RIF You!
So you’ve been RIF’d, now what? For those who’ve received a Reduction in Force notice, few things hold more uncertainty or fear for them. You’ve been told your job doesn’t or won’t soon exist and that they’re sorry and wish you the best but will promptly stop paying you at some point in the near future. Take a moment and get the emotions out of the way. It’s okay to take a moment, or several of them, to prepare yourself for what comes next. Take some time to acknowledge what you’ve lost. Your job has essentially died, and you deserve some validation in reacting to that. Now, collect yourself and get ready to hear some, hopefully, helpful guidance.
Moving Up, Down, or Maybe Even Sideways
With many employers, an attempt will be made to at least offer a comparable position if one is available. Take a moment and look for those. This can be the easiest solution. You may even be able to be reassigned without the need for an interview or a break in work. You may also be eligible to continue at your same salary and worksite. If this is not the case or if none of the positions seem to be even a good short-term fit while you look for something more appropriate, you need to consider your options for when you finally separate.
Severanced
Some employers will offer a severance package. In this “package,” you’ll be provided specific benefits over a particular period of time. Employers may want to have you agree to certain terms before making good on this offer, so it might be worthwhile to have a trusted attorney review the agreement to make sure it’s in your best interest. If one is not offered, it may also be prudent to look into filing for Unemployment Benefits.
Unemployed but Looking
The rules governing when unemployment can be paid out and the process to apply differ from state to state. These benefits are sometimes managed at the county level. A quick Google search with your city or county name and “unemployment benefits” will usually point you in the right direction to where to go. Stick to “.gov” websites as the official website will have URL’s that end with that. In Ohio, where I’m located, these benefits, and many others, are managed through Job and Family Services. Reach out try to talk to a person. It will be challenging and time-consuming, especially if your RIF was part of a large number. However, it will be worth it in the end. You will be armed with what public assistance options are available to you and how to get them. If there is a long gap between now and when you find your next position, you will be happy you took this step.
What Comes Next?
When you leave a job or, in this case, have your job cease to exist, your employee benefits will usually end at the same time. Unless your employer offers to extend them as part of your severance package or you elect to continue them, you will have to figure out what to do on your own. While you may be eligible to receive benefits when you find a new employer, they are likely to be different from what you have now. There may still be some gap unless you are fortunate enough to find a new job either before or soon after your last day. You will want to make sure you are prepared to continue any benefits you wish to retain if that is an option. You will want to seriously evaluate any Health or Health-Related or Life Insurance Benefits available to you after separation.
New Hope
You may not have access to benefits through your new employer, or there may be a waiting period before you are eligible under their plan. You do not want to become uninsured in the event of a major health emergency or if you have any ongoing health issues. To prevent this, even for a temporary period of time, while you transition, you should consider the options available to you to maintain, or obtain, health insurance.
COBRA Abounds
A Federal Law called the Consolidated Omnibus Budget Reconciliation Act, commonly referred to as COBRA, allows you to continue in your current health plan for up to 18 months after your final day. The primary exemption to this comes into play if you are terminated for cause. Under a RIF, this is never the case as your job is disappearing. Under the rules of COBRA, you have to pay the entire premium, including the portion that your employer was previously paying. This generally makes COBRA premiums expensive, but this can be beneficial if it’s late in the year, or you’ve already met your deductible for the year. Also, since it’s based on a group policy, your premiums could be lower than the cost for an individual policy. You must specifically tell your employer that you are choosing COBRA coverage.
Too Small to Keep
One caveat to COBRA is that continuation rights may not apply to you if you work for a small employer with less than 20 employees. However, you might have the option to convert your group health insurance policy to an individual policy and be allowed to waive the requirement to make a separate application.
Affordable Solutions
If COBRA is not an option or it is too costly, there may be other temporary options available. As a benefit of the Affordable Care Act, each state has a “Healthcare Marketplace.” Through this marketplace, you can find varying levels of individual policies that may also be eligible for an Advance Premium Tax Credit (APTC). This APTC is based on your estimated income for the year and can be paid in advance directly to the Insurer to lower your out-of-pocket premium. At the end of the year, you’ll be provided with a tax document to use to prepare your tax returns. As part of your Federal tax return for the year, the amount of the APTC will be adjusted up or down based on your actual income for the year.
Medic-al Aid
Depending upon your level of income following separation, you may be eligible for Medicaid. As with unemployment, each state administers its Medicaid program a little differently. You may have to go through the same agency as the one used for unemployment benefits. As a last option, you might have to obtain insurance through a private policy and go through an underwriting process. This is typically the most expensive option but may be necessary as a last resort.
