Thursday, May 14, 2009
Catherine Wilson, Bureau Chief
Managing Your Money If
You’ve Lost Your Job
In 2009, the unemployment rate in Westchester County almost doubled from an average of 3% to 4% in prior years to a high of 7.5% in February. Almost 36,000 of our neighbors are now out of work, twice the amount from the same period only two years ago. But that
statistic, from the New York State Department of Labor, only notes the actual number of individuals currently on unemployment. It does not show the number of family members affected by the loss of income, the number of workers who have “maxed out” of unemployment benefits, and the impact on local businesses who now have fewer customers. It is safe to assume, therefore, that more than 100,000 Westchester residents have been significantly affected in some manner by job losses in this recession.
Many local, state, and federal government agencies, as well as several private sector organizations, have stepped up to assist those facing job losses and cutbacks. One of these organizations, the Financial Industry Regulatory Authority (FINRA), a non-government regulator, has distributed a publication through the New York Better Business Bureau with essential guidelines for anyone who has been laid off or is concerned about the security of their job.
FINRA offers a few initial steps to take when facing a job loss:
• Act quickly to reduce spending and resist the temptation to buy on credit.
• Assess your short-term situation and figure out how much cash you have readily available.
• Ask about employment services your employer may offer.
• Inquire about unemployment insurance.
• Avoid taking out loans or withdrawals against retirement savings.
• Get financial advice, especially when considering withdrawing any company stock bonus or profit-sharing plans, to determine how to use any lump sums and severance pay, and to calculate any tax consequences of withdrawals.
• Ask about how your employee benefits will be affected.
• Sign up for COBRA, if needed.
COBRA is the Consolidated Omnibus Budget Reconciliation Act of 1985, which established health care continuation when an employee loses employer-provided health coverage due to termination of employment.
The employer’s group health plan must offer continued health care coverage to the individual who may be required to pay the full cost for the coverage. The maximum COBRA period is 18 or 36 months.
• For those close to retirement age, inquire about qualifying for the company’s pension plan.
• Beware of fraud and con artists attracted to your company’s closing/layoffs.
Trimming spending means prioritizing your bills by separating them into essential expenses and non-essential.
The essential, necessary expenses include:
1. Shelter: Your primary home/rent bills or mortgage payments.
2. Utilities: Heat, electric, water and one phone line.
3. Food: basics only. Junk food is non-essential.
4. Work-related: Car/transportation costs, child/dependent care.
5. Child support, taxes, insurance, and other “must pays”.
Deferring loan payments is tempting but different types of loans have different consequences for late payments. Missing a COBRA health Insurance payment will result in the termination of this coverage; once terminated, it may not be reinstated. One missed mortgage payment usually will not cause you to lose your home but two payments could trigger foreclosure proceedings. Car loan issuers are even less forgiving – they can repossess your vehicle with the first late payment, although most lenders will wait 60 days to act.
Student loans and credit cards allow for more flexibility with payments; most will wait several months before taking action but may impose
higher interest rates on the outstanding balances. Student loans can be deferred for six months or a year as needed.
Consequences of late tax payments vary by collector but most individuals can negotiate a payment schedule with the Internal Revenue Service, New York State and most municipalities to avoid wage garnishments or property seizures.
The consequences of delaying child support can be wage garnishment or even jail time but, of course, the immediate consequence is to the
children for whom the support is needed. So, while delaying support may seem an economic necessity, it is rarely a feasible or justifiable alternative. Assessing your short-term situation is the next critical step. How long can you survive even just paying the essential bills? What other steps might you need to take to survive? If you do not have a lot of non-retirement savings, a prolonged unemployment period will ultimately mean changing your lifestyle.
