What Happens When I Leave? Employee Benefits To Go

Recent statistics show that employees are more willing than before to consider jumping ship for other opportunities. Many point to changing positions as the only way to increase their salaries. And for many employees, stagnant wage growth hasn't kept up with rising costs for housing, education and health care. It may not be greed that's motivating employees to look elsewhere, it may be necessity. So how can a plan sponsor keep up with an increasingly mobile workforce?

The first step may be acceptance. Turnover and retention may be important for more than the managers of divisions in your company. If your onboarding and separation systems aren't set up for high turnover, you may be in for more headaches than necessary. Employees who leave will need help taking not only their office plant and favorite stapler, they will need information about health care benefit portability and how to move their 401(k) plans. Plan sponsors can help themselves by looking to how companies have streamlined their onboarding systems to see if any of the suggestions for simplifying can be used for offboarding. Acceptance of a future of higher turnover can help you be proactive in handling that higher turnover.

Additionally, examining separation from an employee's perspective may help find areas where plan administrators and sponsors can be more efficient. The first question most employees have when leaving a company may involve their health care benefits. Those rules differ based on size of company and number of employees.

The second question most employees have may involve their retirement accounts. Moving proactively, so that employees don't have to seek help after separation, plan sponsors or administrators can help employees understand how to roll over or move their 401(k) funds. The most important item for those employees is to understand that they should not cash out their retirement account on their own, but look to transfer from one account to another, sometimes referred to as a "trustee-to-trustee" transfer. Also critical to express to those employees is the timeline for that transfer - namely 60 days from the date of distribution from the former retirement account. This may be especially crucial as some employers have three month or longer waiting periods before an employee can begin saving into the new company's retirement plan.

For plans that have had traditionally low turnover, processing changes in accounts may not be set up to ensure that the departing employee fully understands the process for how their funds will be handled. Some employers allow employees to leave funds in the plan for an unspecified amount of time, others don't. It may be helpful to review your plan language to determine if the existing deadlines for transfer of funds (if any) reflect your current turnover needs. Of course, before you make any changes, consult with your company's accountant and attorney.

Employers may also want to make clear to separating employees whether they are vested in the plan and to what amount. Some employers have found sending a yearly, or even quarterly statement to employees on their vesting status can help answer this question ahead of time, before the employee is surprised by the answer if they separate.

Additionally, if company stock is part of a compensation package, the employer may want to be proactive about educating employees about the tax concerns with withdrawing the stock from the 401(k) plan. Tax treatment for company stock is different than for other retirement savings, and can be taxed at the long-term capital gains tax rate. If the stock is rolled over to an IRA, it could be treated as ordinary income - a situation with a potentially higher tax rate.

If your company offered insurance, such as life or disability insurance explaining the continuity of that policy is important as well. While employees have copies of their policy and information about their premiums, they may have questions about a gap in their premiums on their life insurance or disability insurance. Employers may find that having those sections of the policy highlighted or prepared in a separate flyer may be helpful to employees who either depart for other positions or are separated for other reasons.

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