Offered Severance Pkg.-Need advice.

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Pugdog96
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Offered Severance Pkg.-Need advice.

Post by Pugdog96 »

About me: 56, SWM, T2 DM, $50K annual income/benefits (hourly), 403(b), Roth, some savings, homeowner, no debt. NYS resident.
I've worked for the same employer for 18 years. 2 weeks ago I found out that several people had been terminated, some were leaving in the next few months, and other changes. My supervisor was gone, and I was asked if I could assume his duties (or most of them). With about 30 minutes between "something is happening" and "come meet with the big manager and somebody from HR", I said OK. It turned out I was supposed to do my job, my boss' job, plus cover for about 1.25 other people who are going to leave, plus of course 'other duties as needed'. I have done my job and my boss' job at several times, and it's...just too much. Even with 10-15 hours/wk overtime, working through breaks and lunch, no vacation days... I asked for more hours, and it was turned down.
So I am basically flailing, while the non-critical stuff backs up. I found out this week I am eligible for a severance package.
I will get 18 week's pay (about $15K lump sum), another $10K in a HSA for COBRA (I have the company health plan), plus pay for my accumulated vacation time ($2K). Since I've been pretty close to quitting, this looks pretty attractive. However, I have no experience with this sort of thing. They want me to stay on through mid-July. Covid has hit business hard.
1. I have no desire to 'lawyer up'. I don't think there's anything unfair, nor do I have any leverage on my employer.
2. I'm concerned about the tax hit on the lump sum. Is there any good way to shield this money a little? My taxes are 1040EZ.
Could I see if they are willing to contribute to my 403(b)? They contributed amount equal to 10% of my gross pay prior to Covid.
3. I'm concerned about health care. Although I could probably get by, who knows? I can stay on the company plan under COBRA for about $1000/month. the lump sum will pay for this for close to 1 year. or I could look for something cheaper that would only cover catastrophic illness.
4. I'm actually eligible to retire, meaning I would have access to the retirement benefits afforded retirees. Mostly health insurance and some minor perks. I feel "retired" might look slightly better on the resume, as I don't have enough money to actually not work at this point. Is there a down side to 'retiring' that I am not aware of?
5. Any other gotchas or considerations I should know about?
Thanks for any advice, sorry if this is a little disjointed but it's been very suddenly dropped on me.
Silverado
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Re: Offered Severance Pkg.-Need advice.

Post by Silverado »

Lots of pieces here. Is it possible this is a short term thing, and things will settle out a bit? Sounds like maybe they value you, and that could be good for the mid-term. The opposite is also very possible , that they are just trying to squeeze whatever they can out of you. With 18 years there, I’d think you have some sort of feeling for it. What’s the timing for your decision?

It could be difficult for you to find comparable employment, given your age.

It is for sure not realistic for you to shoulder multiple times your previous duties.

Good luck.
thousandaire
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Re: Offered Severance Pkg.-Need advice.

Post by thousandaire »

Took a severance package a couple years ago, also roughly 18 weeks pay.

This sounds like a pretty good deal, especially the $10k in the HSA. Biggest drawback is you having to stay through mid-July. If those 3 months would be miserable, I'd certainly try to negotiate an earlier exit. I only had to stay about 6 weeks.

Regarding your questions:
  • Not sure what you mean by the tax hit. 18k lump sum gets taxed the same as 18k paid biweekly. I guess you won't be able to shelter some of it through 401k. Certainly an acceptable downside considering you'll be getting paid without having to work.
  • Healthcare depends on your health, but I ended up hopping off COBRA and finding something through the state marketplace for $300/month. Was pretty barebones but the savings were substantial and could be used to cover any costs that came up. With your $10k HSA, you're in a pretty good position to explore something like that.
I'd expect they will try to squeeze every bit of work out of you as they can. Given the company's struggles, this will likely be the case for most employees, but even more so for the ones on their way out. 3 months is a long time, would really suggest trying to cut that down so you can avoid getting beat down, and start your new job search in early summer.
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Watty
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Re: Offered Severance Pkg.-Need advice.

Post by Watty »

Pugdog96 wrote: Thu Apr 22, 2021 9:19 pm 5. Any other gotchas or considerations I should know about?
A couple;

1) If you get promoted to be a manager then you may be changed from being an hourly employee to being an exempt employee which would mean that you would no longer get paid for overtime and they may expect you to work a lot more than 40 hours a week.

2) If you take the severance package then you may or may not get unemployment insurance. That depends a lot on the details of how they set that up and your state laws.

3) The severance agreement may say that you may need to work up through mid-July but they may be able to move that date up if they no longer need you before then.
Pugdog96 wrote: Thu Apr 22, 2021 9:19 pm 3. I'm concerned about health care. Although I could probably get by, who knows? I can stay on the company plan under COBRA for about $1000/month. the lump sum will pay for this for close to 1 year. or I could look for something cheaper that would only cover catastrophic illness.
The severance package may include a couple of months health insurance before you would need to start paying for it yourself. As I recall there is a subsidy for COBRA costs in the big COVID package that went into effect about a month ago and you would likely qualify for a Affordable Care Act subsidy.

