Financial Planning Tips for State Government Employees
Working in the state government has its rewards given the generous employee benefits. In this blog post, I will discuss some of the benefits that state workers in Texas can take advantage of to maximize their employment.
The Good and Bad News
As you know, the pay in government is not as great as the private sector positions. This is a result of factors such as the lack of funding for these positions, especially in more cash strapped states. As a result, state governments try to offer more generous employee benefits packages as part of their total compensation for its employees.
Typically, state governments offer defined benefit pension plans in which you get a known amount of monthly income (or annuity) when you retire that can last for your entire life. In the private sector, pensions are not very common anymore, but in government having a pension is commonplace. Pensions reward long-serving employees since the retirement benefit is tied to your years of service and your average salary. As a result, the longer you work for the state the higher your pension annuity will be when you retire.
For example, the State of Texas offers its defined benefit pension called the Employee Retirement System or ERS. But employees can also save in a 401k type of plan or a 457 plan as well. Employees can save beyond their state pension for their retirement, which is highly recommended.
State governments also offer health benefits with different choices from Health Maintenance Organizations (HMOs) which are more managed care to Planned Purchase Organizations (PPOs) where you get coverage within a network of doctors. Typically, HMOs have lower premiums, but less choice of doctors.
For example, the State of Texas offers a PPO, HMO, and Health Saving Account, or HSA. In the HSA the employee gets a high deductible health plan and the employee savings account is used to pay for regular medical checkups and exams. HSAs are especially interesting since the money is triple tax-advantaged, in which the employee gets the money deposited into their account tax-free, tax-free growth, and tax-free distribution when used for health care. One consideration for the HSA is that you will be paying for most of your health care out of pocket until the high deductible kicks in then the plan pays. This plan can be especially advantageous for employees that do not have high health care needs.
What Should You Do?
Employees in the state government should take advantage of generous employee benefits. Many employees just look at the pension plan as the only way to fund their retirement. In my view, this is a big mistake. State employees should look beyond these plans and take advantage of 401(k) type plans to increase their retirement savings and reduce your income taxes. Also, why not consider an HSA which is offered in the State of Texas in which your money has a triple tax advantage? Be sure to talk to a financial planner to learn more about how your work in state government can be maximized.