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The COVID-19 pandemic has brought many changes to the US economy. Businesses have changed the way they operate and have struggled to manage disrupted supply chains, and consumers have faced soaring prices for goods and services.
To some extent, these particular challenges were expected. But a more surprising aspect of the post-pandemic economy is the transfer of power from employer to employee that we see unfold.
Polls have shown that up to 95% of workers plan to quit their jobs in what commentators call the “big resignation”. Workers cite both burnout and the lack of growth opportunities in their current jobs as reasons to seek employment elsewhere. (I’m pretty sure the large new hire bonuses that many companies are now offering are also playing a big part in this trend.)
But before you join the crowd and hand in your own resignation notice, make sure you’re financially ready for a personal career change. Here are two things to consider.
Many workers tend to quit their jobs without thinking about what to do with their company-sponsored pension plan. You have three main options when dealing with an old 401 (k) plan, and you need to choose one to ensure that you keep your retirement on track for success.
Your first option is to do nothing and leave the plan to your previous employer’s 401 (k) provider.
This is obviously the path of least resistance, but it may not even be an option depending on your balance; some employers will not allow you to leave a plan with less than $ 5,000, for example. You also forgo some of the usual perks available to active employees, such as the ability to take out a loan from your 401 (k).
Your second option is to ride your old woman employer’s company pension plan in your New employer’s pension plan. Before taking this route, check with your new employer to make sure their plan allows for direct shifts from previous employers.
Once the funds are renewed, your plan will treat these funds as if they were there from the start. You will be able to get things like 401 (k) loans on funds. In addition, this option allows you to consolidate all of your company’s pension plans to make it much easier to ensure that your asset allocation remains in line with your goals and risk tolerance.
Your third option is to transfer your funds to a rolling IRA. This option gives you the most control over your investment choices and withholding tax requirements if you are withdrawing funds.
The downside here is that rolling funds to an IRA means losing the Employee Retirement Income Security Act (ERISA) creditor protection over qualified retirement funds.
Generally, ERISA allows qualified employer-sponsored pension plans federal protection against funds seized by creditors. Unqualified retirement accounts such as IRAs are not federally protected and are subject to each state’s respective creditor protection laws.
One of the many benefits of being an employee is the ability to use the company’s group insurance plan offerings to mitigate or supplement the coverage needed to protect you and your loved ones.
You may be aware that COBRA for Medical Insurance allows employees to maintain their medical coverage even after leaving their employer due to a qualifying event. But most people are not as familiar with their separation options when it comes to life and disability insurance.
Before you leave your employer, obtain a copy of your employer’s Summary Plan Description (SPD) for your life, health and disability insurance policies.
Not only will this document answer general frequently asked questions (like how much you have in coverage amounts and how to file a claim), but it will also give you your employer’s rules regarding termination benefits (such as retirement or, in your case, resignation).
Depending on how your employer has designed their respective benefits, your group insurance policy may be transferable after your resignation. The portability feature allows an employee to purchase and transfer group insurance coverage to an individual policy when the employee has voluntarily or involuntarily separated from the employer.
Leaving your job, and therefore your current benefits, could put you at risk of a lack of insurance. Understanding where the gaps can be is important for everyone, but can be of particular concern to anyone with major health concerns.
With group policies that you can enroll in as part of a company’s benefits program, you can usually get life, disability and health insurance coverage without going through an underwriting process. With private insurance, however, an insurance company may not approve you based on your medical history or current state of health, leaving a particularly large coverage gap if you quit your job without something else that allows you to take advantage of the new benefits of the group plan.
Perhaps now is the perfect time to capitalize on the power shift we are seeing between employers and employees. Leaving your current job in search of something that better meets your wants and needs could provide you with better long-term financial results, but remember some of these key planning considerations before you move. Make sure you don’t ignore your retirement plan and expose yourself to extreme levels of risk.