According to a 2017 report from the U.S. Department of Labor’s Bureau of Labor Statistics, most people have an average of 11 jobs before age 50, usually changing jobs for better pay and benefits. Since the average employer raise for American workers is only 3% per year, many workers advance in position and pay by their initiative through switching employers.
A more recent report in January of 2018 by the Bureau of Labor Statistics indicated that the average time spent at a job is five years or less in every position a worker will have. Workers devote time and energy searching for, and transitioning from, one job to another.
For other workers, the decision to stay at their current employer may not be in their favor as many are laid off at some point during their career. Regardless of the reason for leaving your employer, don’t make these financial mistakes by leaving your benefits behind when you move to your next job:
Mistake #1- Leaving Your Retirement Plan at Your Old Employer
You have many options for what to do with your employer retirement plan and leaving it at your old employer may hinder its performance:
- You no longer have access to financial advice about the plan.
- Higher costs to maintain the plan may result if you to leave it since you’re no longer an employee; your employer paid part of the cost for your plan.
- You will lose the ability to rebalance your retirement portfolio or change your retirement plan fund options once you leave.
Options you have:
- Roll your 401(k), 403(b), 457, SIMPLE, SEP, or Roth 401(k) plan into an IRA for you and your financial advisor to manage; IRAs provide more fund and stock options than employer plans.
- Leave your plan with your employer.
- Take your old retirement plan to your new employer’s plan. However, you may have a limit on the fund options and the amount you can bring into the new plan.
- Cash out your plan- a 10% IRS penalty and taxes will apply on the entire amount at your tax rate.
Mistake #2- Not Rebalancing Your Entire Retirement Portfolio
Your retirement portfolio may have your risk tolerance not in sync now and should rebalance since its holdings have changed due to stock market performance.
Mistake #3- Forgetting Your Employer’s Pension Plan
Pension plans, also known as defined benefit plans, can be rolled out of the employer’s plan just like a 401(k), 403(b), 457 plan, Roth 401(k) plan, SIMPLE, or SEP plan although some restrictions may apply. Sometimes only a certain percentage of the pension plan can be rolled out over many years. Check with your former company’s HR department on rolling out your pension plan for clarification or the custodian of the pension plan.
Mistake #4- Leaving Your Employee Stock Ownership Plan (ESOP) with Your Old Employer
Employee Stock Ownership Plans are a qualified retirement plan and correlate contributions to the performance of the company. Even though the company may be making profits while you were there, the future is unknown; for this reason, you may want to liquidate your ESOP and, in many cases, will be required to do so by your employer if you are no longer working there. You can liquidate your ESOP by rolling it into an IRA without tax consequences if the transfer is done custodian to custodian and you don’t receive the proceeds directly.
Mistake #5- Leaving Your Group Life Insurance
Leaving your employer doesn’t mean you can’t get anything when you move from your group life insurance plan. Here are the options you may have:
- Sell your insurance policy on the Insurance Marketplace; this equates to cash in your pocket for selling and surrendering your policy to another insurance company.
- Keep the policy and pay the insurance company directly. Consult the company or an independent insurance professional to determine if keeping your group insurance or a new policy would be more cost efficient.
- If you’re older than age 50, you may have the option to cash in the policy with the carrier. Contact the carrier directly for clarification.
Mistake #6- Forgetting About Your Group Long-Term Care (LTC) Plan
Changing jobs doesn’t mean your group LTC policy goes, you can continue coverage directly under the insurer. You may not qualify for a new policy, or a new policy may be more expensive than paying outside your current LTC policy. Contact the insurance carrier directly to find out your options.
Other Financial Considerations:
- Do you have access to your new employer’s health insurance plan right away or have a plan to continue insurance outside of your old employer if you don’t start your new job right away? It’s critical you have health insurance coverage during your employment gap, so you’re prepared if you experience illness or injury.
- Consider your new tax implications from the new tax laws and make sure your withholdings are accurate at your new employer.
- Do you understand your new insurance benefits package? Are the life, dental and vision, and disability insurance enough or will you need more coverage? Is the new long-term care insurance offering enough?
- You can roll your old Health Savings Account (HSA) into the new employer’s HSA but are unable to liquidate it. HSAs no longer have the ‘use it or lose it’ restriction, and the unused funds can continue to grow in the new employer’s HAS.
I am here to help you navigate the choices you have with your old benefits and your new employer’s benefits and can provide you with options that suit your needs.