Employee Benefits: How to Know What to Choose

If you've started a new job, you may be overwhelmed with the choices in employee benefits, depending on your employer's offerings, from 401(k) plans to life insurance. Most companies require the employee to work for specific periods—called vesting—before they become eligible to receive or restart benefits.

Understanding how the most common employee benefits work will help you choose the best options for your situation. Learn how to choose employee benefits that fit your needs and how to avoid mistakes.

401(k) Plans

Many employers offer their employees a 401(k) plan, which provides a tax-advantaged way to save for retirement.

The Internal Revenue Service (IRS) allows you to contribute up to a set maximum, which changes from year to year. In 2025, the most you can contribute is $23,500, unless you're 50 or older. In that case, you can contribute an additional $7,500 as a catch-up contribution, for $31,000 total.

Many experts agree that it's best to contribute as much as you can afford as early as possible, so you can maximize the effects of compounding growth over time. A good rule of thumb is to aim to contribute between 10% and 20% of your gross salary. The later in life that you start, the more you'll need to contribute. At minimum, try to contribute enough to snag your employer match. (The average employer match is 4.6%, and the median is 4.0%.)

Typically, you'll have to decide how you want your contributions to be invested. Factor in your risk tolerance and investing goals when you choose how to invest through your 401(k). Generally, younger people can handle more risk because they have more time to weather the ups and downs of the market.

You'll probably have the choice of investing in money market funds as well as stock and bond mutual funds. Mutual funds are essentially a basket of assets that you can invest in at once. One example is a target-date fund (also known as a life-cycle fund). This is a mutual fund that adjusts risk as you age.

In general, a younger person would probably do well to be in a more risky stock-based fund rather than a money market or bond mutual fund, which would be better for those who are nearing retirement.

Health Insurance

Another benefit employers often offer is health insurance. You may have to choose between a Health Maintenance Organization (HMO) and a Preferred Provider Option (PPO).

An HMO allows you to go to doctors that are contracted with a specific insurance company. If you have a specific doctor you like to use, verify they will be covered under the particular plan. HMOs can cost less, but you may have to be flexible about which doctor and hospitals you use.

A PPO is not as strict as an HMO with your provider options. The doctors still have relationships with the insurance company, but you can see a doctor that may not be on the PPO's list and still receive partially covered services. You may have to accept more out-of-pocket expenses, but you'll face fewer restrictions.

You will likely also have to decide on whether to sign up for a dental plan. In many cases, paying for dental insurance is worthwhile because the amount is minimal and it typically provides for, at minimum, routine cleaning and X-rays. If you have significant dental issues, dental insurance may be even more beneficial. It can cover some of the costs of dental work so you won't have to pay for expensive repairs out-of-pocket.

Life and Disability Insurance

Employer-provided life insurance is meant to compensate your survivors for your lost wages and income should you die. If you are single and not supporting anyone else, you may not require life insurance. If you have a family to support, you need to think about how much they would need to survive in the event of your death. Keep in mind that term life insurance provided by your employer will likely terminate when your employment ends.

Disability insurance provides payments for a source of income if you were to become disabled. It supports you and your family when you cannot work.

Other Employee Benefits

You may be wondering how your company benefits compare to those offered by other companies. Benefits can vary widely from company to company. In addition to retirement plans, health insurance, life insurance, and disability insurance, you might also be offered:

• A health savings account (HSA)
• A flexible spending account (FSA)
• Eldercare benefits
• Employee discounts
• Wellness benefits
• Counseling programs
• A pension plan
• Flexible time benefits

Making Changes to Employee Benefits

Most companies will allow you to change your benefits periodically. You'll likely be able to change how much you contribute to your 401(k) and what you're invested in as often as you want. With health insurance and life insurance, though, you'll only be able to change your choices once per year, unless you qualify for a special enrollment period.

The Bottom Line

Employers may provide a number of benefits, from tax-advantaged retirement savings accounts to health insurance.

Spend some time learning about your options so you can get the most out of your benefits. Remember to reevaluate your benefit choices when your life circumstances change. If you have questions about how to enroll or how your company's benefits work, contact your human resources department.