Convertibles
Some employers also offer other benefits that you may be taking care of for things such as life, disability, and long-term care insurance. These policies can sometimes be converted to individual policies. It’s a good idea to reach out to your benefits administrator, your personal financial planner, or both to discuss your options. If those benefits make sense for your personal financial plan, then it may be worthwhile to continue them either through the insurer in the form of an individual policy or by finding an outside policy to meet those needs following separation.
Not Ready to Retire
One of the other major considerations of losing your job is what to do with your retirement benefits. Some employers who offer pension plans will either allow you to receive a payout in lieu of the future benefit or force you to wait until retirement and claim the benefit at that time. If you were close enough to retire under the plan, there might be some on-time or early retirement options here to look into. Contact the retirement plan coordinator to find out what options you have and move forward from there.
Rolling On Over
If you have a 401(k), 457(b), 401(a), or a similar plan with a cash balance, you may have the option to transfer that balance to either a new employer’s plan or an Individual Retirement Account (IRA). The type of IRA you can use will depend on whether those benefits are taken out pre-tax or post-tax, among other details relative to the plan you were participating in. Also, depending on the plan you are participating in, you may even have the option to continue contributing and investing in the plan post-separation. Unfortunately, some plans will force you to cash the account out. It all depends on the terms of the plan. You should make this decision in concert with a personal financial planner who isn’t primarily focused on rolling the account over to being under their firm’s management. Be prepared to make a decision that is in line with your long-term goals. Sometimes rollovers make sense, but there can be other options. Different retirement plans have different features, benefits, and tradeoffs. Take any time you’re allowed and need to make sure you understand the costs and benefits of changing plans/accounts before acting because some choices are permanent and can’t be undone.
Moving Safely
If you do decide to relocate your employer plan retirement savings or if the decision is made for you, it’s essential to keep your retirement plan on track. There are two primary ways to roll over retirement funds from an employer-sponsored plan. In what’s called an “indirect rollover,” your former employer makes the distribution payable to you, less a specific percentage, which is withheld for Federal taxes. You are then required to reinvest/recontribute the distribution into a qualifying account, which is typically an IRA or an employer-sponsored retirement plan within 60 days. To make sure you aren’t assessed taxes or any early distribution penalty, if you’re under 59 ½, on the rollover, you must invest the full amount of the indirect rollover, including any amount withheld for taxes. You are limited on the number and/or type of these transfers you can make in a year, so consult a tax professional to evaluate your options.
Trust in the Trustee
To avoid jumping through tax whoops, you can request the employer distribute the assets directly to a new trustee or sponsor. This trustee is usually the entity that holds the assets in an account for you. There is no need to have any withholding in a trustee-to-trustee or “direct rollover.” The receiving account can be either an IRA or a qualified plan with your new employer.
Temporary Need
If you need the funds to meet day-to-day living expenses, the taxes and penalty may be worth it to make sure you keep your head above water. There are some exceptions available to the 10% Early Distribution Penalty that you should look into before choosing to take an early distribution. The taxes will still happen if you take out any of the money and use it, so there’s no avoiding that.
COVID CARES Not
Due to the passage of certain pieces of legislature earlier this year, one of which was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, some special circumstances could apply to distributions from your Individual Retirement Account or employer-sponsored retirement plan. These rules allow for penalty-free distributions in certain special COVID-related circumstances. It’s always a good idea to check with your personal financial planner to see if any of these circumstances apply to you and how to take advantage of them.
Find Help Now
Your decisions in the next few weeks and days following your RIF will have a significant impact on your personal and financial future. With any hope, the effect can be minimized by taking the time to think through your options and utilizing any resources you have at your disposal. While you’re still working for your current employer, you may have access to something like an Employee Assistance Program (EAP). These programs are typically designed to provide in-the-moment support to employees while they are experiencing some period of financial or personal difficulty. A RIF would count as both of those. Reach out to your benefits coordinator and find out how to tap into yours while you still can. If you do not have an EAP, then look to your associations, memberships, and community connections to see if there are similar tools or resources available. If all else fails and you have no free or low-cost options, it may be a fair use of resources to find a fee-only financial planner. Such a professional can help guide you through this time. You may want to specifically find a Certified Financial Planner that works through a Registered Investment Adviser. These types of professionals are obligated to work not just in your Best Interest but as a Fiduciary. This might be an excellent time to create a Comprehensive Financial Plan if you don’t already have one. You deserve quality, trustworthy, and meaningful help during this moment of upheaval in your life. Please do what you can to make sure you come out the other side of this RIF stronger than you went into it.
Please contact me if you have any questions or comments about this article.
Antowoine Winters, CFP®, EA
Director, Tax & Financial Planning
Artifex Financial Group
