PERSONAL FINANCE : PREPARING YOURSELF : HIDDEN PAY : Benefits Play a Key Role In Your Financial Future

The hidden paycheck. That’s what knowledgeable insiders call employee benefits.

Medical and dental coverage, life insurance, savings programs and pension plans provided for most full-time workers--at least in larger companies--often are little understood, or, at best, taken for granted.

But with the typical benefits package representing an employer investment of 30% to 40% above and beyond a worker’s base pay, experts say you are missing an immense opportunity if you fail to fully exploit your benefits and integrate them into a comprehensive personal financial plan.

Getting the most out of your benefits isn’t easy. Congress’ annual fiddling with the tax code has confused even the accountants and actuaries who design benefit plans. At the same time, more and more responsibility has been pressed onto individuals as mounting costs and shifting national policy have encouraged companies to provide programs that give workers more flexibility in packaging their benefits--and thus more room for costly errors.

Still, program designers and financial planners say, adhering to the following principles can help you get the maximum bang from your benefits bucks:

1. Study your options and know your needs. Most companies provide large volumes of carefully written information explaining their benefits. Too many workers toss up their hands and assume they won’t be able to decipher the material. This is a case, though, where what you don’t know can hurt you.

“It’s a two-way street,” says Glenn T. Meister, a vice president in Los Angeles with A. Foster Higgins & Co., a benefits consulting firm. “The employees really have to read the material and listen and attend the meetings and really try to discern what they’re being told.”

You can think strategically about your benefits only if you know your financial objectives.

A 60-year-old with grown children and a paid-up mortgage who plans to retire in five years probably won’t want to pour a lot of money into a supplementary life insurance policy available through his job, even if the rates are low.

But the older worker will want to review his account in the company savings plan to make sure he is comfortable with the level of risk involved in his investment selections. It may be time to shift some or all of his savings out of a higher-risk stock fund and into a fixed-income account.

A 30-year-old with a young family and mounting bills, meantime, will want to investigate the long-term disability insurance plan his company likely offers. At group rates, it probably costs less than a policy he could buy on his own. And if it provides an adequate post-tax income level in the event of an accident or illness, the policy could be a critical element of his family’s financial security.

2. Take advantage of tax-sheltered benefits. Tax reform has wiped out many tax shelters. But a surprising number of powerful shelters are lurking within the average employee’s benefits package.

“The two biggest hurdles to financial success today are taxation and inflation,” says Lester I. Tenney, president and founder of University Research Associates, a Tempe, Ariz., firm that contracts with companies to conduct financial planning seminars for employees. “Therefore, the younger person, before (retiring), should seriously consider any tax-sheltered investment they can get a hold of.”

One of the best avenues for accumulating tax-sheltered savings is a 401(k) or other company savings and thrift plan. Depending on their design, these accounts allow you to make contributions to a savings account on a pretax or post-tax basis or both. Most companies match some portion of your contribution. The account then grows on a tax-deferred basis, with taxes coming due only when you make a withdrawal from the fund--usually at retirement when you are likely to pay taxes at a lower rate.

In the optimal arrangement, you can elect to divert 5% or 6% of your pretax earnings to the savings plan, with the company matching your contribution 50 cents or more on the dollar. Not only does the account grow untaxed, but because the contribution has lowered your taxable income, your immediate tax bill drops, too.

“Generally it’s a fabulous tax deal,” says Laird M. Post, group and flexible benefit practice leader in the Sherman Oaks office of the Wyatt Co., a benefits consulting firm. “Employees should be looking at putting all the money they can afford into that kind of program.”

Many companies’ savings programs allow you to borrow from your accounts--at least from the portion you have contributed--or to make withdrawals for specified “hardships,” including buying a house or paying for a child’s college education. For now, the loans often are available at favorable interest rates. But workers interested in tapping the funds should not drag their feet: Proposed government regulations would require employers to charge no less than market rates.

If you want to shelter more money than your employer allows on a pretax basis, making after-tax contributions to the plan often will be better than contributing to an individual retirement account, according to John D. Sutcliffe, a principal in Los Angeles with the Mercer Meidinger Hansen benefits consulting firm. Money can be withdrawn from most savings plans before age 59 1/2 without paying the 10% excise tax imposed on early withdrawals from an IRA, he says.

Participating in optional group universal life insurance plans--GULPs, in benefits parlance--offered by a growing number of employers provides another means of accumulating tax-sheltered savings.

In universal life, you purchase term life insurance with no cash value and then contribute on the side to an investment fund whose earnings are tax-deferred. You can readily borrow from the side fund. And the policy--unlike the group term insurance almost all employers provide free to full-time workers--is portable: You can maintain it as an individual policy if you leave the company.

One other widely available tax-sheltered benefit: reimbursement accounts for medical and dependent-care expenses. These plans allow you to divert pretax income into non-interest earning accounts and use the money to pay for care of a child or elderly parent, or to pay medical costs not covered by your company’s medical plan.

By lowering your taxable income--and thus your tax bill--the accounts effectively give you a discount on the covered costs. But if there is money left over in the accounts at year-end, you forfeit the funds.

3. Be hard-nosed, not sentimental, in your benefits decisions. This is your money, so don’t be a jerk about spending it.

Many employers make company stock available to employees. Some hand it out for free as the company match in a savings plan or through company stock-giveaway programs known as PAYSOP plans. There’s no reason to reject this free stock; often, rejecting it is not even an option.

But in other cases, the stock is available on an optional basis--through election to participate in an employee stock ownership plan or as an investment choice within the company savings plan. In these circumstances, experts say, weigh the company’s stock just as you would any other investment. If the stock is a dog, don’t buy it as an expression of solidarity with the board of directors. If you need guaranteed results from your investments, remember that stock values fluctuate.

“You shouldn’t be swayed by the fact it’s your employer,” says Bruce Givner, an Encino tax attorney.

By the same measure, experts say, do not to buy life insurance for the sake of buying life insurance, no matter how good a value your company offers for acquiring extra coverage. Its purpose is to provide an income to pay your survivors’ bills after you die. If you’ve met that need adequately, go on to spend your money on other needs or to make investments that will pay off in this life, not the next.

“We’ve become a society of motherhood, apple pie and life insurance,” Tenney says. “Maybe everybody doesn’t need life insurance.”