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Steps You Take Now Can Ease Pain Later if You Lose Your Job

Steps You Take Now Can Ease Pain Later if You Lose Your Job

By Sandra Block

April 20, 2009

Are you worried about your job? You probably should be.

The Federal Reserve Board expects the economic downturn to last through 2009. Some economists believe unemployment could hit 9% before the economy improves.

If you’re feeling insecure about your job, there are steps you can take now that will make a layoff less painful. Some suggestions:

•Avoid borrowing from your 401(k) plan. Since the economic crisis began, nearly 20% of employers have seen an increase in loans from 401(k) plans, according to Watson Wyatt.

That’s not surprising, because many Americans are cash-strapped, and other forms of loans — such as home equity lines of credit — have become much harder to get.

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But in an uncertain job market, a 401(k) loan is a bad idea. Most companies require workers who leave — voluntarily or not — to repay the balance within 60 to 90 days, says James Cox, financial planner at Harris Financial Group in Colonial Heights, Va. Otherwise, the amount you owe will be treated as a distribution, which means you’ll have to pay income taxes on the balance, plus a 10% early-withdrawal penalty if you’re under age 55.

•If your company is still offering open enrollment, consider signing up for the lowest-cost health insurance option. That will reduce the cost of continuing your coverage if you’re laid off.

Under the Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, employers with 20 or more workers must allow laid-off employees to continue their coverage for up to 18 months.

However, you’re required to pay 100% of the premium, plus administrative fees.

In addition, you must stay with the plan you signed up for while you were working, says Blaine Bos, senior health and benefits consultant for Mercer, a health care consulting firm.


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