Younger workers may have to consider moving back in with mom and dad, older workers may have to consider taking lower paying jobs. Unemployment also increases certain expenses that have to be factored into the household’s new budget: COBRA payments, after the federal
economic recovery subsidy is exhausted, will usually be for the actual cost of the health insurance, not the subsidized rates a worker may have had under the company’s benefit plan; and health insurance plans can charge 150% of the premium cost for extended COBRA coverage
past the initial 18 months allowed. Family health coverage alone can cost $20,000 a year. Vision, dental, and prescription coverage could be
extra. Payments for insurance previously provided by employers such as long-term disability, life, and long-term care; Retirement loans and 401K must be paid back in full within 90 days of leaving the company to avoid income taxes and a hefty 10 percent penalty tax on the loan amount, possibly affecting the borrower on two fronts, e.g., a parent who borrowed significant amounts against these accounts for college may not now be able to get a mortgage to cover this loan since they no longer have a job.
Unless you are 55 or older, 401K and retirement loans are no longer available once you are terminated from a job meaning any future costs these loans were expected to cover, such as tuition, will have to be funded elsewhere Getting income is the next important step. While a new job may take time to acquire, unemployment insurance can, and should, be applied for immediately. A claim for unemployment insurance ideally should be filed in the first week that you have been laid off or partially unemployed. The first week is an unpaid waiting week and unemployment benefits are not retroactive so any delay will cost you money.
Many individuals do not apply for unemployment because they believe they do not qualify or that filing will somehow be held against them.
These fears are unfounded. Unemployment benefits do not affect your credit rating nor is it only for lower income individuals.
Companies pay unemployment taxes for every employee so this is an insurance program designed to assist workers when they lose their jobs through no fault of their own. However, unemployment benefits will not replace your full salary. The maximum unemployment insurance benefit in New York State is only $405 a week.
The New York State Department of Labor recommends that you should gather certain critical pieces of information before you file your
claim to ensure receipt of your benefits promptly:
• Your social security number.
• Your New York State driver’s license or Motor vehicle ID card.
• Your full mailing address including zip code.
• A daytime contact telephone number.
• Your alien registration card number for non-citizens.
• The names and addresses for all your employers within the past 18 months.
• The employer registration number or Federal employer identification number of your most recent employer. This
will be on your W-2 year-end tax forms.
• Your copies of the SF8 and SF50 forms if you received Federal unemployment within the past 18 months.
• Your copy of the DD214 form if you are an ex-service member.
• A blank check from your checking account for the bank’s routing and checking account numbers if you choose to have your payments directly deposited to your account.
• Pen and paper to write down important information.
There are several ways for local residents to file a claim: Online at www.ui.labor.state.ny.us between the hours of 7:30 am to 7:30 pm
Monday through Thursday, Eastern Time; Friday, 7:30am to 5:00pm, all day Saturday, and Sunday until 7:00pm. Calling the Telephone Claims Center at 1-888-209-8124 for New York State residents, or 1-877-358-5306 for out of state residents, between 8:00am and 5:00pm, Monday through Friday. You may file in English, Spanish, Russian, Cantonese, Mandarin, Creole, or “all other languages”; translation services will be provided. If you have never filed a claim for benefits in New York State, you will be asked to create a Personal Identification Number (PIN).
Hearing-impaired individuals, who have a Telephone Device for the Deaf (TTY/TDD) equipment, may file a claim by calling a relay operator
at 1-800-662-1220 and requesting the operator to call 1-888-783-1370. Unemployment benefits have recently been increased to assist those
affected by the recession. Workers may now collect 33 weeks of benefits, up from 26 in prior years. The federal government is also offering an additional $25 weekly payment, known as Federal Additional Compensation (FAC), to unemployment recipients.
The economic stimulus package signed by President Obama earlier this year, known as the American Recovery and Reinvestment Act (ARRA), will also subsidize 65 percent of the cost of COBRA coverage for unemployed workers. The subsidy is available to assist individuals who were involuntarily terminated by their employers between September 1, 2008 and December 31, 2009.
