Moving on from your current employer? What happens to your benefits?
Working at a firm for more than 20 years is rare these days. People can expect to change jobs – whether voluntarily or involuntarily – many times during their career. So, it is important to know what happens to various types of benefits when changing employers.
There are three main categories of benefits that people should consider, whether moving straight to a new employer, retiring or searching in earnest for a new position: health insurance benefits, retirement assets and benefits dealing with death and disability.
Depending on the situation, such as layoffs or an early retirement package, an employer may provide additional benefits or coverage for an extended period. Some benefits may even be portable. In other instances, employers may elect to avoid offering them entirely.
Health insurance options
An employee leaving a job that provided medical or dental coverage has three options. First, they may move to another employer right away who offers benefits from date of hire. Alternatively, employees may elect to keep the employer plan via Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage or buying a different plan available in that area.
Federal COBRA enables employees and eligible dependents to keep their group medical and/or dental insurance coverage if they leave a job (unless for gross misconduct) or are no longer eligible for coverage through that employer. They must apply within 60 days of losing their coverage, and the availability of COBRA coverage only lasts for a limited time (usually 18 months).
While federal COBRA only applies to plans that cover at least 20 employees, there are similar options on a state-by-state basis for employees who work for a small company that offers benefits. Those who opt for COBRA pay the whole premium for the insurance (the part paid before as well as what the employer paid) along with an administration fee ranging from 2 to 10 percent. This price may or may not wind up higher than individual coverage available through a local broker, the insurance company directly or via the government Health Insurance Marketplace.
The price may be a huge consideration; however, a bigger one worth considering is the type of coverage and the number of doctors needed. Employer-based health insurance is a benefit that many people want to keep in today’s medical insurance marketplace.
401(k)/defined contribution plans
Anyone with vested 401(k), 403(b) or other retirement assets through work should consider whether to leave the account alone or look at other possibilities. There are 4 options available to you which previously discussed in greater detail in our blog entitled When to Rollover that 401k – and when not to. Typically, it is not wise to cash out from your previous employer’s plan, as you will typically be subject to ordinary income tax (plus a 10% penalty if you’re under 59 ½). The other 3 options are:
• Keep the assets at the employer after leaving. You can typically stay in your previous employer’s plan.
• Move the assets to a comparable plan at a new employer. You can rollover your assets to your new employer’s plan.
• Roll the money into an IRA – You can transfer the assets to an IRA. This option provides greater control and a wider array of investment choices. However, be sure to check the fees when comparing options.
Life and disability insurance
Life and disability insurance are two benefits that most hope they never need, but offer vital financial protection that can be harder to purchase on the open market – particularly for older people. Of the two types of benefits, only group life insurance may be portable and can be retained once someone leaves their occupation. Group disability coverage terminates with employment.
Depending on your situation, you may or may not want to keep your life insurance coverage. If you are in poor health and unlikely to qualify for new coverage, keeping what you have may be your only option. To the contrary, if you’re healthy, obtaining coverage on your own is in many cases less expensive than the group coverage.
Life transitions are never easy, but it is important to know what you’re faced with whether voluntarily or involuntarily leaving a job. Conferring with experts in insurance and retirement planning, as applicable, can ease some of the burdens during a change in employers.
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