If you work for one of the eleven Advocate hospitals in Illinois, this article is for you.
From learning how your ADP 401(k) works to understanding when you can begin pension payments, I will walk through key points you should know to best utilize your employer benefits.
As an independent CERTIFIED FINANCIAL PLANNER™ our team helps many Advocate Health associates simplify the various benefits in order to successfully retire with a peace of mind.
1. ADP 401(k)
2. Pension Plan
3. Insurances (Life & Disability)
1. ADP 401(k)
New employees or “associates” are automatically enrolled into the pre-tax
401(k) with a 3% paycheck contribution beginning 30 days after their hire date.
A key strength of this 401(k) plan is the employer match that is offered. Employees are eligible to receive this match upon working 1,000 hours and being employed on the last day of the year. The actual matched funds are deposited via lump sum into your 401(k) by February 15th of the following year. Advocate will contribute 50 cents on the dollar up to a 6% employee contribution rate. This is “free money”. Take all of it.
New full-time employees should immediately upon hire increase their contribution to 6% from the auto-enrolled 3% contribution rate.
To understand the 401(k) match, take the example of an RN earning a $100,000 salary and contributing 6% of their paycheck ($6,000) into the 401(k) throughout the calendar year. Advocate would lump sum the matched funds ($3,000) into the 401(k) the following February. This is a great benefit to take advantage of, yet many associates fail to contribute 6% into their 401(k).
An overlooked feature of this 401(k) plan is the Roth 401(k) option. A traditional pre-tax 401(k) contribution allows you to deduct this amount from your taxes while a Roth 401(k) option is an after-tax contribution of your paycheck meaning no immediate tax deduction.
However, the key and most important benefit of the Roth 401(k) are tax-free withdrawals. Once associates are over 59 ½ years old and have invested into the Roth 401(k) for a minimum of five years they qualify for this tax-free withdrawal. Your traditional 401(k) withdrawals will be considered ordinary income and be taxed as wages after 59 ½ years old.
A potential weakness of the Advocate Benefit plan lies in the investment funds offered. New employees are automatically enrolled into the Vanguard Target Retirement funds unless they opt out and select individual funds. These funds are named for the year the associate plans to retire, for example, Vanguard 2050 Target Date fund.
While we are huge proponents of Vanguard we are cautious in using these “age-based” funds for a few reasons. These types of funds attempt to mimic a one-size fits all approach. The issue is these funds take only one factor into your 401(k) account--your age.
Your tolerance to accept stock market risk, investment preferences and your personal retirement goals are not considered or baked into “age-based” funds. The average investor should not be expected to understand or analyze these complex “age based” portfolios.
Let’s use the Vanguard 2045 Target Date fund that a 40-year-old associate would be automatically enrolled in. This 2045 fund has a 90% allocation to stock, 10% to bonds. This fund assumes the employee will retire in the year 2045 when he or she is 67 years old, full retirement age. Each year this Target Date fund will automatically shift more money into bonds whether you like it or not, avoiding the projected hike in interest rates or the overall bond market environment. These are factors that need to be considered when re-balancing your 401(k) and investment portfolios.
What target date funds fail to account for is an individual’s risk tolerance.
Gauging the appropriate amount of risk one can tolerate is crucial in selecting the funds within their 401(k) plan, target date funds simply fail to do this. While they are better than your contributions sitting idle in cash, associates can do a step better by personalizing their 401(k) portfolio with funds that fit their risk profile, goals and investment preferences.
Our team differs from the one-size fits all approach as we seek to understand the Advocate associate and their personal financial goals first before advising on which funds to select.
These are just a few of the key points to consider when managing your own 401(k). If you feel you do not have the time nor the expertise to review your 401(k), contact us for a second opinion.
Even better than the 401(k) plan is the pension plan offered through Advocate. Employees are eligible to start receiving pension credits after a full year of at least 1,000 hours of service. Employees do not need to actively contribute into the pension as they do with their 401(k). Advocate funds the pension plan benefit on your behalf automatically; all you have to do is work.
Daily interest is credited to your pension balance. The interest rate is based off of one-year treasury yields from the prior October. The rate credited in 2017 was 0.66%. Each quarter employees will receive a consolidated ADP 401(k) and pension statement with the performance of each account. You are fully vested into the plan after five years which means employees are eligible to receive some type of pension benefit in the future based on their age.
The earliest you may elect to receive pension benefits is 55 years old. Keep in mind the pension amount will be reduced if taken before 65. If you separate from Advocate with five years of service and are under 55 years old, your vested balance will continue to grow. Three months before turning 55 years old you may start the pension application process. The normal retirement age is 65 to receive full pension benefits. There is no reduction in benefits after reaching this age.
There are five pension options upon retiring. Similar to electing Social Security benefits, once you elect an option you are stuck with it.
