With the unemployment rate stuck north of 9%, many people have had to face situations that they are not used to facing.  Many have had to fine tune their resume and polish their job-seeking skills in order to try to find new employment to replace a lost job.  If they are among the lucky ones, they will then have decisions that come with considering a new employment opportunity.  Some have had to pack up and move to another state in order to try and find work.  Besides all that, losing a job can have a powerful emotional impact.

There’s also the financial impact.  Is unemployment compensation available?  How do you manage cash flow while out of work?  Is there a severance package available?  What about your health insurance options?  Can you keep your group life insurance?  What should I do about my employer-sponsored retirement plans?

Usually, your company’s Human Resources Department can help with a lot of these questions.  But that last question, the one about retirement plans, seems to go unanswered in a lot of cases.  The findings of a recent study by Fidelity Investments seem to bear this out.

Over 42 million Americans have pension plans.  But apparently, they don’t understand them very well.  The Fidelity study showed that 31% of those surveyed don’t know their plan’s vesting schedule, 40% don’t know what their payment options are when they either retire or leave the company, and 27% don’t know when they can start receiving benefits.  This is a big problem because the same study showed that more than 50% of those surveyed plan to use those pensions to pay expenses in retirement.

The number of workers with pension plans has been declining for several years as the 401(k) plan has become the employer-sponsored plan of choice.  But the study had some troublesome numbers here too.  More than 30% of those involved in a job transition are unsure about what to do with their workplace savings plan.  Since the assets in the plan are often a big portion of your savings, this is an important decision. 

Should I stay, or should I go?

There are generally four options available to you with the funds held in a  401(k) or 403(b) plan with a former employer:  you can leave them in the plan; you can roll the assets into an IRA; you can roll them into a new employer’s plan, if it allows; and you can cash out.   There are pros and cons for each option.  Fidelity has put together a pretty good review of the things you should consider when facing this decision.  You can access the article by CLICKING HERE.

71% of the survey respondents who had left an employer at least four months ago said that they were consciously leaving the money in the existing plan.  59% of those said that satisfaction with the plan’s features and access to specific investments was the number one reason they were staying.  But 27% answered that they were leaving their money in the old plan because they didn’t have the time or the interest in taking action.  No time or interest?  Benign neglect is not a good way to manage investment and retirement decisions. 

So, while losing a job can be a very traumatic experience, putting together a plan to deal with the many decisions you may face will help you get through it.  There will be tax questions, investment questions, retirement questions and cash flow questions.  There are many resources available if you decide to handle these questions on your own.  But you might benefit from some objective outside guidance too.   A Certified Financial Planner^TM is qualified in all of those areas and can help you make a difficult process less difficult.