privacy concerns, so they're not without risk.
The upside of the HSA is that it's tax-deferred and can be accrued like a 401(k), but there's a limit to the annual contribution amount. As an additional benefit, WD offers an employee stock purchase program (ESPP), which discounts company stock by 5% on the lowest price at the start of the 2-year enrollment window, or the end of each 6-month offering period. ESPPs are a risk with dubious benefits, though, since if the company falters, the stock price could plummet along with resource actions. Further, the employee is socking away money for 6 months without interest, and has to sell the stock to realize a profit. In that regard, the employee should sell stock after the 6-mo period as soon as there's a good opportunity.
The net change in retirement savings was from 14% annual savings (6% pre-tax input) with IBM, to 9% with Hitachi, to 7.5% (5% pre-tax input) with WD. Ouch.
A personal finance book I read, Your Money Ratios, claimed that employees need to save 12% per year up to age 45, and then 15% thereafter to retire at age 65 with 80% income. That's a big gap to make up.
Currently, I'm making just over 4% contributions to the HSA and using the ESPP at 3%, for a total of just over 14.5% annual savings. That has the caveat that I may need to draw down on the HSA in the event of medical need. I'm thinking of scaling back the HSA contribs after I reach the $6k out-of-pocket max, which would result in approximately covering the deductible as offset. Assuming we make minimal use of the HSA funds, that'll be over 12%. Unfortunately, my pre-tax contributions are almost all of that figure.
No wonder my paycheck seems a lot smaller these days: my payroll deductions went up 100%. Rough economic times. Then again, it could be worse. Maybe it's not the best idea to think too much on the "good ol' days"....
Previously, with IBM and Hitachi, we were given a "cash balance pension" in lieu of a real pension. This accrued 5% of the employee's salary in a retirement fund. Then there was the 401(k) match, 50% of the employee contribution, up to 6%, i.e. 3% maximum. That is, if the employee made use of the 401(k) match, he would be saving a very respectable 14% a year. Finally, the medical plan had a deductible of $200 in-network.
In 2011, Hitachi suspended its cash balance contributions, freezing accrual at a nominal interest rate of around 3%. Furthermore, they only funded the contributions at 80%, the minimum required by law.
Then when GST was acquired by WD, they further altered the benefits. The 401(k) match declined to 50% up to 5%, i.e. 2.5% maximum. The medical plan was switched to a high-deductible plan, euphemized as a "consumer-driven" plan, with a family deductible of $3750 and out-of-pocket maximum of $6000. The monthly premium went down slightly, but since the high deductible was intended to be offset by the use of a Health Savings Account (HSA), the deductions for medical coverage pretty much doubled. WD contributes $1000 to an employee's HSA (with family) so the effective deductible is $2750. There are also "incentives" such as annual health assessments and biometric screenings that generate additional contributions. However, these result in privacy concerns, so they're not without risk.
The upside of the HSA is that it's tax-deferred and can be accrued like a 401(k), but there's a limit to the annual contribution amount. As an additional benefit, WD offers an employee stock purchase program (ESPP), which discounts company stock by 5% on the lowest price at the start of the 2-year enrollment window, or the end of each 6-month offering period. ESPPs are a risk with dubious benefits, though, since if the company falters, the stock price could plummet along with resource actions. Further, the employee is socking away money for 6 months without interest, and has to sell the stock to realize a profit. In that regard, the employee should sell stock after the 6-mo period as soon as there's a good opportunity.
The net change in retirement savings was from 14% annual savings (6% pre-tax input) with IBM, to 9% with Hitachi, to 7.5% (5% pre-tax input) with WD. Ouch.
A personal finance book I read, Your Money Ratios, claimed that employees need to save 12% per year up to age 45, and then 15% thereafter to retire at age 65 with 80% income. That's a big gap to make up.
Currently, I'm making just over 4% contributions to the HSA and using the ESPP at 3%, for a total of just over 14.5% annual savings. That has the caveat that I may need to draw down on the HSA in the event of medical need. I'm thinking of scaling back the HSA contribs after I reach the $6k out-of-pocket max, which would result in approximately covering the deductible as offset. Assuming we make minimal use of the HSA funds, that'll be over 12%. Unfortunately, my pre-tax contributions are almost all of that figure.
No wonder my paycheck seems a lot smaller these days: my payroll deductions went up 100%. Rough economic times. Then again, it could be worse. Maybe it's not the best idea to think too much on the "good ol' days"....
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