In 2022, in response to a multi-decade high inflation rate and a possible economic recession, many giants in the technology and media industries, such as Twitter (Twitter), Meta and Microsoft (Microsoft), have announced large-scale Layoff plan. Other industries, including food, transport and retail, have followed suit, and workers are starting to worry about whether their jobs will be affected.
If you have been notified by your company that you are one of the targets of mass layoffs, it is imperative that you plan immediately to prepare for the major changes in economic conditions that will follow after layoffs.
Five things to know about money management after being laid off
Under the Worker Adjustment and Retraining Notification Act, certain companies, such as those with more than 100 employees, may Employees should be notified at least 60 days in advance. The original intention of the advance notice is to allow employees time to prepare for their personal finances while they are out of work.
Some of the best ways to manage your money after losing your job include: contacting your company’s human resources department to ask about available severance packages; filing for unemployment assistance to supplement your emergency savings; and developing insurance and 401(k) plan coping strategies. It is also necessary for people to assess their current spending habits and cut unnecessary spending when it is not productive.
Contact Human Resources
When you become the target of layoffs, your employer will notify you whether you are eligible for a severance compensation package, which will list the financial compensation terms of the dismissal, including severance pay and benefits calculated based on the number of years the employee worked with the company before being laid off, It could also include unused paid time off or an allowance for employees to find a new job.
Most employees don’t realize that severance compensation packages are as negotiable as hiring packages. For example, you can ask the company to increase your compensation if you think you deserve more than what the company offers. Your employer can agree to your request, or you can ask the company to pay the original plan amount.
It is important for people to carefully review their severance package and understand its terms before accepting it. Accepting a severance package could mean forgoing suing the company for wrongful termination, or filing for unemployment insurance. Typically, people have a 21-day consideration period before accepting an agreement.
It’s worth noting that there is no federal or state law requiring employers to provide severance compensation to employees unless the employee is unionized or the employee’s employment contract states so.
Apply for Unemployment Insurance
After losing your job, unemployment insurance can help supplement your emergency savings while you look for a new job. It can take weeks for your state to approve your application, so it’s important for people to apply for this coverage as soon as they know they’re about to lose their job.
Unemployment insurance eligibility requirements and application approval timeframes vary depending on the state in which the applicant resides, but states often have minimum requirements for how long an employee has been with a particular company or the amount of earnings. Your state may use this information to calculate your entitlement to benefits.
Most states provide up to 26 weeks of benefits and require people who want to continue receiving benefits to file weekly. Some states may also impose additional eligibility requirements, including actively seeking new work while receiving benefits. Therefore, please understand the eligibility requirements in your state before applying.
Renew your insurance plan
If your insurance plan is paid for by your employer, your insurance benefits usually end when you are laid off.
In response, the federal government introduced the Consolidated Omnibus Budget Reconciliation Act, which extended the period for employees to obtain medical insurance from their former employers for a limited time after they were laid off, usually by up to 36 months. However, under the Uniform Omnibus Budget Reconciliation Act, laid-off workers are required to pay a premium for their coverage, plus an additional 2 percent administrative fee, to qualify for coverage, which is often more expensive than regular insurance plans.
People who are unwilling to pay high costs to extend their current coverage may be eligible for coverage under the Affordable Care Act, which imposes lower premiums, usually based on income level . If the unemployed employee is under the age of 26, the insurance of the spouse or parent can also be used.
Evaluate your 401(k) plan
There are several options to consider when evaluating what to do with your 401(k) plan after losing your job, including keeping funds in your current plan, rolling over your plan to a new employer or IRA, or withdrawing it all out. Different options may result in additional taxes.
Stay in Current Plan: If you have $5,000 or more in your 401(k) account, you can keep the money in your current plan. Even if you are allowed to stay in the plan, you will no longer be able to contribute or withdraw funds until you turn 72. By age 72, you’ll have to draw a minimum distribution from your plan, whether you’re working or retired.
