When you lose your job, you lose access to valuable employee benefits: health insurance, life insurance, retirement plans, stock options, and more. While you may have options to maintain or replace some of these resources, the choices can be overwhelming at a time when so much is confusing. Let’s take a look at potential options for each of your benefits, how to bridge the gap until you find a new employer, and how to make sure your decisions align with your overall financial plans.
Furloughed or terminated? Benefits may still be available
With the COVID 19 crisis, many employees have been furloughed rather than terminated, allowing them continued access to their employee benefits at the subsidized and reduced costs. If terminated, as part of a severance package, you may have access to your benefits for a predetermined period of time. If instead, you need to shoulder this cost, unemployment benefits or new work can cover your expenses. It’s important to determine which, if any, of these benefits are available, as they make your burden far less onerous.
Health Insurance: The most critical and costly benefit
It’s no surprise that health insurance remains the most coveted employee benefit. Having a plan and resource for health care costs is especially important during the coronavirus crisis; if hospitalized your care could incur significant bills. If healthcare of part of the benefits package from your old employer, you typically have some choices for what to do to cover this need. If you have a spouse or partner with available coverage, your termination may be a qualifying event to join their plan. You also are eligible to continue the same coverage you already had at the employer’s cost with COBRA. Finally, there may be public options available through your state from the ACA, Medicare, or Medicaid. These options can be complex. That’s why we have an entire informational article about them. Click here to learn more about this important decision.
Your Last Paycheck: Getting what you deserve
Your last paycheck may have up to three key components. All compensation earned through your last day of work, severance pay if any, and a payout for any unused paid time off/vacation pay. Most employers have an online portal making information is easy to access. With regard to compensation, if you’re an hourly worker, make sure all hours are properly accounted for in the last check. Hopefully, you also have access to severance pay. For more information on that topic, you can have a look here. Your paid time off/vacation pay should also be in your last check. Most Americans do not take advantage of their available vacation days so this should be a nice payout on top of your last earnings. One more important part of a final check would be any reimbursable business expenses incurred while on the job. If you’re in a role where expense reports were part of your to-do list, make sure they’re completed, submitted and paid.
Your 401k: To roll or not to roll
Your workplace retirement plan can be a significant nest egg, particularly if you saved diligently over many years. After leaving your employer, in most cases, you can maintain assets in the current qualified plan. You can also roll the money over to your new employer's plan, cash it out, or roll it over to an IRA.
An Individual Retirement Account (IRA) rollover enables you to move retirement assets from a qualified plan to an IRA account without subjecting them to penalties or taxation. An IRA rollover allows you to preserve the tax-deferred earnings of your savings and also enables you to personally manage your retirement plan assets. If you have stock from your employer in a qualified plan, you may want to consider taking a distribution of that stock, then rolling over the rest of your qualified plan into an IRA. Employer stock in a qualified plan is entitled to certain tax advantages that other qualified plan assets are not. It's important to understand all of the differences in features, including fees between your old plan and any new plan or IRA. It's important to understand all of the differences in features, including fees between your old plan and any new plan or IRA. Be sure to consult with your financial services professional or tax advisor before you take a distribution or do a rollover.
The CARES Act legislation, designed to help Americans affected by the crisis, permits you, if your plan allows, to take out up to $100,000 of your retirement account balance before age 59 1/2 without the usual 10% penalty and mandatory withholding, as long as you pay back the distributions within three years. This includes IRA accounts. Current 401(k) participants can take loans of up to $100,000 or up to 100% of the account balance with no repayments due for one year. Generally speaking, these hardship withdrawals or loans should be avoided unless absolutely necessary, particularly because withdrawal may mean selling assets at a now depressed valuation. This special tax treatment is available to any individual, or their spouse, who have lost their job, been furloughed, had reduced hours, or been otherwise unable to work due to COVID-19.
However, if such a loan or withdrawal could mean saving your home or feeding your family, it’s a viable consideration. These balances do need to be repaid. Be aware of the potential impact if you are unable to pay back the balances and would incur penalties down the road.
Stock Option Options
If you are fortunate to have equity within your former company, you may be leaving with wealth in the form of stock options. Stock Options are rather complicated and often require the assistance of a tax or financial professional. These instruments are important to remember at termination because you may have a limited window to exercise your options for any vested securities. Here are some key considerations:
· Are your options above or below water? If the value of the company is below your option price, there is no reason to execute.
· Is a cashless exercise possible? You may need to come up with the capital to buy the stock at a time that you don’t have spare funds. A company’s private or public status may affect whether a cashless exercise is possible, as private companies may not offer liquidity for your shares.
· What are the prospects for the company? Stock in any company is a bet on its future. Equity securities can rise or fall in value. Taking on this asset may or may not fit your overall plan.
Most employers offer life insurance as part of their benefits package. If you are in good health, there are retail life insurance options available. SAVVI can help you determine how much you need and how it can fit into your overall budget.
Your Benefits Can Still Work for You
Even after termination from a company, there are important choices to be made with your benefits. With a financial plan from SAVVI, you can make informed choices about your insurance, investments, and spending that can help you keep your financial goals on track.
If you've been financially impacted by the Coronavirus crisis, click here to fill out our interactive questionnaire and determine whether you qualify to receive a no-cost, targeted financial plan from SAVVI. The SAVVI plan will take into account the effects of the immediate crisis to help you navigate this difficult time, as well as help you keep working toward your future retirement goals.
External links are for general information only; SAVVI does not receive compensation for visits to those links, and neither condones nor takes responsibility for the content of sites behind those links. SAVVI Financial LLC (‘SAVVI’) is an investment advisor registered with the Securities and Exchange Commission. SAVVI does not guarantee investment results and past performance is no guarantee of future results. Information provided is for educational purposes and does not constitute investment advice, which is only provided to registered users who have a valid Investment Agreement in place with SAVVI. No information on this presentation should be construed as an offer to buy or sell any security or insurance product. SAVVI is not a certified accountant, lawyer, tax professional or HR professional. Nothing in this document may be considered as tax, accounting, employment or legal advice. Please consult with your accounting, tax, human resources or legal professionals before taking any action.