How to Handle the Prospect of Being Laid Off

In these harder economic times, more people are facing what may be their worst job-related nightmare: getting laid off.

If that's a possibility for you--or you're already a pink-slip victim--be sure you know what's available in the way of outplacement help, severance pay, employee benefits and other help.

Here are some tips to help soften the financial blow of a job loss:

* Bolster your employability.

If you're still working but fear you could be dumped, act now to boost your chances of getting hired elsewhere. Call friends and colleagues about opportunities. Expand your network. Attend conferences and seminars. Update your resume.

Also, perform well in your current job. "If I do the best job, someone's going to give me a good recommendation," suggests Fred Sher, a partner at Hewitt Associates, an employee benefits consulting firm.

* Use your employer's job services.

Many employers will help laid-off workers find jobs. Some provide job information and counseling. A growing number of companies offer outplacement help, either in-house or through an outside agency. Some employers might even allow you to use office space and phones to find jobs.

* Review health plan options.

Companies, generally, are required to allow departing employees--whether laid off or leaving voluntarily--to continue health coverage for 18 months, provided employees pay for it themselves. Coverage must be offered at the company's actual per-person cost, plus 2%.

This can be extremely valuable. You may not get another job right away, and when you do, your new employer's health plan may carry a pre-existing condition clause that prevents you from getting coverage for certain health problems until a waiting period has passed. Keeping your former employer's plan also is usually cheaper than buying a plan on your own.

On the other hand, you may not need to continue your employer's plan if you are included under your spouse's health plan.

But some employers will offer to continue subsidizing your life and health benefits for as long as you receive severance pay, Sher says.

* Find out about severance pay.

Under the typical severance package, you'll get one week of pay for each year of service, Sher says. In some cases, you may get a minimum of one month's pay, regardless of service.

Higher-level employees often get more--as much as a month of pay for each year of service--up to a maximum of six months or a year of pay, he says.

Most employers require laid-off workers to take severance pay in regular intervals, as with a paycheck. But some may offer the option to take it in a lump-sum, Sher says. You might be better off with this option, if you have the discipline to invest the money right away, instead of spending it all, or if you are worried about your former employer's financial health.

On the other hand, if you accept a lump-sum payment, the company may no longer subsidize your health plan and you might have to foot the bill yourself, Sher says.

* Apply for unemployment compensation.

Many laid-off employees are too proud. But if you are laid off, you are entitled to benefits. Bear in mind that payments can vary, and won't start until after your severance payments end.

* Protect your nest egg.

Most companies will distribute to departing employees their vested funds in 401(k) company-savings plans. Unless you absolutely need the money, roll it over into your individual retirement account within 60 days. That way you will avoid income tax on the untaxed amount, plus a 10% penalty tax if you are younger than 59 1/2. You also will continue to accumulate earnings on a tax-deferred basis.

And if you use a self-directed IRA, you'll have many options for investing your money.

Alternatively, if you find a new job within 60 days, you might be able to roll over your money into the 401(k) of your new employer.

You also might be able to keep your 401(k) with your old employer. As long as your balance is greater than $3,500, employers must give you the option to maintain your 410(k) there indefinitely, says Jim Warner, a principal at A. Foster Higgins & Co., an employee benefits consulting firm.

Some employers impose restrictions on 401(k) money of former employees that make this option less desirable, Sher says.

What about your pension? If the present value of your benefits is less than $3,500, the company can pay you unilaterally. (Present value is the value today of your future stream of benefits.) Again, roll the money into your IRA.

If the present value of your pension is more than $3,500, the company may give you the option of receiving the money now, Sher says. But most companies don't; instead, they keep your pension until you retire, so be sure to keep records of your pension benefits.

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