3 reasons to take a better health insurance plan over an employer 401k match
For small companies and start-ups, 401k and health insurance plans are expensive employee benefits. For many of these companies running on limited resources, the decision to offer either one or the other, or a weak version of both is made for their employees. I’ve worked at companies with weak health insurance plans and a great 401k match, good health insurance and almost no employer match, and I even had an employer upgrade the health plan by taking away funds from the employer match on the 401k program. My preference? I’d prefer a better health plan, so long as there is still a 401k program to contribute my own funds to. Here’s why:
- It’s called insurance for a reason, and I want it to cover my worst case scenario. If something terrible happens (eg. a car accident, pedestrian accident, etc.) I want to be COVERED. Ambulance and hospital bills could get big enough to bankrupt me without proper coverage, and while the 401k money can compound away for the next 40 years, it isn’t going to do me any good while I take on substantial debt today.
- I live in Manhattan, and I once had a health insurance plan under EmblemHealth where the only physical therapist I could see in New York City was in Queens! It’s pretty ridiculous to think about when you consider there are hundreds of PTs in Manhattan. Having to pay out of pocket or travel 45 minutes each way to a session would drastically strain my quality of life, take time away from working, and be huge pain in the ass. NO THANKS.
- The majority of my 401k contributions is employee funded anyways. Financial advisors, pump the breaks before you pounce on me for suggesting anyone leave free money on the table. Compound interest is the 8th wonder of the world and all, and I would encourage anyone who does not have an employer match to contribute at least 10% of their earnings to their 401k program or other retirement investment vehicles. So if you aren’t putting money away for your future, please get started. But the extra few hundred bucks your employer contributes isn’t going to get in the way of your retiring vs. not, even with compound growth.
One of my former employers contributed a 6% match, which actually sounds pretty good! Until I realized that the employer will match 6% of what the I the employee contribute. So if I contributed $100 of my own pre-tax dollars, the employer matched $6! This was barely enough to cover the plan fees, and certainly wasn’t my ticket to a golden retirement. Not to mention it was misleading to most employees who were under the impression it was a 6% match (meaning dollar for dollar up until 6% of a employee’s salary). This was a terrible plan, but it was better than nothing and the health insurance provided by the company was decent.
In an ideal world I’d have both a great 401k match and even better health insurance, but given my history and inclination to work for small companies, I have been faced with these realities and options.
What would you do given the option? Would you take the 401k match or a better health insurance plan? Let me know in the comments.
Originally published at www.ratraceconfessional.com on February 23, 2017.
