Learn the Benefits Lingo

Friday, April 7, 2006

Deciding which benefits to accept can subject you to an overdose of alphabet soup. To help you choose, below is a glossary of frequently encountered terms, as well as links to Web sites that can explain the benefits basics.

Health Insurance Options

COBRA Permits employees and covered family members to keep health coverage provided by an employer, for a fee, for a defined period of time after a "qualifying event," including college graduation.

Health Maintenance Organization (HMO) Health insurance in which doctors, hospitals and other health-care providers contract with an insurance company to provide care for its members. Members must use participating providers and select a primary-care physician.

Health Savings Account (HSA) Tax-exempt account for medical expenses, used with a high-deductible health plan. Costs less upfront, provides members with more choices for care and exposes those who need extensive care to high out-of-pocket costs.

Health Reimbursement Arrangement (HRA) Company-funded; typically offered with catastrophic health coverage available after significant out-of-pocket spending.

Indemnity Plan Also known as a fee-for-service plan; you pay a percentage of health-care costs. Participants can usually choose their doctors.

Preferred Provider Organization (PPO) An employer-provided health insurance plan in which doctors and other care providers agree to offer care for members at reduced rates. Members may use nonparticipating providers and get reimbursed, but at a lower rate.

Retirement Plan Options

401(k) Plan Popular employer-sponsored retirement plan in which an employee chooses to have some pretax income diverted -- an amount often matched to some extent by the employer -- for investment into a preselected menu of vehicles, including money market accounts, stocks and bonds. Upon retirement, the employee owns the account and can withdraw whatever is in it. See http://mutualfunds.about.com/od/calculators for retirement calculators.

Defined-Benefit Plan Once the standard pension from a company, which guarantees a set monthly payment for a retired worker until death. What amount is determined by a formula that incorporates years of employment, retirement age, employee's pay and other factors. These retirement plans are rare because companies decided they were too expensive and risky.

Defined-Contribution Plan The 401(k) is the best known of these company-sponsored plans, in which the amount an employee is paid upon retirement is not determined by a formula but by how much has been contributed and earned through investments.

Individual Retirement Account (IRA) Set up by individuals, not employers. Allows account holder to set aside pretax income to invest for retirement.

Other Benefit Options

Disability Insurance Provides replacement for employees' income when they can't work because of extended illness or injury.

Flexible Spending Account (FSA) Set up by employers to help employees pay health-care and other costs; includes pretax income that can be used for medical expenses not covered by insurance, including prescription and over-the-counter drugs. Money not used is forfeited at the end of the year. Many companies also offer dependent-care spending accounts, into which you divert pretax income for child care.

Life Insurance Pays a set amount of money to beneficiaries in the event of death of insured. Employers often offer basic life insurance at no cost to employees.

-- January W. Payne

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