Way back in the old days, before March 2020, layoffs sometimes looked like this. We realize that at present, few people are carrying belongings out of offices, at least not without social distancing. (Photo: Shutterstock)
In the coronavirus pandemic, probably the only sure thing these days is that change is coming.
And since that change could include a layoff or a furlough (yes, they are different), it makes sense to be prepared in case you end up in the next wave of the millions of people who have already joined the ranks of the unemployed.
There are lots of things to consider, not the least of which is figuring out what options are available through your employer for the benefits you have, particularly your retirement plan. Here are some things to consider.
10. Remember the difference between layoff and furlough.
A layoff is permanent, with no expectation of returning to work; a furlough means that you're being let go with the expectation that if/when the business is able to reopen, you still have a job waiting for you.
And according to Business of Home, furloughed workers are still eligible for unemployment and may even still be eligible for health insurance (ask whether your insurance is effective beyond your date of layoff or furlough).
Employers are handling insurance coverage in different ways during the pandemic, so make sure to inquire.
9. Ask about vacation and that last paycheck.
According to the Harvard Business Review, you need to ask when you'll get your final paycheck and should also find out whether/when you'll get paid for any unused vacation time.
You might even get severance, although with the vast numbers of people joining the unemployment lines that's by no means certain. But make sure you ask. In previous years, some people have negotiated larger severance amounts.
8. If you have stock options, find out what your options are concerning them.
You might not want to be selling stock right now in a market that's made a practice of nosediving the last couple of months, but on the other hand, if you need the money, find out what the requirements are. Also ask if you'll have to forfeit any.
7. Ask your current employer for references and for copies of your performance reviews.
If things don't work out for you to go back to the same company (or if you can't wait that long for income and find another job), having these things on hand could make it much easier to get other employment.
6. If at all possible, leave your 401(k) alone.
Raiding your retirement funds to survive today may be a necessity, but if it's not, try not to handicap your future by using up whatever retirement savings you may have accumulated.
But one way or another, find out what your options are at your current employer for that plan, in case you have to roll it over to an IRA or, perhaps with luck, to another employer.
5. Check on the taxable or nontaxable status of retirement plan withdrawals.
If you have to take the money out to live on, make sure you check to see what your tax obligations will be. It won't do to be blindsided by a big tax bill when money is already tight.
According to Bloomberg Tax, employers are allowed, under certain circumstances, to suspend their contributions to retirement plans—so if you've been continuing your contributions for the employer match, you'll want to ask HR about the status of the matching funds so that you can decide what to do next.
And since the rules about safe harbor notices changed under the SECURE Act at the end of last year, there could be changes in whether and how your boss is making matching fund contributions.
4. Check with the powers that be about the requirements for participant loans from your retirement plan.
Borrowing money from your plan could be preferable to actual withdrawals, particularly if you have a prospect of being called back to work.
But if you've already taken a loan, being laid off could mean that you end up with a taxable distribution if you fail to repay it—and that could leave you with not just a tax bill but a 10 percent penalty if you're not 59½ when you fail to pay back the loan.
3. Ask HR about the effects of furloughs and severance benefits on your retirement plan loan.
You can avoid negative ramifications from a previously existing loan if you are furloughed rather than laid off and the furlough doesn't exceed one year—as long as you're able to repay the loan by the end of the original term of the loan.
Alternatively, the company may allow you to have loan payments withheld from any severance payments to avoid ending up being taxed on the loan—if the plan allows loan payments to be made from severance pay.
2. Ask about hardship withdrawals from your 401(k).
If such a measure becomes unavoidable, you'll need to know how to go about taking one—and whether you're eligible for it. You can't just take the money out if you're furloughed or your hours are cut.
But you can if you're under threat of foreclosure or eviction or if you need the money for medical expenses for yourself or the principal beneficiary of your plan. Just remember that hardship withdrawals are taxable.
1. Ask about the potential for in-service distributions of matching and other employer contributions.
The plan might allow for such distributions depending on a number of factors, including vesting, hours reduction or furlough and a minimum required period of service.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
