By Tosha Dunn, Spring 2016 Student Intern
Right, let’s start with the easiest thing. Your employer will likely offer some sort of benefits package that you should carefully consider. For one thing, benefits packages are essentially a sort of additional salary, even though they aren’t included in that magic per year earnings number–think of them as the icing on the cake. Benefits packages on the whole generally include healthcare, sick leave, etc.
But let’s move along and imagine Company A offers you a salary of $46,000 per year plus benefits that include healthcare and investment opportunities (maybe they offer a matching plan, more about that below), and Company B offers you a salary of $51,000 with only healthcare–how do you compare the two on your own? Remember, the benefits are a form of salary, and you need to be able to assign proper values to each because the $46,000 per year may actually be worth more than $46,000; in fact, it may raise the salary beyond the $51,000 depending on how good the benefits are. So two questions: (1) what are the most common plans offered, and (2) how do you compare the plans?
The plan you are most likely to encounter will be the 401(k). Insert scary music because whaaat is a 401(k)? Again, sorry, your biology degree isn’t going to help in deciphering this one. However, the IRS supplies the most interesting definition of a 401(k) ever: “[it] is a defined contribution plan where an employee can make contributions from his or her paycheck either before or after-tax.” Right-o, what that definition is trying to say is that a certain amount of money (determined by you) is removed from each paycheck received, and that money is set aside in an investment account. The investments are generally some financial vehicles offered by your employer that you select from, so maybe there’s a fund or maybe there’s company stock. The definition also gets at the removal of the money before or after taxes are removed–we won’t be discussing the full ramifications of taxes here, so consult a tax professional.
Besides the 401(k), a secondary perk/common form of investment to check for is if the company offers any sort of matching plan. “Matching” means that whatever percentage of your paycheck that you determine to set aside in the 401(k) account, the company will match up to a defined percent. See, this is where you need to carefully look at the benefits offered because some employers will match up to 100% of the funds you put into the account (up to some level and then there may be a reduced amount of matching). Nonetheless, a matching plan of any sort means that whatever amount you invest will be increased by your company, and this results in a greater amount of funds to grow over time (which is extremely important because the more funds you having growing a longer period of time, the greater the amount you will have at retirement). However, matching is not always offered, but where it is, you would generally value a matching plan more highly than a plan not offering matching.
These two options are the most common retirement benefit plans offered, and for information about other less common plans a study from the Society for Human Resource Management provides a comprehensive list. The IRS also offers more dry definitions and a comprehensive list of benefit plans.