Changing jobs: what you need to know

Be prepared to make important decisions about your employee benefits

by Tony Novak, MBA, MT, OnlineAdviser at Freedom Benefits updated 11/17/11

This article is specifically written for people with a limited level of financial experience. While there are plenty of resources with more detailed financial advice on these topics, there is a clear need for a simplified plainly worded advice on this topic. Technical details are avoided in this article to achieve the simple and plainly worded basic advice.

When you change jobs, you must make some decisions about your employee benefits. If you do not make the decisions, then they will be made for you based on the "default" provisions that are not always in your best interest. It makes sense to invest a little time to understand your options and make the

The important topics are 1) health coverage, 2) life insurance, 3) retirement plan, and 4) ancillary benefits.

Health coverage

Health coverage is usually the first and most important issue to be handled after you leave your job. If you are covered under a group health plan, then that coverage continues until the end of the month that you left your job. At that point you should select one of the three coverage options:

COBRA - If you worked for a mid-sized or large company then you have the option of keeping and paying for your same health plan under a federal law known as COBRA. The employer handles the notification and paperwork, you only need to make the election in writing and send the payments on time. This option is the most expensive and should only be used in the event of a serious ongoing medical condition or pregnancy. COBRA is not available to the employees of very small businesses. The Web site COBRAplan.com is a great source of additional information.
Individual conversion - If you work for a small company, COBRA does not apply but you can usually keep your same health benefits simply by calling the health insurance company yourself and requesting an "individual conversion" of your policy. Again, this is very expensive and is used by only a small number of people who change jobs.
Short term medical insurance - Coverage can be issued with a starting and ending date to coordinate with your group coverage. This is the most popular option because coverage costs less than half of the amount of other options. Most people are eligible and policies are issued online at FreedomBenefits.net. Personal help is available to help you find the best policy to fit your situation.

Life insurance

Most people who support a family with their earned income admit that they do not have enough life insurance. When you change jobs you lose your group life insurance. Fortunately most people are able to easily replace this coverage an are pleasantly surprised at how little it costs; most people can but the added coverage they need for $30 to $40 dollars per month. The easiest way to do this is online or by telephone. FreedomBenefits.net has immediate issue coverage that does not require a blood test.

The retirement plan

There is one universal rule when it comes to handling your retirement plan - Always roll the account into an IRA before making any withdrawals. This rule applies regardless of whether your retirement plan is a self-directed 410(k) or a company-controlled pension plan. After the rollover is complete, you can then withdraw money from the IRA if you need it. This will lower your overall tax bill, make more cash available to you now and postpone the date that the tax you owe is actually due. The IRS makes many allowances for individuals to withdraw money from an IRA to pay for expenses while unemployed but these provisions are not available if you simply cash in your employer’s retirement account plan.

Any bank or investment company can handle these retirement plan rollovers but you should be careful to avoid hidden internal fees and surrender charges. Banks and brokerage firms, in particular, tend to use high commissioned mutual funds and annuity products with hefty built in fees. Try to use "no-load" investments because investment fees directly lower your overall rate of return. Larger retirement account balances increase the likelihood that an independent adviser will be able to add net value and make sure that your expenses and taxes are minimized.

To avoid a conflict of interest, do not rely on tax and investment advice from the bank or investment firm that sells the investments. Independent advisers also offer tax planning that will allow you to minimize the tax bite while still using as much cash as you need to carry you until your next job. It makes sense to use a firm that assigns a financial adviser you can rely on later for tax and other advice. The amount saved will exceed the adviser' s fee for one or two hours of assistance.

Ancillary benefits

It almost never makes sense to continue dental insurance. Tell your dentist about the changing circumstances and your doctor is likely to propose an attractive treatment option and payment arrangements that does not require insurance.

When in doubt, you may speak with OnlineAdviser service free of charge for an independent opinion and advice.

Other employee benefits

If you have a Health Savings Account (HSA) plan with your former employer, this remains unaffected. You still own the account and the funds can be used as you wish. There is no need to take any action to preserve your HSA account with the same features and benefits except that future contributions may not be allowed.

Status: available for reprint

This article is available for republication in its entirety without charge after obtaining the express written permission of the author.

Please e-mail a request to the author that includes the name of the requestor (individual and corporate) and the intended destination of publication.