How to Make the Most of Your Employment Benefits

Reading Time: 7 Minutes

Contributed by Sophie Isbell

Sophie Isbell is a Content Marketing Specialist at Siege Media and a graduate of the University of Texas at Austin, where she studied corporate communications. You can find her nerding out over all things digital marketing, content strategy, and brand building… or on her drum set. (She spends a lot of time there too.)

Full-time employment can have numerous benefits in addition to a salary or hourly wage. Not only are you networking with like-minded individuals and gaining significant experience at that company, but you are often eligible for employee benefits. 

Job benefits include but are not limited to paid time off, sick days, health insurance, pension and retirement. Arguably the most important, health insurance can help cut down out of pocket costs when it comes to dental, vision and general medical bills. Some companies will even offer a career development budget, two weeks of paid vacation and other benefits which incentivizes the work the employees accomplish. 

However, the pandemic has had a significant impact on employment: new weekly jobless claims reached 847,000 on January 23, 2021, higher than any previous recession. Just last month, 10.7 million people were unemployed, making a 6.7% unemployment rate in the United States. Furloughs, otherwise known as temporary unemployment, increased by 277,000 last month to 3 million. 

Millions of Americans are either looking for jobs after being laid off, furloughed or quitting. One important aspect to consider when leaving a job is what exactly happens to your benefits. Although there is no one simple answer, it does vary depending on the company and situational circumstances. The best course of action is investigating if you are qualified for unemployment and then submitting a claim so that you can stay afloat until you find your next source of income.

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Table of Contents

What to Know When You Quit

  • Retirement & Pension
  • Health Insurance

What to Know When You’re Furloughed or Laid Off

  • Health Insurance, Pension & Retirement

What to Know When You’re Fired

Implications of Job Loss

  • What to Do When You’re Unable to Pay Your Bills
  • Open New Accounts is Not the Best Idea, Nor is Increasing Your Balance
  1.  

What to Know When You Quit

At some time or another, everyone has a job where they put in two weeks’ notice that they will no longer work there. Quitting a job often means some or all of your benefits, like dental or vision health insurance, end either on your last day or at the end of your last month. 

Retirement & Pension

The first place to go for more details on your benefits would be your human resources department. They can help you find out if you’re eligible for benefits like pension and retirement plans after you’ve put in your two weeks notice. Common retirement benefits include a 401(k), where companies can either match your contributions to your retirement plan or deposit a lump sum of retirement funds following your tenure. 

If you have a defined-benefit plan which begins when you retire, that is when your benefits can be used regardless of your employment status prior to retirement. When it comes to pension, some companies will continue to deposit funds in installments, also known as annuity, or a lump sum paid once. 

Health Insurance

The Consolidated Omnibus Budget Reconciliation Act, or COBRA, allows employees to hold on to their health insurance benefits for up to 36 months after leaving a job — that is, if the company has more than 20 employees. According to the U.S. Department of Labor, COBRA must be offered to employees who quit, were fired or laid off. 

One important date to note is that to receive these benefits, you must opt in to COBRA within 60 days of leaving the company. It’s also true that the coverage will apply in retrospect to the date that you were no longer eligible for benefits, meaning the coverage is retroactive. 

Although COBRA helps you maintain your current physician as well as cover the cost of prescriptions, employees will be responsible for paying their health insurance premium in addition to the 2% administrative fee. This makes COBRA a good option for employees who are still on the job hunt, who had to quit due to external circumstances or employees who enter retirement. 

What to Know When You’re Furloughed or Laid Off

The beginning of COVID-19 resulted in many companies putting their employees on furlough, or a temporary layoff based on extenuating circumstances. Furlough is usually either mandatory or offered to prevent other employees from losing salary. It is different from being laid off or fired because it simply means that your employer cannot afford to pay you but they also aren’t terminating your employment. Access to benefits, however, depends on the company: some employers may choose not to pay your salary but will cover the cost of healthcare; others may not pay either.

The first person to contact after being furloughed is your human resources representative to make sure your benefits are still available and if not, you can ask them for a time frame for which you will be furloughed. For individuals with preexisting conditions and a crucial need for health insurance, the best course of action is to find another insurance option in the meantime. Being laid off is similar to being furloughed in that it isn’t because of any fault of your own, but different in that your employment with that particular company has come to an end. Again this is often due to outside circumstances such as an economic crisis and budget cuts, similar to those of the COVID-19 recession.