That means you’ll have to open a new 401(k) plan or IRA if you want to continue saving money in retirement. Plus, you won’t be able to access your retirement savings if financial stress arises after you’ve been laid off.
Transferring your plan to a new employer : If you have found a new job after being laid off, it is relatively easy for you to transfer your plan from your former employer to the A plan for a new employer, says Amy Hamasaki, certified financial planner with Mountain Wealth Planning.
Be aware that your new 401(k) plan may have different rules, investment options and fees. Carefully evaluate your new employer’s plan before deciding to rollover funds to ensure it can meet your investment needs.
Rollover your plan to an IRA: If you don’t want to use your new employer’s 401(k) plan, or your new employer doesn’t offer one, you can do so by contacting your former plan administrator and asking They transfer the retirement savings to the IRA by paying the funds to the IRA administrator.
You can choose between a Roth IRA and a traditional IRA, but there may be additional tax implications for this move. For example, if your retirement savings are tax-deferred in a traditional 401(k) plan, rolling over to a Roth IRA would be considered taxable.
Direct cash withdrawal: If you don’t have an emergency savings and need cash right away, you can also withdraw money from your 401(k) plan. However, this should be your last resort after evaluating other methods, as you’ll have to pay ordinary income income tax and there’s an additional 10% early withdrawal penalty if you’re under age 59.5.
You’ll also lose all the compounding interest your money would have accrued while investing in your retirement account, and that will negatively impact your entire retirement savings in the long run. “After liquidating the 401(k), it took much longer to get to the previous level,” Hamasaki said.
cut the expenses
Create a simple budget and stick to it. If you’re living on emergency savings or variable income after being laid off, you should assess your expenses and organize them into three broad categories to help cut unnecessary expenses.
Essentials: A large portion of your budget should be devoted to paying bills, including your mortgage or rent payments, utilities, food, fuel, minimum payments, and insurance. This also includes student loan repayments, which are currently on hold and can be extended until June 30, 2023.
In other words, your essentials include a fixed monthly expense. These expenses should be at the top of your mind, especially if funds are limited.
Personal preferences: A small portion of your budget can be used to buy things you want to buy, like visiting family home during the holidays, or shopping for new clothes for a job interview. However, if you’ve been the subject of a recent layoff, you should reduce your past discretionary spending.
“We have to think about paying fixed expenses first, because people are really tightening their belts after losing their jobs,” Hamasaki said. That could mean cooking at home instead of going to fancy restaurants, or refocusing one’s holiday shopping plans .
Saving and Paying Down Debt: Without a potential new job on hand, people may have to stretch their emergency savings while looking for a new job. If this happens, you should put any remaining funds on hand back into savings for future use. Also, if you have credit card or consumer loan debt, consider paying more than the minimum payment to keep interest charges down.
If your budget allows, consider adopting the 50/30/20 rule, in which you spend 50 percent of your after-tax income on necessities, 30 percent on personal preferences, and 20 percent on savings or debt reduction.
For example, if you have 6 months of expenses in your emergency savings, that totals $4,000 a month. Then spend $2,000 on regular expenses, $1,200 on personal preferences, and $800 on savings or debt reduction.
main points
If your employer gives you advance notice that your job will be affected by mass layoffs, it’s imperative that you make a financial plan right away to prepare for the changes that job losses will bring.
Fully evaluate your severance compensation package, and don’t be afraid to negotiate terms, such as requiring deferrals of health insurance benefits under the Uniform Omnibus Budget Reconciliation Act, to avoid high premiums. If your employer does not provide severance compensation, you can consider applying for unemployment insurance to meet your immediate financial needs.
