Financial Insights

If You Quit, Make Sure Future Benefits Are Legit.

Former Federal Reserve chairman and ACM Senior Economic Advisor, Alan Greenspan, popularized the quits rate as a key labor market indicator. The quits rate is the number of workers voluntarily leaving their jobs as a percent of total employment.  Dr. Greenspan noted that when quits are falling, people are afraid to leave their job, which is usually a sign of high unemployment.  But when quits are rising, people are much bolder because they know they can get better-paying work elsewhere.

A record 4.5 million people quit their job in November, according to the Federal Reserve JOLTS report, and that comes to a 3% quit rate, which measures the number of quits as a percentage of payrolls.

With a record 10.6 million job openings available as of the last business day in November, the American worker is now in charge.  They have options to find greener pastures. Working from home, hybrid work weeks, and better pay are just a few of the factors that workers are focusing on as they look beyond their current employ.

While the “quality of life” reasons to move on are important, let’s not forget that compensation, potential advancement and company benefits are the basics for creating wealth.

If you are thinking about moving on to a better job, it’s important to make sure you do not forget about the benefits that were provided at your current job.  Here are a few major financial items that you need to take care of to ensure a smooth transition for you and your loved ones.

Retirement Plans

First and foremost is your 401(k).  Changing jobs provides the opportunity to rollover your 401(k) to an IRA where you will have a wider range of investment options and can continue to invest the assets in a tax-deferred manner.

Before rolling over your 401(k), you will want to check with your plan administrator to see if you have contributed any after-tax assets to your account.  If so, you will want to roll these assets to a Roth IRA to ensure they continue to be treated on an after-tax basis and won’t be taxed upon withdrawal.  Rolling the assets to an IRA without identifying the after-tax assets means that you may end up paying taxes twice on those assets (upon contribution and withdrawal).

When you arrive at your new company, you will want to ensure you enroll in the new plan as soon as possible to take full advantage of an employer match, if one is provided.  In addition, enrollment in the new plan is a good time to review how much you are saving for retirement, and increase that amount if cash flow allows.

If you are over Required Minimum Distribution (RMD) age (72) and continuing to work, you are likely better off either leaving your 401(k) where it is or rolling it over to your new 401(k) plan.  Doing so will allow you to avoid taking RMD’s until April 1st in the year after you retire, thus avoiding the additional income tax due on your RMD’s above and beyond the wages you are continuing to earn.

Finally, you should ensure that you designate primary and contingent beneficiaries for your retirement plans.  If you are married, federal law states your spouse will be the primary beneficiary.  If you would like assets to go to someone other than your spouse, your spouse is required to sign a waiver approving the designation.

Stock Options

Aside from any retirement savings plans you may be invested in, you also might have restricted stock and/or stock options from your current employer.  When leaving a company, generally those stock options that are unvested will be lost, and those that are fully vested are available to you, but the window to exercise might be just 90 days.  It’s critical to do some research ahead of time and you could speak with Human Resources as well as your Wealth Advisor to understand your company’s rules and to determine what action needs to be taken.

Health Benefits and Savings Plans

Choosing a new health plan affects your entire family.  While your new Human Resources contact can be a great resource to explain your out-of-pocket costs and deductibles, many companies now offer evaluation tools where you can input your claims history and healthcare needs and the software provides a recommendation on your best choice in moving forward.

If you have a gap in coverage between employers, make sure you understand the COBRA coverage that is provided for you.  You have 60 days from your termination to elect COBRA coverage and while not the cheapest option, it ensures your family will have no interruption in the coverage they are accustomed to.

If you are married and your spouse has health coverage available through their employer, then leaving a job counts as a “qualifying life event”, which means that you should have a window for one or both of you to sign up for coverage with your spouse’s employer.

It’s also important to understand if a Flexible Spending Account or Health Savings Account (or maybe both) may be available to you.  These plans provide tax-advantaged ways to save and pay for healthcare costs and could prove useful if your new salary has bumped you into a higher tax bracket.

Insurance

Most companies typically offer some sort of disability and/or life insurance coverage to their workers.  While we find these plans generally do not offer adequate protection by themselves, it is important to understand what you may be giving up or getting by changing jobs.  For instance, if your previous employer provided a life insurance benefit of 5 times your salary, but your new employer only provides one year’s salary, you may want to add a private policy to make up the difference.

Vacation and Bonus dates

Policies on unused vacation days vary widely.  Check to see if you may be reimbursed for unused vacation days or if it makes sense to take a few vacation days before your last day.

Employers typically have policies to determine when employees will or will not be eligible for a bonus, so be sure to time your end date around the date you must still be employed through to ensure you collect your bonus.

Lastly, if you received a signing bonus or reimbursement for relocation expenses from your current employer, then make sure you understand any requirements for repaying any of these benefits before you set your last day and move on to a new employer.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

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