Lay Off Protection Plan
Reports of the death of the U.S. labor market have been greatly exaggerated. In January, 517,000 jobs were created, more than double analysts’ expectations of 175,000 and ahead of last year’s average monthly job creation of 401,000. The unemployment rate was 3.4 percent, the lowest level in more than 53 years. Job growth was widespread: leisure and hospitality (+128K), professional business services (+82K) and health care (+58K) are still adding to their payrolls. Another boost to the January report was the +74K increase in government employment, partly due to the end of the university strike in California.
It’s hard to make sense of this positive report in light of recent data on announced layoffs. According to outplacement firm Challenger, Gray & Christmas, employers announced 102,943 cuts in January, the highest monthly total since September 2020. Tech, retail, financial services, and media have led the way on job reductions. Perhaps the good news for those who have been let go from their companies is that there are opportunities out there. The government reported that job openings rose to 11 million in December, and while you may not find a match in your current industry, there is something to be said for the old saying “it’s easier to find a job when you have one.”
If you believe in that adage as much as I do, the resiliency of the labor market makes NOW an ideal time to dust off your personal lay-off protection plan. Review these items and if you do not know the details within your company, grab your friendly HR manual or HR pro and educate yourself.
Severance: Many companies offer a standard severance package, defined as a certain number of weeks, others consider your tenure at the organization and also add in unused vacation and personal days. Before you sign any documents that memorialize severance agreements, know that many companies will negotiate sweetened deals, which may include more dollars. If you work at a firm where you received stock options, ask for an accelerated or immediate vesting for unvested amounts. NOTE: severance is income, which means that it is taxable.
Health Insurance: While you are still covered on your employer's health insurance plan, schedule routine medical and dental checkups. If you do lose your job, you are entitled to extend coverage through the federal government’s Consolidated Omnibus Budget Reconciliation Act (COBRA), which gives workers and their families who lose their health benefits the ability to continue group health benefits provided by their group health plan for limited periods of time (usually up to 18 months). The big catch with COBRA is that you are usually required to pay the entire premium for the coverage, which can be steep. Before you freak out about the cost, check out coverage at HealthCare.gov, which can be cheaper than COBRA, especially if you qualify for tax credits.
Other Insurance: If you have life, disability, or long-term care insurance coverage through work, find out if it is "portable," which means that you can take it with you when you leave. Like health insurance, the cost might be more expensive if your employer is subsidizing your coverage, but group coverage is usually cheaper than replacing a policy with private coverage.
Retirement Plan: When people lose their jobs, they often cash out of their retirement plans to help with cash flow. That break-the-glass action should not be taken lightly. Generally, if you withdraw money from your retirement account and you are under the age 59 ½, the government will impose a 10 percent penalty on the amount withdrawn and also will tax the total distribution amount. [The SECURE 2.0 Act expands the ability to access retirement money penalty-free in cases of terminal illness and domestic abuse.]
If you lose your job, you can usually leave retirement accounts where they are. This is a good option, especially if your company’s plan is an inexpensive one with low-cost index funds. Otherwise, you can roll the retirement money into an IRA Rollover account with any of the big investment providers. If you are able to land a job quickly, you should be able to directly rollover the old account into your new company’s retirement plan.
Unemployment Insurance Reminder: Amid COVID, many workers collected enhanced unemployment benefits, which were not taxable. The system has reverted to the pre-pandemic era, where if you are laid off, you have to file a claim with the state where you were employed, and unemployment benefits are once again taxable. Sadly, most states did not upgrade their unemployment systems after being overwhelmed in 2020, so do file a claim as quickly as possible.
Leave Gracefully: Even if you are blindsided by a lay-off, avoid losing control and burning bridges. Maintain your dignity and do your best to stay calm and focused. You never know if or when you will cross paths with your boss or other co-workers in the future.