I recently completed work with a client who was considering switching jobs. It was an interesting case, as the switch involved moving from a job with a pension plus a 401k-like retirement plan to a job with either a pension or a 401k-type plan. The primary question the client wanted to answer was given the difference in benefits, what salary would be required for the new job to make it at least as lucrative as his current job.
When it comes to considering job offers, most of us don’t look beyond salary, but if benefits beyond salary are very disparate, that can be a mistake. Here are a few benefit differences that can tip the balance in a job offer:
Employer pension – at this point, few employers provide pensions, but we work with many clients who are either Federal government employees or teachers in the Georgia public school system and University System. Thus we’re familiar with both the FERS and TRS pension plans, and those plans are a key part of client retirement plans. If you are considering switching jobs, to or from a job with a pension, start by determining what level of savings is necessary to equal the income stream from a pension. By doing that, you’ll have a good idea of how the job change will impact your retirement.
If you’re switching from a pension, take a look at how much the employer will match and how much you’ll have to contribute to generate a stream of income equal to that of the pension. A generous match, like those offered in the Optional Retirement Plan or at Emory University can ultimately prove more lucrative than a pension. If you’re switching to a job with a pension, take a look at how that pension will compare in retirement to the stream of income you could generate were you to continue to save using your current retirement plan. In either the case of a pension or a defined contribution plan like a 401k, you’ll want to understand how much you’ll be contributing as that will impact your overall income.
Finally, before leaving a job, make sure you understand what you are leaving on the table in terms of unvested contributions. This can be particularly important with a pension as what you are leaving behind can be substantial.
Tax Advantaged Plans– when considering switching jobs, you’ll want to understand what options are to shelter income from tax, particularly if you are in a high tax bracket. Most of us are accustomed to, at best, a single retirement plan like a 401k or a Simple IRA in which we can participate. However, in our experience, colleges and universities often offer multiple plans 1, particularly for high-income employees. Maximizing contributions to those plans can allow for sheltering tens-of-thousands of dollars from tax. In the private sector, non-qualified deferred compensation plans for highly compensated executives are not unusual.
Although the rules and protections around these types of plans differ, they do allow for deferral of income for a time, and thus during that timeframe, participants can reduce their income tax burden. Beyond retirement plans, HSA-eligible insurance plans and flexible spending accounts can also offer a means to reduce taxable income as well. Understanding what opportunities exist to decrease taxable income is a crucial part of assessing a job offer, particularly if you find yourself in a high tax bracket.
Insurance – insurance cuts a broad swath, from health and life insurance to – in some instances – disability and long-term care. Comparing life insurance is relatively straightforward, but health insurance is more complex given differences in coverage, costs (both premiums and out of pocket) and networks. Disability and long-term care are offered less frequently by employers and – particularly in the case of disability – that can be a costly omission given that individual disability coverage is generally much more expensive than group coverage.
If you are considering switching jobs, the negotiation will almost certainly start with a salary. However, to truly understand the value of your offer, make sure to understand the value of the retirement plan and the other benefits offered as well.
- Emory University and the University System of Georgia are good examples of employers that offer multiple plans (academic institutions often offer lucrative retirement options as I outlined in this post.) At Emory, highly compensated employees can participate in a 457b plan in addition to the 403b plan. As for the University System of Georgia, employees who elect the Optional Retirement Plan can also make contributions to a 403b or 457 plan. ↩