Questions: Employer Benefits Evaluation and Selection

Question 1

You receive two job offers. Job A pays $64,000 with no 401k match and a standard PPO health plan. Job B pays $60,000 with a 100% employer match on contributions up to 4% of salary and an HDHP with HSA eligibility. Assuming you're young and healthy, which job likely offers higher total compensation?

• A. Job A, because the base salary is $4,000 higher and salary is the most important component of compensation
• B. Job B, because the 401k match alone adds $2,400 in free compensation, and the HSA provides a triple tax advantage that increases the real value of the lower-premium HDHP
• C. Job A, because PPO plans always provide better coverage than HDHPs
• D. Job B, because HDHP plans are always cheaper than PPO plans regardless of individual health needs

Answer: (B)

This question targets the core misconception: that salary is total compensation. The 401k match on Job B (100% of 4% of $60,000 = $2,400) is an instant 100% return on those dollars — no investment reliably beats that. The HDHP's lower premium, combined with the HSA's triple tax advantage (pre-tax contributions, tax-free growth, tax-free qualified withdrawals), means a young healthy person likely saves more overall with Job B despite the lower salary. Total compensation analysis must include benefits, not just the salary line.

Question 2

An employee is deciding how much to contribute to their 401k. They have competing financial priorities: paying down credit card debt, building an emergency fund, and investing. In what order should they prioritize 401k contributions relative to these goals?

• A. Contribute the maximum allowed to the 401k first, since retirement savings are the most important long-term goal
• B. Pay off all debt first before contributing anything to retirement accounts
• C. Contribute at least enough to capture the full employer match before allocating money elsewhere, since the match is an immediate 100% return that no other use of money can beat
• D. Skip the 401k entirely if you have high-interest debt, since the debt interest rate always exceeds investment returns

Answer: (C)

The employer match is as close to free money as exists in personal finance — it represents an instant 100% return on matched contributions. Even high-interest debt rarely charges more than 20-25%, so capturing the full match first almost always wins mathematically. After capturing the full match, then evaluate whether additional 401k contributions, debt paydown, or other savings takes priority. Failing to capture the full match is effectively forfeiting part of your compensation.

Question 3

FSA (Flexible Spending Account) funds are a safe way to maximize pre-tax savings because any unused balance rolls over to the following year.

• T. True
• F. False

Answer: False

This is the critical FSA misconception. FSA funds are 'use it or lose it' — unspent balances typically expire at year end (some plans allow a small rollover or grace period, but the general rule is forfeiture). This means you should only contribute to an FSA what you are confident you will spend on qualified medical or dependent care expenses during the plan year. Contributing more than you can use means paying for tax savings with money you'll never see again. HSAs, by contrast, do roll over indefinitely — this is a key distinction between the two account types.

Question 4

A job offer's total compensation value requires evaluating not just salary but also the monetary worth of health insurance, retirement matching, pre-tax savings accounts, and other benefits.

• T. True
• F. False

Answer: True

Employer benefits routinely represent 30-40% of total compensation value on top of base salary. A $65,000 job with no match and high-premium insurance may be worth less than a $60,000 job with full 401k matching, HSA eligibility, and employer-subsidized health coverage. Evaluating offers solely on salary is a common and costly mistake, especially early in a career when compound growth on matched retirement contributions over decades is enormous.

Question 5

Why might a job with a lower salary actually represent better total compensation than a higher-paying offer?

Model answer: Benefits add real economic value that salary alone doesn't capture. An employer that matches 401k contributions (free money with an immediate 100% return), offers an HDHP with HSA eligibility (triple tax advantage), and subsidizes health premiums may provide $10,000-$20,000 in additional compensation value that doesn't show up in the salary line. When comparing offers, you must calculate the full package: expected out-of-pocket healthcare costs, 401k match value, tax savings from pre-tax accounts, and any other benefits. The offer with the better package is the one with higher total economic value, not necessarily the higher salary.

The key insight is that salary is a label, not a total. The same thinking applies inside a single job: choosing not to contribute enough to capture the full employer match is forfeiting compensation you've already earned. Benefits literacy — knowing how to calculate the real value of each benefit component — is a foundational financial skill.