What happens to my benefits when I leave my job?

If you’re checking out my website, there’s a good chance you’re thinking of leaving your current job. Perhaps you’ve got another job lined up. While exciting, changing jobs can feel scary because a change in employers impacts your benefits.

The average employee job tenure is about 4 years – fewer years for the younger workers, and more for older workers. Most people sign up for benefits upon hire and then never really think much about it until they resign. Of course, most employers have annual enrollment, but the reality is, most workers just “let it ride” unless they are required to make a change. But even then, employees find the decisions overwhelming and confusing.

Leaving an employer triggers a host of logistical decisions that have deadlines and contingencies. Before you submit your final timesheet and turn in your key fob, be sure you gather information so you can make informed decisions about the following:

Health insurance (and dental and vision, too)

Health insurance considerations are a key driver in most people’s employment-related decisions (a blog post for another day). When you change jobs, your health insurance will end. But when, exactly? Plans vary. Your last day of coverage might be your last day of work, or the last day of the same month, or even the end of your final pay period.

Initial eligibility will vary with your new employer’s plan. It might be your first day, but it could also be first of the month after hire, or even a 30-day waiting period. In no case will it be more than 90 days. Be sure to ask as you’re finalizing your offer.

If you’re married, your spouse’s employer’s plan is fair game when you change jobs. This is a good time to analyze each of your options – learn now about carriers (are your doctors in-network?), coverage levels (what’s the deductible?), and payroll deductions before you decide. You’ll have 30 days from the qualifying event date to decide; don’t let them rush you into enrolling, but don’t wait until day 29, either.

Why does this matter? You don’t want to end up with an unexpected gap in coverage, especially if you’re in the midst of treatment or have a chronic condition.

What are my health insurance continuation rights?

If you’ve got a new job lined up, you won’t need this; if you don’t, listen up. Your employer may be subject to COBRA. Companies with fewer than 20 employees aren’t subject to COBRA, but most must comply with their state’s “mini-COBRA” continuation law. Your previous employer owes you a prompt notification about your continuation rights and responsibilities, including deadlines and costs. Be sure they have your current address and keep an eye on your postal mailbox.

Don’t sleep on this, because there are deadlines to elect and pay for coverage. I wrote more about COBRA here, or visit the DOL’s website.

(In case it doesn’t go without saying: If you weren’t covered by your employer’s health plan, you can’t do COBRA. And, if you had a dependent who wasn’t covered, you can’t add them for coverage if you lose it because your job is ending.)

Group term life insurance (basic and voluntary)

Many employers provide this as a company-paid benefit; the amount of coverage may be a multiple of your salary, or it might be a basic $50K. Coverage usually ends on your last day of work. Most group term life insurance plans require employers to notify you about continuation. This may be an important option if you don’t have other life insurance or don’t think you’ll be able to obtain other insurance (like if you have a health condition that makes underwriters think twice). If you think you might need it, be sure to ask for the details and be aware of deadlines to submit your application (usually 30 days).

Of course, if your new employer offers coverage, you won’t need to worry about continuing your previous policy.

Disability insurance

It’s nice to know you’ll have some income if you become unable to work for medical reasons. This is another benefit that many employers provide for workers, often without cost, with a buy-up option, or sometimes totally voluntary. Ask when this coverage ends and whether you may continue it. Your options will depend on if the coverage was company-paid or voluntary (you’re paying the premium).

If your new employer doesn’t offer disability coverage, you may want to think about how you will provide for your family in the unlikely event you become unable to work. Nobody likes to think about this coverage but anyone who’s ever filed a claim has been beyond grateful it was there.

Flex spending accounts

These pretax spending accounts are a great benefit for those with out of pocket medical or daycare expenses. But what happens when you leave a job? Plans vary, but in general:

• Healthcare FSA – Your full annual election amount is available for you to use while you’re still paying into your plan. Have you been reimbursed for more than you’ve paid in? You do NOT have to repay the difference! Ask how long you have after termination to submit claims. If you need more time to incur reimbursable expenses, you can keep your account active through a COBRA-like continuation option they’re supposed to offer. If HR isn’t sure, call the flex vendor to ask. (Employers often miss this piece because nobody ever asks for it.)
• Dependent care FSA – This account should only have reimbursed you for as much as you put in. If you haven’t claimed your current plan year contributions yet, find out how long you have to do it (there might be a deadline before the plan year-end) and submit those daycare receipts pronto.

At your next job, you can elect the difference between the maximum annual amount (set by the IRS each calendar year) and your YTD contribution in your previous employer’s plan. Check your very last pay statement to get the number.

Retirement savings plans (401k, 403b, etc)

Before you submit your resignation letter, ask if any of your account balance is subject to vesting, and if so, when are you fully vested? If you miss a vesting cut-off by even a few days, your employer probably cannot override the plan’s rules. This matters if there are employer contributions that were made to your account, even if you didn’t defer any of your own pay while you were working there.

If you don’t want to ask for fear of raising suspicion, then ask for the retirement plan SPD. You can probably find it on your employer’s portal or the retirement plan recordkeeper’s website, or call the investment TPA’s customer service to ask.

Is there a deadline to take a rollover distribution? This probably depends on how much is in your account. Some plans will automatically cash out balances below a certain amount, or have a deadline for you to take a rollover distribution. Above that threshold, you may be able to leave it in your former employer’s plan for now. However, it’s better to distribute your account to a rollover IRA or into your new employer’s qualified plan. Doing so preserves the pretax benefit of having saved all that money. Your previous employer(s) will thank you for your prompt attention to this grown-up task.

What if I have a loan on my 401(k) plan? Plan loans seem like an easy and fast way to borrow money, but they can cause you big problems if you end up quitting your job before you repay the loan. Plan loans become payable upon termination. What happens next depends on the plan’s rules. Some require repayment of the outstanding balance within a certain timeframe. If you don’t repay, the balance is deemed a distribution. You’ll get a 1099 for it, must report it on your tax return as income, and pay 10% of the balance as penalty if you’re under 591/2. Some TPAs will let you continue repaying the loan directly to them on a periodic basis. And some employers might even let you roll over your account into their plan, including the loan, so you can continue making payments! Definitely ask questions if this applies to you.

Vacation / PTO payout

This one depends on company policy and how they make paid leave available. If you care, confirm this before you resign. Have you used more leave than you’ve accrued? Your employer might want to deduct the overage from your final paycheck. That may or may not be OK – if you signed a statement allowing it, or if you’re paid on an hourly basis, it’s probably permissible, but if you’re an exempt employee, it may not be. Your state might have guidance on this as well. Also ask what their rules and customs are concerning taking leave after you’ve given notice.

Year-end bonuses, profit-sharing contributions

If you resign in December, you might end up foregoing compensation or benefits that require employment for the full calendar year. You’d be wise to ask about this before you submit your resignation letter. If an extra week or two makes the difference, you can plan accordingly. Know before you go.

Whew! I know that’s a lot to think about at a time when you’re already devoting significant brain space to the job change itself. But you’ll want to understand everything before you go, so you can make the best decisions for how to wrap things up and look ahead to a smooth transition to your next employer.