“Very few employers want their employees to discuss [severance compensation packages] with them,” Hamasaki said. “If they feel that this will put them at a disadvantage, whether it’s legal liability or regret because you were forced to leave, then you can It will have greater voice and room for negotiation.” (Fortune Chinese Website)
Translator: Feng Feng
Reviewer: Xia Lin
Several major corporations in tech and media industries, such as Twitter, Meta, and Microsoft, have announced massive layoffs in 2022 in response to decades-high inflation rates that hint toward the possibility of a recession. Other industries including food, transportation, and retail have followed suit, which leaves workers wondering if their role will be impacted.
If you were informed that your job is among those impacted by a mass layoff, it’s important to create a plan right away so you can prepare for the major financial changes that come with being laid off.
5 things to do with your money when you’re laid off
Certain businesses—such as those that employ 100-plus workers—are required to provide employees a minimum of 60 days’ notice that their role will be impacted by a mass layoff or plant closing under the Worker Adjustment and Retraining Notification (WARN) Act. The hope in providing advance notice is that employees have time to prepare themselves financially in the event they are unemployed for a period of time.
Some of the best ways to manage your money after a layoff include contacting your human resources department for available severity packages, filing for unemployment to supplement your emergency savings, and having a strategy for dealing with your insurance and 401(k) plans. important to review your current spending habits and cut back unnecessary purchases while you are without income.
Contact HR
When you are laid off, your employer will inform you whether you will be entitled to a severity package which outlines the financial terms of your termination. This generally includes severity pay and benefits based on how long you were employed by your company before you were laid off. It also may include unused paid time off or assistance in finding a new job.
Most employees are unaware that severity packages can be negotiated the same way an employment offer can be. For instance, if you believe you are entitled to a larger severity payment than your company is offering, you may make a request to increase the payout. The employer has the option to agree to your offer or hold firm on the original payout amount.
It’s important to thoroughly review your severity package and understand the terms of the agreement before accepting it. Accepting your severity agreement may waive your right to file a wrong termination suit or file for unemployment insurance. Typically, you will have accept days up to 2 the agreement.
It’s important to note that there is no federal or state law that requires employers to provide employees with a severity package—unless you belong to a union or your employment contract states otherwise.
File for unemployment insurance
If you are laid off, unemployment insurance can help supplement your emergency savings while you look for a new job. It may take up to several weeks for your state to approve your application, so it is important to apply as soon as possible once you know your role will be terminated.
Unemployment insurance eligibility requirements and application approval timelines vary depending on which state you stay in, but it is typical for states to require you to have worked for a minimum amount of time or made a minimum amount of income to qualify. Your state may also use this information to calculate how much benefit you qualify for.
Most states provide unemployment benefits for up to 26 weeks and require you to file a weekly claim to continue receiving payments. Some states may also have additional qualification requirements, including that you actively look for new employment while you receive the benefit. Review your eligibility state’ requirements before applying.
Update your insurance plans
If your insurance plans are through your employer, your insurance benefits typically end when you are laid off.
To combat this, the federal government created the Consolidated Omnibus Budget Reconciliation Act (COBRA) to provide extended access to your previous employer’s health care plan for a limited time after you are laid off, usually lasting up to 36 months. to pay a premium and an additional 2% administrative fee to qualify for insurance under COBRA, which usually is more expensive than a typical insurance plan.
Instead of paying high fees to extend your current coverage, you may be eligible to enroll in coverage under the Affordable Care Act, which typically offers lower premiums based on your income level. You may also qualify for coverage under a spouse’s or parent’s plan—if you are under 26 years old.
Review your 401(k) plan
There are several options to consider when evaluating what to do with your 401(k) plan when you are laid off, including leaving the funds in your current plan, rolling your plan over to a new employer or IRA, or cashing out entirely. On which you choose, there may be additional tax implications.
Stick with your current plan: If you have $5,000 or more in your 401(k) plan, you may be able to leave the funds in your current plan. Even though you are allowed to keep the plan, you will no longer be able to contribute or withdraw funds until you hit age 72, which is when you will be required to take minimum distributions from the plan regardless of your employment or retirement status.
