November 4, 2022 | By Jessica Goedtel, CFP®
First off, take a deep breath.
Now take another one.
Take a few more for good measure.
No getting around it, layoffs suck. Even if it’s expected, it can be hard. On top of all the emotions involved, you have some decisions you will need to make. So what are your next steps?
First, protect yourself.
Do you think that you were wrongfully terminated? Talking to an attorney would be a good first step. Labor laws vary from state to state, so find someone who specializes in wrongful termination in your state. Research different law firms, make sure they are reputable, and interview at least two or three. They should be able to clearly explain their fees and terms to you.
Read your severance agreement carefully. Understand what you are getting paid, what you are walking away from, and, most importantly, what can alter or void the terms of your severance. Don’t sign anything until you understand the terms, especially non-competes or non-disclosure agreements. These could potentially affect your job opportunities. An attorney can also be very helpful in reviewing the agreement.
Think about your cash flow.
As soon as you are able, file for unemployment. You should be eligible for unemployment unless you were fired with cause (or if you resigned). State unemployment funds are usually funded with employer contributions, so please do not pass on taking this money.
Do you have enough cash to cover expenses for a few months along with your severance? If not, consider selling some of your company stock if you have it. This can give you some breathing room to pay your bills while you are looking for a new position.
Know your health insurance options.
You’ll be offered COBRA coverage, which just means you can stay on your current healthcare for 18 months (nine if you’re at a company with 19 or less employees). You may be responsible for the full premium, and that can be costly. They will provide you with the coverage and cost details. Losing your job is also considered a “qualifying life event.” This means you can look for healthcare on the marketplace or switch to a spouse’s coverage. The good news is you’ve got 60 days to decide if you want to enroll in your COBRA coverage. If you have a health event during that time, you can elect your coverage retroactively. This is huge – take advantage of this time to review your options or wait for a new employer plan to kick in.
Understand how this affects your benefits.
If you’ve got equity compensation, like RSUs and stock options, look in the agreement for what will happen to any unvested shares. Some severance agreements will accelerate vestings, but often you will lose anything that hasn’t vested yet. Do you have vested stock options you haven’t exercised yet? You will need to find in your severance agreement how long you have after termination to exercise your vested options. If it’s not in your severance agreement, look at your grant agreement.
Take a look at your 401k plan. You may have to call to get an updated login if you’ve been using your company email. Check how much of your balance is unvested. Contributions that you’ve made are always yours, however many employer contributions are subject to a vesting schedule. These vary, but it’s usually a period of time you have to be with your employer before you can keep their contributions. Unfortunately, being laid off means losing what has not vested.
You can leave your 401k where it is for now while you look for another role. You can roll it into your new employer plan when the time comes, or move it into an IRA. Just be aware that some plans will start to charge you additional fees if you are not an employee anymore.
If you have an Flex Spending Account (FSA), use up remaining funds if you are able to do so. You will lose the funds once you are no longer an official employee. This includes dependent care FSAs and medical FSAs, although you can keep your medical FSA if you elect COBRA coverage. If you have a health savings account (HSA), the good news is you can take it with you. Often HSA providers will begin charging monthly fees once you are no longer an employee, so roll it over to a low-cost HSA provider such as Fidelity.
Finally, give yourself permission to take a few days to process this change. For most people, a layoff will be a life-changing event. Any change that big, good or bad, is a time to reflect. It might feel rough right now, but you never know what opportunities this may open up for you. Take the time to feel all the feels, think about what your next move might be, and take it one step at a time.
*Pavilion Financial Planning has no affiliation with any of these institutions and receives no compensation from them.
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