Updated: May 3, 2013 12:14PM
I dedicate this column to my friend, Elaine, who gave me an up-close look at the paperwork nightmare that arises when you change jobs. Even if you get a better offer from a new employer, the piles of paperwork involved in re-establishing your retirement plan, health insurance and other benefits could make you think twice about moving to a new employer.
Elaine (not her real name) got a job as an executive secretary, and the first thing she had to deal with was her 40l(k) account at her former employer. Should she leave it there, roll it into her new employer's plan, or do an IRA rollover to a mutual fund company?
My advice: There was no reason to maintain ties at her old employer. I suggested she look at the fees charged on the retirement plan at her new employer, a small business, which were likely to be higher than a rollover to Fidelity or Vanguard. Plus, she'd have a greater choice of funds at the mutual fund companies.
Max out on 401(k) contributions?Then there was a matter of signing up for the new 40l(k) plan -- not only deciding which funds, but how much money she could afford to have deducted each week.
Typically, I cavalierly tell people to invest the maximum allowed. But even well-paid executive secretaries need something left over for food and commuting expenses. And we couldn't make a final decision on the funds or the amounts until we took into account the cost of insurance coverage, which would come out of every paycheck.
We decided on a simple assortment of funds, and then she signed a form naming her husband as beneficiary. We'd come back to the specific contribution amount later.
While the stack of paperwork and brochures about the investment plan didn't intimidate me, I must admit I shuddered when she switched paperwork piles and confronted me with the health plan.
Her new employer had only the Health Savings Account option. Elaine had already done the basic research, determining that most local hospitals and medical groups were covered by the new plan.
Now, she'd have to figure out how much to take out of her paycheck every month to fund the savings portion. After all, the high deductible -- $4,000 for herself and her husband -- meant she'd certainly have to pay many bills out of her own pocket. If she paid them out of the plan's pre-tax account, she'd be far better off. But that required a big monthly deduction from her paycheck.
Bottom line: Since Elaine has ongoing and expensive prescription costs, the new company's health plan probably would require her to pay the entire deductible amount of $4,000 per year. That was far more than the cost of her old company's traditional plan.
It didn't take much to realize that Health Savings Plans are great for healthy people who don't need to dip into their tax-deductible savings account, but not so great if you have ongoing medical costs. Plus, she'd have to track all those costs herself, adding to her paperwork burden.
By the time Elaine and I calculated the monthly deductions from her new, larger paycheck, the results were disappointing.
First, a huge deduction for taxes. Then, large Health Savings Account contributions to cover her ongoing costs. Then, I was urging her to make larger contributions to her 40l(k) plan, even though her employer wouldn't match contributions.
We kept subtracting. Then she showed me her weekly gasoline bill, though she drives a small car. Plus, she helps pay for her aging father's care. More subtractions.
Why are YOU working?A light went off in both of our minds at the same time: Why was she working?
The answer went beyond the need for health insurance. Elaine loves her job, and she's great at it. She makes a real contribution. The world needs more such motivated workers. But the same day, it was announced that a well-known, but failed, CEO had departed with severance of $221 million!
I wondered how long it will be before all the the self-motivated people who keep our economy running suddenly have second thoughts about the value of their work. And that's The Savage Truth.
Terry Savage is a registered investment adviser. Check out Terry's answers to reader questions at suntimes.com, and click on Business.