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 so you can gain the maximum benefits from your employer. 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 IRS allows you to contribute up to a set maximum, which changes from year to year. Many experts agree that it is best to contribute as much as you can afford as early as possible, so you can maximize the tax advantages.

Typically, you will 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. Keep in mind that you can change your investment choices.

You will 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 of a type of mutual fund you can easily invest in is target-date funds (also known as life-cycle funds). These are mutual funds that adjust risk as you age.

If you don't have a life-stage mutual fund choice, remember that a younger person would probably do well to be in a more risky stock-based fund as compared to a money market or bond mutual fund, which would be better for those 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) for medical insurance.

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 accept a dental plan. In many cases, paying for dental insurance is worthwhile because the amount is minimal and typically provides for at minimum routine cleaning and X-rays. If you have significant dental issues, dental insurance may be more beneficial because 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 a payments for a source of income if you were to become disabled. It could supply the support 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 and disability insurance. you might also be offered:

• Health savings account
• Flexible spending account
• Eldercare benefits
• Employee discounts
• Wellness benefits
• Counseling programs
• Pension plans
• Flexible time benefits

Making Changes to Employee Benefits

Many companies allow you to change your choices periodically. Often, your 401(k) contribution amount and investment choices can be changed on a fairly regular basis, but the medical and life insurance choices may be set up so that you can only change them once a year.

Check with your benefits administrator if you want to make changes. Making inappropriate choices can be a costly mistake, especially with your 401(k). Also, revisit your benefit choices on occasion as your life circumstances change.

The Bottom Line

Employer benefits can provide a number of advantages in addition to a salary, from tax-advantaged retirement savings accounts to health insurance. Spend some time learning about your choices when it comes to benefits so you can get the most out of them. 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 or hiring manager.