Benefits explained | Employment | Financial Literacy | Khan Academy

Hi everyone! So, what I'm going to do in this video is really go through a bunch of terms that you're going to see when thinking about benefits from your employer. The whole goal here is so that you're never lost when you hear an acronym like 401k—well, that's more of a part of the tax code—or FSA or HSA or anything like that. We're just going to explain all of that in this video at least so that you have a good start and you don't feel intimidated when you hear these terms.

So, the first term I will talk about is health insurance contribution. Health insurance costs money, and many times the employer will pay some or all of that for the premium. Remember in other videos we talk about how the premium is what someone pays the insurance company in order to insure you. So, health insurance contribution is either your employer paying for your health insurance or, in many cases, they might pay for 80 or 90% of your health insurance. Because you might have different options, some more expensive than others, and so you might have a little bit of skin in that game as well where you have to pay 10 or 20%. In many cases, it might also cover dependents. If you have a partner, if you have children, they might cover 50% of the premium for them or in some very generous organizations, they might cover 80 or 90% of the premiums for dependents as well.

Another type of benefit is retirement benefits. The most common retirement benefits you're going to see from your employer these days are 401ks. As I mentioned, that term 401K comes from the tax code. But what it allows you to do is put money aside pre-tax, so you're not going to pay money, you're not going to pay tax on that money right now. You might have to pay it later on when you use it during retirement, but it allows you to set aside money, pre-tax, in a 401k account and invest in it without having to pay tax. Then later on, when you're retired, you might have to pay taxes on it, but you might have a lower tax rate at that point.

Now, the reason why it is an employer benefit is it tends to be sponsored by your employer. Many employers will also match your 401k in order to provide an incentive for you to participate in that. We give a lot of other videos where we go into details about 401K programs, but they might match dollar for dollar, 1% of your income, 2% of your income, or in some cases even more than that.

Now, another term—and this is one that I've been confused about when I had my first job—is FSA. This is a flexible spending account, and it can be used for things like medical expenses. It could be used for child care, and this allows you to put aside money pre-tax that you could spend on those things. If you didn't have an FSA and if you were to just pay for qualifying child care, that's post-tax money. So you'd have to pay your tax out and then pay for it. While here, you get to use pre-tax money, which is a benefit because you don't have to essentially pay tax on that money that you're spending on this qualifying child care.

Now, there is one really important thing to think about with FSAs: it's use it or lose it. So if you have $500 left in your flexible spending account (your FSA) at the end of the year, you lose that. So you have to be very careful that if you are going to set aside a flexible spending account, that you use it all.

Now, a related term, but one that's not quite as flexible but more focused on healthcare, is a health savings account (HSA). This can be used for medical expenses. One way to think about it: let's say you have a deductible. So, your health insurance doesn't kick in for the first $5,000—say that's your deductible in that year. Until you spend $5,000 of health insurance costs, you're paying all of that out of pocket. That could come from an HSA, a health savings account.

Now, what's good about health savings accounts is that they do roll over. So this isn't something where you have to say, "Oh, I got to use it or lose it." If you don't use a certain amount at the end of the year, that rolls over into the next year. So it's a little bit less stressful, at least from my point of view, that you don't necessarily have to use it all.

Now, other benefits that you might get are things like workers' compensation. This is a situation: let's say no one wants to fall into the scenario, but sometimes life happens where you get injured on the job. You have to climb a ladder, and you fell down, or you get cut in some pretty bad way while you're working in the factory or whatever it might be. This is compensation from the employer to make up for that. It might be direct compensation for your injury or your pain; it might be time off, paying for your medical expenses. If the injury is more severe and maybe keeps you from working for some period of time, it could turn much more into another similar idea, which is disability insurance.

Disability insurance usually does not come from your employer; they might pay for this, but it's usually coming from an insurer. And that's if you ever become disabled—so you're not able to do your job or not be able to work in general—that you still have a way of supporting yourself and your family. And so that's what disability insurance covers.

And then, life insurance. When I was a kid, I was like, "Why does anyone get life insurance? If I'm dead, maybe, you know, what's the insurance for?" But once I had kids, I started to appreciate the value of life insurance. And that's essentially if you die, that your family gets something. Ideally, it's there to help cover expenses that you were providing before as an income earner. Many employers will provide some level of life insurance. Now, in many cases, it might not be enough life insurance for your family to live off of if something happened to you, but it is something. Although you might want to add your own life insurance above and beyond that.

Now, the last thing I will talk about in this grab bag video is when do you get a chance to choose whether you're going to have a health savings account or what you're going to do with your 401k plan or which of these benefits you're going to elect? Well, there are really three times that you can do this. The most obvious time is when you start a job. So when you start, you're going to be signing all sorts of paperwork. And I know you're eager to start, but that is a good time to think about the decisions you're going to make around benefits: which health insurance plan, maybe dental plan, what are you going to do with an FSA or HSA? That's one time to do it.

Once you're working, there's something called an open enrollment period. At Khan Academy for employees of KH Academy, it's a one-week period—that's once a year. The HR (the human resources department) will tell you about it, and that's your week where you have to reenroll in some of your benefits or you have an opportunity to change them.

Now, the last time—or the third time, or the alternative time—where you can actually make tweaks to your benefits is after a qualifying event. Let's say you get married, or you get divorced, or you have a new child. These are all times that you will hopefully get an opportunity to tweak your benefits.

So, I will leave you there. I threw a lot at you, but we just wanted to make sure that when you are working and your people are telling you about your benefits, you're like, "Oh, I know exactly what an HSA is," and "Hey, I can roll that one over versus an FSA." You'll sound awfully smart, but even more importantly, it's going to help you navigate your finances.