ARRA will provide the subsidy for nine months or until the beneficiary is eligible for other health insurance coverage. This benefit, however,
is not available to terminated employees who earn more than $145,000 in the year the subsidy is to be paid. Making sure you are covered for
other potential life events is the next step. Health insurance coverage may be continued through COBRA. Unemployed workers have 60 days to sign up for this benefit. Individuals may have to pay the full cost of this insurance plus an additional two percent administrative fee.
According to the United States Department of Labor who oversees this benefit: “Employers or health plan administrators must provide an initial general notice if you are entitled to COBRA benefits. You probably received the initial notice about COBRA coverage when you were hired. When you are no longer eligible for Health coverage, your employer has to provide you with a specific notice regarding your rights to COBRA continuation benefits. Employers must notify their plan administrators within 30 days after an employee’s termination or after a reduction in hours that causes an employee to lose health benefits.
The plan administrator must provide notice to individual employees of their right to elect COBRA coverage within 14 days after the administrator has received notice from the employer. You must respond to this notice and elect COBRA coverage by the 60th day after the written notice is sent or the day health care coverage ceased, whichever is later. Otherwise, you will lose all rights to COBRA benefits.”
In addition to health coverage, workers should also assure that they are fully insured in other areas. Many workers neglect to replace the
life and disability insurance coverage they had under their previous employers, leaving them and their loved ones exposed. Costs for these
policies can be reduced by purchasing all of these policies through one company and increasing the deductibles on all policies, including automobile and homeowners insurance.
Unemployed workers should be aware of scams and pitfalls. According to FINRA “The announcement of your company’s merger, closing,
or mass layoff may have received national or local press coverage. If all of a sudden you find that you are receiving unsolicited offers for an incredible start-up opportunity, or the investment of a lifetime, beware”. FINRA also advises about the treatment of lump sum or severance
payments that may tempt you to buy something you desperately want. According to FINRA “Do yourself a favor and wait. If you face a long unemployment period, these may be the only funds you will have to make ends meet.” FINRA also advises not to tap into retirement funds to make ends meet unless you have no other options; and, to be aware of the tax consequences if you must withdraw from these accounts.
Even those local workers who still have their jobs would do well to heed FINRA’s warnings. Car manufacturers are preying on workers’ fears of losing their jobs by offering special breaks and refunds if a customer loses his job. According to Microsoft’s “Money Central” web site “Hyundai launched its “Assurance” program, which lets customers return any new vehicles if they lose their jobs and absolves them of any remaining car payments up to $7,500”.
Other companies are following suit. JetBlue is offering full-fare refunds to customers who get laid off before their trips; Jos. A. Bank
will give rebates to customers who get laid off after buying suits. Some rental companies are offering several months free rent; Au Pair in
America will refund program fees, and Norwegian Cruise Line will reimburse the full fare of a cruise to unemployed individuals.
While these programs are spiking sales for these companies, the programs come with catches: To qualify for the rental companies’ offers of
free rent, the individual had to have been a paying tenant for a specified amount of time. Therefore, in these uncertain economic times, workers should follow the same sensible purchasing habits as always and not be lulled by offers that seem “too good to be true”. As FINRA notes in its pamphlets for those already suffering from a job loss “if it sounds too good to be true, you know it probably is.”
As for getting that new job, the best approach is to treat your job search as a job in itself! Set a daily schedule, tell everyone you’re “in the
market”, and don’t assume that handing out lots of resumes will land you a job. It won’t. In this tough market, many employers who are hiring are doing so quietly since any job offerings are met with a landslide of applications.
Job seekers need to develop a network of individuals who can provide information about when a company is hiring; joining a professional
organization, volunteering, or taking a professional seminar, are good ways to meet workers in your field. Joining a local support group will keep your spirits up. But there is some good news on the horizon. After months of reporting job losses and closings in Westchester County, the New York State Department of Labor announced several store and restaurant openings in Mount Kisco and Yonkers for this summer. As CNN recently reported, “According to the Bureau of Labor Statistics, while 2.5 million people were laid off in January, 4.4 million new workers were hired.” One of those new hires next month could be you.