One positive when it comes to being laid off is that your benefits should still be protected while you are on the job hunt. Layoffs usually constitute a severance package that lasts for a certain amount of pay periods. Not only do you have access to the COBRA health insurance, but you should also have the same access to your retirement and pension plans after getting laid off, similar to that of quitting your job. 

Health Insurance, Pension & Retirement

As mentioned above, COBRA is an excellent option if you find yourself laid off and you don’t anticipate having another insurance policy for a while. In your severance package, you could potentially negotiate your dedicated pension plan if you had one. You can also choose to receive the amount in a lump sum or an annuity.

What to Know When You’re Fired

While getting fired can be difficult, it happens to the best of us and it could potentially open up a novel opportunity in the future — as long as you weren’t fired for unlawful or unsavory acts. Given that you left your previous job on good terms, you are entitled to unemployment benefits, although they tend to differ based on your state of residence. 

Employers may offer a severance package when you are fired but they aren’t required to do so. Some packages include additional pay and extended benefits in addition to your eligibility for COBRA. Although COBRA doesn’t cover your insurance premium, a positive is that you may be able to negotiate this coverage in your severance package. 

The difference between getting fired and getting laid off lies in whether it is the fault of the employee or the company. Getting fired is because of the fault of the employee, specifically in regards to performance. In this case, a severance package is not guaranteed, you are usually not eligible for unemployment benefits and are unable to be rehired. On the other hand, being laid off is at the fault of the company because of economic restraints. However, a severance package is expected, you are eligible for unemployment benefits and to be rehired in the future.

Implications of Job Loss

The biggest question when you are faced with job loss is how it will affect your credit. It is comforting to know that being unemployed has no direct impact on your credit, but it does have implications for future spending and expenses. One good thing to note is that credit bureaus aren’t aware of your unemployment unless you tell them. That being said there are a number of indirect effects to your credit score when you lose your job, like loss of income to pay bills and other expenses. 

What to Do When You’re Unable to Pay Your Bills

The first worrisome instance of income loss is being unable to pay your credit bills given you don’t have an emergency fund or a backup source of income. According to Bankrate, 3 in 10 American adults don’t have money saved for emergencies nor do they have enough money to suffice for 3 months worth of living expenses. You might have to put your credit card or loan payments on hold to pay for the short term expenses like bills, rent, gas and food. It’s important to note that consistently late payments negatively impact your payment history, 1 of the 5 elements that makes up your FICO credit score. However, being a few days late is no cause for alarm; credit bureaus are only notified if you are over 30 days late when it comes to payment. 

A word of advice is to reach out to your creditors and tell them about your situation, for which they may have financial hardship options such as deferring payments or lower copayment until you are back on your feet. 

Opening New Accounts is Not the Best Idea, Nor is Increasing Your Balance

Although it can be tempting to open up new bank accounts or take out loans to cover your expenses, this can lead to negative consequences when it comes to your credit. Opening new lines of credit can lead to credit report inquiries, another 1 of the 5 factors that lower your credit score. Credit inquiries account for 10% of your overall credit score, which makes it even more risky when you open several new accounts at once. 

Another factor that impacts your credit score is credit age, which accounts for 15% of your credit score. Not only this but your credit age will be lowered whenever you open a new account. This is where an emergency credit card can come in handy because having a credit card you’ve already signed up for and that you know you can afford is much less costly in the long run. 

When you do use your emergency credit card, or any credit card for that matter, higher credit balance leads to more debt — another 1 of the 5 factors that impacts your credit score. But this one accounts for 30% of your credit score so there is even more at stake when you raise your credit limit or increase your balance. 

A good way to prevent increasing the balance on your credit line is having an emergency fund that you regularly deposit to. This is not to be confused with a run-of-the-mill savings account because it is strictly for use in the event of an emergency like a job loss.

Conclusion

Job loss or change is an extremely difficult and often overwhelming time, but hopefully this guide clarifies your options as well as how to make the most of your job benefits regardless of whether or not you are still employed at that particular company. The best preventative measures for unforeseen events like these are communicating with human resources, your creditors, having an emergency credit card or better yet an emergency fund for the more difficult times in life.

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