Un­pack the Ben­e­fits Pack­age

The Washington Post Sunday - - Sunday Briefing -

T o all the soon-to-be grad­u­ates out there, I want to say one word to you. Just one word. No, not plas­tics. I’m talk­ing about ben­e­fits. When you’re look­ing for that first post-de­gree job, the ten­dency is to fo­cus on salary in de­cid­ing which of­fer to take. But salary is just one piece of the fi­nan­cial pack­age. A job with a lower salary may be worth more than a job with a higher salary be­cause of med­i­cal, re­tire­ment and other ben­e­fits.

I con­fess that I didn’t catch on to this un­til later in life. When I snagged my first job at age 13 at the neigh­bor­hood dry clean­ers, I was so ex­cited that I didn’t even ask how much I would be paid. And when I came to The Post, I was obliv­i­ous to ben­e­fits that turned out to be among the ma­jor ad­van­tages of work­ing here. But now I know. Last week I asked Ron Geb­hardts­bauer, a se­nior fel­low at the Amer­i­can Academy of Ac­tu­ar­ies, to fig­ure how much I would have needed in sav­ings to pro­duce the monthly in­come I re­ceive from The Post as a re­tiree. The an­swer: It would have taken about $800,000 in sav­ings to buy an an­nu­ity that would pro­vide me with the same life­time stream of pay­ments.

My pen­sion is the old-fash­ioned, de­fined-ben­e­fit variety, a species that is fast dis­ap­pear­ing. Most re­cent grad­u­ates will be talk­ing to em­ploy­ers who of­fer cash bal­ance plans or 401(k) or other de­fined-con­tri­bu­tion plans. It’s im­por­tant to know the pluses and mi­nuses of each type of pen­sion plan and to un­der­stand other ben­e­fits, such as em­ployer-pro­vided health in­sur­ance and paid parental leave.

Most re­cent grad­u­ates need help un­der­stand­ing the value of the ben­e­fits they’re be­ing of­fered, said Mon­ica Shutte, a ca­reer ad­viser at the Robert H. Smith School of Busi­ness at the Univer­sity of Mary­land. Her of­fice en­cour­ages job-hunt­ing grad­u­ates to read ben­e­fits pack­ages and to cre­ate a spread­sheet that shows salary and the cost of ben­e­fits to both the em­ployer and the em­ployee. Job seek­ers should know, for ex­am­ple, how much the em­ployer pays to­ward health in­sur­ance but also the pre­mi­ums and co-pays for which the em­ployee will be re­spon­si­ble.

“That vis­ual aid for the stu­dent makes it very real for them how much a role ben­e­fits are pay­ing in ad­di­tion to salary,” she said. They can add up ev­ery­thing to see which of­fer is worth the most.

Shutte said most em­ploy­ers pro­vide de­tailed in­for­ma­tion about ben­e­fits to prospec­tive work­ers. “Be­cause it’s be­com­ing more and more com­pet­i­tive out there, the salary range is very tight, so ben­e­fits pack­ages are what sep­a­rates one com­pany from an­other,” she said.

Some ben­e­fits may be more or less at­trac­tive de­pend­ing on your age and your long-range plans. For in­stance, as valu­able as a de­fined-ben­e­fit pen­sion has been to me, Geb­hardts­bauer said a worker who doesn’t plan to stay with a com­pany for most of his or her ca­reer might ben­e­fit more from a dif­fer­ent type of re­tire­ment plan.

In a tra­di­tional pen­sion, your em­ployer funds all con­tri­bu­tions, which in­crease as you get closer to re­tire­ment, and de­cides how to in­vest the money. At re­tire­ment, you re­ceive a guar­an­teed pay­ment based on your age, salary and years of ser­vice. The longer you stay, the big­ger your take at re­tire­ment.

How­ever, younger work­ers who plan to leave af­ter a few years might pre­fer a cash bal­ance plan or 401(k), both of which are more por­ta­ble than a tra­di­tional de­fined-ben­e­fit plan, Geb­hardts­bauer said.

In a cash-bal­ance plan, com­pa­nies con­trib­ute a set amount for each worker but put in nearly the same amount for all em­ploy­ees re­gard­less of age or years on the job. Like a tra­di­tional pen­sion, the cash-bal­ance plan prom­ises a spe­cific pay­out at re­tire­ment. Once you are vested — or legally en­ti­tled to ben­e­fits — you’ll have more money in a cash-bal­ance plan than in a reg­u­lar plan should you de­cide to leave af­ter just a few years in the job. If you leave, you can take a lump sum that you can spend or roll over into an­other re­tire­ment ac­count.

In a de­fined-con­tri­bu­tion plan, the best known of which is the 401(k), you and, usu­ally, your em­ployer each con­trib­ute to your re­tire­ment ac­count. Un­like a tra­di­tional pen­sion, you choose how that money is in­vested. When you leave your job or re­tire, you may ei­ther get a lump sum based on how much the ac­count is worth af­ter in­vest­ment gains and losses, or you may leave it in the 401(k) plan or roll it over to an­other re­tire­ment ac­count. Geb­hardts­bauer also had ad­vice for job hunters de­cid­ing be­tween a job that of­fers health in­sur­ance and a job with a higher salary that doesn’t. Call an in­sur­ance com­pany to find out how much it would cost to buy an in­di­vid­ual health pol­icy to see whether the higher salary would cover it.

Univer­sity of Mary­land grad­u­ate stu­dent Nathan Groce, 27, who is to start a job in brand man­age­ment for Camp­bell Soup in Au­gust, paid close at­ten­tion to ben­e­fits when he was job hunt­ing re­cently.

Be­fore ac­cept­ing the po­si­tion at Camp­bell, Groce and his fel­low grad­u­ate stu­dents com­pared ben­e­fits at com­pa­nies of­fer­ing jobs, which helped them un­der­stand the pros and cons of each of­fer and gave them some ne­go­ti­at­ing lever­age, he said.

Groce said that com­par­i­son paid off. Camp­bell’s salary was among the best of sev­eral com­pet­ing of­fers, and the ben­e­fits in­clude health and den­tal cov­er­age, both a de­fined-ben­e­fit pen­sion and a 401(k) plan, group dis­counts for gyms, and auto and home in­sur­ance.

The Sal­is­bury na­tive was not a stranger to ben­e­fits, hav­ing spent four years work­ing be­tween un­der­grad­u­ate and grad­u­ate school.

But he also had help from his mother, a hu­man re­sources man­ager who spe­cial­izes in em­ployee ben­e­fits. “She said, ‘Don’t just look at the salary pack­age.’ ”

Good ad­vice from an im­pec­ca­ble source. AN ON­LINE GUIDE for the class of 2007 fea­tur­ing tips on how to make it in the real world will launch next week­end at wash­ing­ton­post.com. ON­LINE DIS­CUS­SION Martha M. Hamil­ton will dis­cuss em­ployee ben­e­fits and other is­sues with Ron Geb­hardts­bauer, a se­nior fel­low at the Amer­i­can Academy of Ac­tu­ar­ies, at noon Tues­day. Any ques­tions about re­tire­ment that you’d like to see ex­plored in the col­umn? Please e-mail me at hamil­tonm@wash­post.com.

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