What’s perhaps most challenging about layoffs is their suddenness – even if the signs were there, when one finally happens, it happens quickly. They also require you to make important decisions about your future while you’re still processing the emotions of the moment. The following checklist can help you keep track of the choices you need to make following a layoff so when the next opportunity comes, you’ll be financially ready.
Conclude Your Current Employment
While you might not want anything to do with the company that just laid you off, think twice before burning any bridges: Your employer can still provide documentation, resources, referrals and even compensation as you prepare for the next phase in your career.
- Review – and negotiate! – your severance package. If you’re laid off, you’ll likely be asked to sign a severance agreement. Take some time to review the terms of the agreement first. Are they in line with the existing severance policy? Do they take into consideration severance pay, unused vacation or sick days, outplacement services or mileage or tuition reimbursement? You typically have 21 days to review your severance agreement, which gives you time to consult a labor lawyer (if needed) and negotiate.
- Decide what to do with your retirement savings. If your employer provided a retirement plan like a 401(k), you’ll need to decide what to do with those funds. You’ll likely have several options, including keeping them in your current employer’s plan or rolling them into another retirement savings vehicle. Just be wary about cashing out while you’re in between jobs: While the money might come in handy, you’ll still need to pay taxes on that distribution, and potentially owe a 10% early withdrawal penalty.
- Take advantage of existing insurance benefits. In addition to compensation, your current employer likely provides certain insurance benefits. If your severance policy includes a termination date for health, dental or vision insurance, see if you can schedule appointments (like annual exams) or fill prescriptions before you go. Keep in mind that if your employer offered a flexible spending account and you still have a balance, you will lose what you don’t spend – consult your Human Resources team for a list of eligible FSA expenses. Also, if you had a high-deductible health plan with a health savings account, those HSA funds move with you, but you won’t be able to continue contributing to them until you’re enrolled in a new high-deductible plan.
- Secure insurance for the future. A layoff could also mean the end of your employer-sponsored health insurance. If your employer had 20 or more full-time employees, they are required by law (known by its acronym COBRA) to provide you access to your existing health insurance for at least 18 months. However, this law does not require them to pay for it, which means you would be responsible for the full premium, including the portion that had been paid by your employer, as well as administrative fees. Your Human Resources team can tell you when your health insurance terminates and, if you choose to, how to continue insurance through COBRA. You might also consider health insurance through the Affordable Care Act: Because you were laid off, you don’t need to wait for open enrollment, plus you could qualify for significant subsidies to help reduce the cost.
Group disability plans can often be converted to individual plans for employees willing to pay the full premium. The same is true for life insurance, though if you’re looking to rejoin the workforce quickly, you might be better served by a term life policy to bridge the gap between employers.
- Sort through any equity compensation grants. If you have outstanding equity compensation grants, your options on what to do with them may depend on the details contained in your grant agreement and the reason you left your employer. Generally, grants that aren't vested per your vesting schedule are forfeited once you leave the company, although some grant agreements allow exceptions for events like layoffs. While restricted stock awards that have vested remain yours, if you have incentive or nonqualified stock options that have vested, you may have a limited window of time to exercise them.
The primary factor in deciding whether to exercise vested stock options is how the stock's market value compares to your exercise price. If the exercise price is more than the stock's current trading price, your options have no value and should be left unexercised. If on the other hand the stock's price exceeds your exercise price, then you'll want to exercise before they expire to capture that value.
- If you do exercise the options, the next decision is whether to keep the new stock or sell the shares. That decision will be based on a variety of factors, including the company's financial condition, your outlook on the stock's performance and how it fits with the rest of your portfolio. If you choose to keep the shares, you'll need to have other cash available to pay the exercise costs and any related taxes. The company may allow you to sell some of the shares to cover your costs while you keep the rest, allowing you keep the investment while not spending any of your own cash to do it.
Look Toward the Future
While you wrap up your employment with your now-former company, you’ll also want to identify new sources of income and adjust your monthly budget.
- File for unemployment. Perhaps the biggest difference financially between laid off and fired for cause is that laid-off workers are eligible for unemployment. Contact your state’s Department of Labor website right away and apply for unemployment benefits. It takes time for benefit payments to begin, so the sooner you file, the better.
- Reevaluate your budget. Chances are your monthly spending and saving decisions were based on your salary while you were employed – now that your income has been suddenly curtailed, you’ll need to establish a new monthly budget. Separate essential expenses (like a mortgage) from nonessential ones (like a gym membership) and put a pause on nonessential spending until you’re back on your feet. (An important exception: Any spending that helps you secure new employment, develop your skills or make you more marketable.) Although they’re convenient, with an average interest rate of 15–19%, borrowing with credit cards to maintain your spending should be seen as a last-resort option.
- Consider other sources of income very carefully. Even if you have an emergency fund, you might want to look at alternative sources of revenue – but do so with caution. A home equity line of credit could allow you to access the equity you’ve built into your home, though you’d have to factor closing costs and a monthly payment into your new budget. A securities-based line of credit is a similar instrument that lets you tap into the equity in your portfolio, but rising interest rates can eat into the value of your account, plus you run the risk of liquidation if your portfolio value drops or you default on your loan payment. If you have a Roth IRA, you could also consider cashing in your contributions: They can be withdrawn tax-free, though doing so could shortchange your retirement fund.
Even in periods of low unemployment, there will always be restructurings, mergers and buyouts that result in layoffs. While those things might be out of your control, you can still make the best of a bad situation and set yourself up for future success. Your Baird Financial Advisor can serve as your sounding board and help get you bridge careers.
The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.