This means you will have to open a new 401(k) plan or IRA if you want to continue saving toward retirement. Additionally, you will not be able to dip into your retirement savings if you face financial turmoil while you are laid off.
Roll over your plan to a new employer: If you find a new job after being laid off, you can roll over your previous employer’s plan into your new employer’s plan relatively easily by contacting your previous plan’s administrator and completing required paperwork, says, Amy Hama certified financial planner at Mountain Wealth Planning.
It’s important to note that your new 401(k) plan may have different rules, investment options, and fees. Review your new employer’s plan thoroughly to ensure it aligns your investment needs before deciding to rollover your funds.
Roll over your plan to an IRA: If you don’t want to use your new employer’s 401(k) plan or it does not offer one, you can transfer your retirement savings into an IRA by contacting your previous plan’s administrator and requesting they disburse the funds to your IRA administrator.
You can choose between a Roth IRA and a traditional IRA, but there may be additional tax consequences in doing so. For instance, if your retirement savings have been growing tax-deferred in your traditional 401(k) plan, a Roth IRA rollover would be considered a taxable event.
Cash out your plan: If you do not have an emergency savings built up and are in immediate need of cash, you may be able to cash out the funds from your 401(k). But this should be a last resort after evaluating other alternatives since you will be required to pay ordinary income taxes on the funds and an additional 10% early withdrawal penalty if you have not reached age 59½.
You also lose out on any compounding interest you would have accumulated if the funds remained invested in a retirement account and will adversely affect your overall retirement savings in the long run. “If you cash out of a 401(k), it is going to take you a lot longer to catch up to where you once were,” says Hamasaki.
Dial back on spending
Create a simple budget and stick to it. If you are living off your emergency savings or a variable income to support you following a layoff, you should review your expenses and break them down into three major categories to help you dial back on unnecessary spending.
Must-haves: A significant portion of your budget should be allocated to paying your bills, which include your mortgage or rent payments, utilities, food, gas, minimum loan payments, and insurance. This also includes student loan payments, which are currently only pause until no later than June 30, 2023.
In other words, you must-haves include your fixed expenses that you pay every month. These expenses should be your main priority, especially if you have limited funds.
Wants: A smaller portion of your budget may go toward paying for things you want, such as traveling home to visit your family during the holidays or purchasing a new outfit to attend a job interview. But you should reduce the amount you typically spend on discretionary Expenses if you have recently been laid off.
“We’re really focusing on paying off the fixed expenses first because when the sky is falling down, you want to really tighten your belt a little bit,” says Hamasaki. This might mean eating in instead of going out to lavish restaurants or adjusting your holiday shopping plans.
Savings and paying off debt: If you do not have a job lined up, you may need to stretch your emergency savings to last a longer period of time while you search for a new role. If this is the case, it may be beneficial to put any excess back into your savings for a later date. Additionally, if you have credit card or consumer loan debt, you might want to make additional payments beyond your minimum payment to reduce interest charges.
If your budget allows, consider following the 50/30/20 rule, which allocates 50% of your after-tax income to must-have expenses, 30% to wants, and 20% to savings or paying down debt.
For instance, let’s say you have six months of expenses saved up in your emergency savings, totaling $4,000 per month. You should spend $2,000 on your fixed expenses, $1,200 on wants, and $800 on savings or paying down debt.
The takeaway
If your employer has given you advance notice that your job will be impacted by a mass layoff, it’s important to create a financial plan right away so you can be prepared for the changes that come along with losing your job.
Thoroughly review your severity package and don’t be afraid to negotiate the terms, such as requesting an extension of your health insurance benefits to avoid paying high premiums under COBRA. If your employer will not be providing inseverance pay, consider applying for unemployment meet your immediate financial needs.
“Not too many employers expect anyone to negotiate with them [on their severity package],” says Hamasaki. “But if they feel that this is putting them in a precarious situation, whether it’s a legal liability or they feel remorseful that they had to let you go, there could be more room for power and negotiation.”
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