Congratulations, you’ve landed a new position, or maybe are planning on working for yourself. To keep your finances secure, take care of a few housekeeping tasks before you leave your old job. Most of these issues should be familiar territory for management, and it’s important that they become familiar to you as the employee.
After giving notice, discuss these issues with the human resources representative, a manager or other knowledgeable designee:
If you do not immediately get health insurance coverage, including dental, through your new employment, you still have eligibility through the former employer. A federal law known by the acronym COBRA (Consolidated Omnibus Budget Reconciliation Act) requires that health insurance be offered to former employees for 18 months. In a few exceptions, the tenure could be longer. The difference is this time, you pay for it, and that includes the employer’s subsidy. This includes the coverage that you received while with your former employer.
“The cost could be up to 102 percent of the cost of the insurance, which includes an administrative fee,” explained David Ossam, Senior Vice President of Human Resources and general counsel for Hanscom Federal Credit Union.
A pitfall to avoid is a gap in coverage. If there is a gap of even less than 60 days in which you will not have health insurance, there is a possibility your new insurer could say you have a pre-existing condition, and deny coverage. You can avoid this break in coverage by purchasing COBRA for the period in which you will go without the insurance, or find it on your own on the healthcare exchange for your state.
“If you have any pre-existing conditions, you could potentially be excluded from receiving insurance,” at the new employment, Ossam said.
Life, Long-term Disability Insurance:
These insurance products are not included with COBRA. But an employer may still provide an option for portability or convertibility. In general, this would enable the individual to purchase the policies and continue as a personal plan. The advantage is that this will provide coverage in the case of a chronic illness or a disability, in which a new insurer may be hard to find. The drawback is because many insurers know this is the reason why you’ve extended the coverage, it’s priced accordingly, Ossam said.
“Most people probably will not want to convert their existing plans, and would likely find it cheaper to go out and get a term life insurance, possibly on their own,” he said.
With respect to a 401K, or a similar product for a nonprofit or government position, there are a few things to bear in mind. If the amount in the retirement account is below a particular threshold, $5,000, the employer can automatically require that the former employee move it to their own account.
“The reason for that is there is actually a cost for an employer to administer the account,” Ossam said.
If the amount in your account is higher, you can still move the funds, but you may also elect to keep them in the employer’s fund. At that point, if you stay in the plan, you are considered a “terminated participant” and can no longer deposit funds or take a loan from your account, but you have the same investment choices as other employees. If flexibility is important to you, consider shifting your money into your own IRA or similar retirement vehicle, as this will give you greater choice over investments. You can also take a distribution when you leave the employment, and cash out your plan, but most accountants advise against this as you will pay taxes on what the IRS considers a distribution.
One word of caution: If you have a 401K loan, make sure you repay the balance owed within 30 days of leaving employment, the typical window, or you will be taxed on the outstanding amount, which also is considered a distribution. And if you have an employer who pays a contribution at year’s end, based on prior contributions, check to see whether the plan has to remain with the employer for you to receive that distribution.
Employees generally are entitled to all commissions they have earned. There could be a question as to whether a commission was earned. For example, if a sales representative sells a 12-month product that the client agrees to pay for each month, will they be entitled to a commission for the 12-month sale, or just the portion that transpired while they were employed? Ossam said issues such as these may arise and may need to be resolved.
Expenses and company equipment:
File all expense reports before leaving, for reimbursement, and obviously, return all company equipment, including phones, parking passes, keys, laptops, company-issued credit cards and cars.
“If you have a company car, the company is going to want that back,” Ossam said.
Contractual Agreements, such as a non-compete or non-disclosure agreement:
These can come back to haunt former employers. Be aware of what you have signed, particularly as regards non-compete agreements.
“Companies have always been fairly vigilant about it, especially if you’re going to a competitor,” Ossam said.
The law that enforces these agreements is enforced on a state-by-state basis. Some states, such as Massachusetts and California, seldom enforce them. Others are more aggressive. The laws favor employers, not employees. Know where you stand before you make your next move.
Once you make the decision to part ways with your employer, make the time to discuss these money issues with your manager. With these financial agreements in place, you are in a solid position to create a strong budget for the future.