For soon-to-be retirees the first step of the pension process is for the associate to complete the one-page pension application and return it to Advocate Benefits. This form can be found on your ADP portal.
Advocate will take about six weeks to process and mail you quotes. These quotes will give you an idea of the money you would receive based on each of the five pension options.
Upon receiving these figures, careful analysis needs to be done to determine the best option for your retirement numbers.
Below are the five pension options:
- Single Lump Sum
- 5 Year Certain & Life Annuity
- 50% Joint & Survivor Spouse Annuity
- 75% Joint & Survivor Spouse Annuity
- 100% Joint & Survivor Spouse Annuity
The single lump sum is eligible to be rolled over into your ADP 401(k) or a separate IRA retirement account, both options defers all taxes due. As always, consult with your tax professional before electing this.
The remaining four options include a monthly pension check to the associate. Keep in mind retirees must pay federal tax on pension income and have the option to withhold taxes directly from the pension company.
Currently, Illinois does NOT tax pension income. Again, consult with your licensed tax professional.
Chances are the Advocate pension will serve as a core piece of your retirement planning, proper due diligence must be done to use this vehicle correctly.
3. Insurances (Life & Disability)
Aside from selecting your health insurance coverage, life and disability insurance is
just as vital to protect your family in the case of premature death, sickness or injury.
Starting with your life insurance benefit, this pays your family a death benefit upon your passing. Basic life insurance is offered at no cost to employees for up to $50,000 of coverage. Salaried employees receive 1.5 x Salary for their Basic Life coverage, maximum of $300,000. Coverage above $50,000 is paid for by the Associate.
Employees may purchase additional life insurance in increments of $10,000 up to a $500,000 for themselves, their spouse or even children. The amount of premium you pay is based on group rates. We highly recommended comparing your optional employer life insurance to outside insurance company quotes to confirm you’re receiving the best rate.
Optional life insurance is deducted bi-weekly on paychecks. New employees may apply for up to $150,000 of life insurance without evidence of insurability within 60 days of being hired. Any time after this 60-day window you will be required to complete medical questions to get approved.
Let’s switch gears to Disability Insurance.
This benefit pays if you get sick or injured and are unable to work. Advocate offers and pays for both Short-Term and Long-Term Disability coverage.
If an employee is absent from work for more than 12 days due to a non-work related illness or injury, he or she is eligible for Short-Term Disability benefits. This benefit will pay 60% of your base salary for up to five months.
Long Term benefits kick in if you are certified as disabled. If you were hired before 12/31/2010 you would receive 60% of your base pay, if hired after this date then you’d receive 50% of your base pay.
If your salary is over $150,000 I would highly recommend you evaluate the “buy-up” option to add additional coverage for your Short-Term and Long-Term coverages. Similar to life insurance coverage we highly recommend everyone to compare and/or supplement your employer disability coverage to protect your income properly.
Choosing the right combination of employee benefits can be overwhelming. Save yourself some time and stress. Contact us for a no-cost discovery call. Many Advocate associates find it useful to get professional advice on how to best use their benefits. As the old saying goes, “having no plan is planning to fail.”
One last piece of advice is to always consult with a licensed CERTIFIED FINANCIAL PLANNER™. As an independent CFP that is legally obligated to act as a fiduciary for your best interest, I can give you that much needed second opinion over a no-cost review.
The above article is informational in nature only. Individuals should always consult with their tax advisor regarding their personal tax situation.
This publication is no way affiliated with nor endorsed by Advocate Health Care. Employees should consult with their Human Resources Department for further information on plan details including eligibility and questions regarding any additional benefits not covered in this article.
More about the Author
As an independent CERTIFIED FINANCIAL PLANNER™ in Bartlett, IL (a western suburb of Chicago) my practice serves three specific professions:
Healthcare professionals, Business owners and Federal employees.
My team helps navigate both the wealth accumulation and retirement de-cumulation phases for these professionals. We do this through comprehensive financial planning which includes taking into account your specific employer retirement benefits (403b, TSP, SEP IRA, etc), tax implications, RMDs and proper diversification among all investment accounts.
Our goal is to save you precious time, stress and your hard-earned money versus tackling this alone. Let a skilled team of experts like us, already familiar with your employer benefits, create a custom plan for your unique needs and guide you through the constant changes in life towards ultimate financial independence.
Dustin Javier, CFP® AWMA®
CERTIFIED FINANCIAL PLANNER™
President | Dean Johnson Advisory, LLC
[Email] [email protected]
Securities and investment advisory services offered through Ausdal Financial Partners, Inc. Member FINRA/SIPC. 5187 Utica Ridge Rd., Davenport, IA 52807. (563) 326 2064. www.ausdal.com Dean Johnson Advisory and Ausdal Financial Partners are independently owned and operated.