Wednesday, October 4, 2017

Your Guide to Civilian Benefits

Transitioning from the military to a civilian career brings changes to almost all aspects of life. One important thing changing will be your benefits. Below we explain some of the most common retirement, relocation, and bonus benefits you can expect in a civilian career. Read on so you can prepare.

401(k) Plans

A 401(k) is the most common type of retirement savings program offered by companies, and has all but replaced the traditional pension plan. A 401(k) is an employer-sponsored retirement plan that allows a worker to save for retirement while deferring income tax on the saved money and earnings until withdrawal. The employee elects to have a portion of his or her wages paid directly, or "deferred", into his or her 401(k) account. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. There are maximum contribution limits. For 2017, the maximum contribution to a 401(k) is limited to $18,000 for individuals under the age of 50.

Some companies will match a percentage of your contributions to your 401(k) program. A common employer matching formula is 50% of 401(k) employee contributions, up to a certain contribution limit (typically a maximum of 6%). This can be a powerful wealth builder and a valuable piece of an overall compensation package.


Bonuses can significantly increase the value of your overall compensation package. There are a variety of bonuses/incentives companies can offer, including a Signing Bonus, Performance Bonus, Tuition Reimbursement, Car Allowance. You may receive one or more of these bonuses depending on how your individual compensation package is structured. Bonuses are typically taxed at a higher rate than your normal wages. 

Employee Stock Plans

There are three primary stock option plans that companies may offer as part of an overall compensation package: Employee Stock Option Plans, Employee Stock Ownership Plans (ESOPs), and Employee Stock Purchase Plans (ESPPs). Each is different and offers unique advantages. All three can add significantly to the overall value of an offer.

Employee Stock Option Plans

These plans allow an employee to purchase a specific number of company shares during a specified period of time at a fixed price. For example, if an employee gets an option on 100 shares at $10 and the stock price goes up to $20, the employee can "exercise" the option and buy those 100 shares at $10 each, sell them on the market for $20 each, and pocket the difference. But if the stock price never rises above the option price, the employee will simply not exercise the option.

Employee Stock Ownership Plans (ESOPs)

An ESOP is a type of tax-qualified employee benefit plan in which most or all of the assets are invested in stock of the employer. Like profit sharing and 401(k) plans, an ESOP generally must include at least all full-time employees meeting certain age and service requirements. Employees do not actually buy shares in an ESOP. Instead, the company contributes its own shares to the plan, contributes cash to buy its own stock (often from an existing owner), or, most commonly, has the plan borrow money to buy stock, with the company repaying the loan. All of these uses have significant tax benefits for the company, the employees, and the sellers. Employees gradually vest in their accounts and receive their benefits when they leave the company (although there may be distributions prior to that).

Employee Stock Purchase Plans (ESPP)

An ESPP is similar to a stock option plan. It gives employees the chance to buy stock, usually through payroll deductions over a 3-to-27-month "offering period." The price is usually discounted up to 15% from the market price. Frequently, employees can choose to buy stock at a discount from the lower of the price either at the beginning or the end of the ESPP offering period, which can increase the discount still further. As with a stock option, after acquiring the stock the employee can sell it for a quick profit or hold onto it. Unlike stock options, the discounted price built into most ESPPs means that employees can profit even if the stock price has gone down since the grant date.

This list is not all-inclusive, but it is intended to highlight the most common benefit options provided by employers today. Learn about other benefits such as Vacation, Holidays, Time Off, Health Insurance, and Disability Coverage here.

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