You can go to healthcare.gov(or your states version of it) to see how large a subsidy you would get for an ACA plan. The calculation is complex but as I recall the maximum you would need to pay is something like 8.8% if your income for the year for a basic plan so if you have $50K in income in 2021 then you would need to pay $4,400 in premiums or about $365 a month for an ACA plan. (It will likely be a lot lower.) Some of the ACA plans have a high deductible so watch out for that when you are selecting a plan.

One other thing to watch out for is that if your income is too low you may not get an ACA subsidy since it will be assumed that you are on Medicaid. That can be a problem if you are in a state that has refused to expand Medicaid since you might not actually be able to get on Medicaid.
Pugdog96 wrote: Thu Apr 22, 2021 9:19 pm I found out this week I am eligible for a severance package.
Be sure to understand the details of this. Sometimes you may be eligible to apply for a voluntary layoff but they may not approve that and may not actually lay you off and pay you the severance if they think you are a critical employee. If you volunteer to be laid off but they do not actually lay you off that can be real awkward.

I have also seen situations where a company offered severance for people who volunteered to be laid off but once they got enough people they withdrew the offer. For example right now they may say that the offer is good through June 1st but they can stop offering the layoff before then. If you want to get the severance it would be be better to get it sooner than later.

Several times when I have seen layoffs it went through several rounds like;
1) Voluntary layoffs with a good severance package.
2) Involuntary layoff with mediocre severance.
3) Two weeks pay instead of notice and you are escorted to the door by a security guard. If you had anything in your desk or locker it will be mailed to you.
4) You show up for work and the door is locked and there is a note on the door saying that you will be mailed your last paycheck.

If you can get the severence and you have decent job prospects then it might be a good idea to take it especially since it sounds like a bad work enviroment.
Pugdog96 wrote: Thu Apr 22, 2021 9:19 pm 2. I'm concerned about the tax hit on the lump sum. Is there any good way to shield this money a little? My taxes are 1040EZ.
You would have two tax issues.

1) How much they withhold from the final paycheck with the lump sum in it. I would guess that you are in the 12% federal tax bracket and that would be what they withhold.

2) How big a tax refund or tax bill you get when you file your tax return next year. If you are able to quickly get another job then with the severence you would have about $15K in additional income in 2021 so your could likely make an IRA contribution or 401k contribution at your next job to reduce your taxable income.
Retired2013
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Re: Offered Severance Pkg.-Need advice.

Post by Retired2013 »

Pugdog96 wrote: Thu Apr 22, 2021 9:19 pm About me: 56, SWM, T2 DM, $50K annual income/benefits (hourly), 403(b), Roth, some savings, homeowner, no debt. NYS resident.


2. I'm concerned about the tax hit on the lump sum. Is there any good way to shield this money a little? My taxes are 1040EZ.
Could I see if they are willing to contribute to my 403(b)? They contributed amount equal to 10% of my gross pay prior to Covid.

3. I'm concerned about health care. Although I could probably get by, who knows? I can stay on the company plan under COBRA for about $1000/month. the lump sum will pay for this for close to 1 year. or I could look for something cheaper that would only cover catastrophic illness.

4. I'm actually eligible to retire, meaning I would have access to the retirement benefits afforded retirees. Mostly health insurance[/b] and some minor perks. I feel "retired" might look slightly better on the resume, as I don't have enough money to actually not work at this point. Is there a down side to 'retiring' that I am not aware of?
I don't know what " SWM, T2 DM" means for family size but,

"3. I'm concerned about health care. Although I could probably get by, who knows? I can stay on the company plan under COBRA for about $1000/month. the lump sum will pay for this for close to 1 year. or I could look for something cheaper that would only cover catastrophic illness."

NYS will put you on the "Essential Plan" if you can keep your MAGI between 138% - 200% of the Federal Poverty Level (FPL) for the family size. If your MAGI is between 138% - 150% FPL the cost is free except for $1 generic drugs and $3 brand. If you are between 150% - 200%, the cost is $20 per month per person plus a small copay per visit. This would be much cheaper than $1,000 per month. If you need more living expense than what the FPL MAGI requirements are, then you draw off of your Roth accounts (doesn't count towards MAGI) or taxable accounts.

Compare possibly free healthcare to retirement benefits of health insurance in #4.

A word of caution, ACA is currently in the Supreme Court awaiting an outcome for constitutionality so we don't know where healthcare is heading.
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bampf
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Re: Offered Severance Pkg.-Need advice.

Post by bampf »

Hi,

Sorry things are stressful right now, although you seem remarkably well composed. I would be a mess. I would look at retiring. Retiring is very very good in that it puts you in a different arena. It is by choice and you have some benefits for retirement that take you out of the normal path. I wonder if it changes your severance package? I think the healthcare benefits are very important, although it depends on your state. If I retire from my current role I get to buy into the company healthcare plan forever, which means I don't have to depend on the market or the offerings from ACA. That is worth a lot to me.

If you are going to work again, healthcare may not be as important if the next position will offer a plan. Best of luck to you.
Nescio
oldfatguy
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Re: Offered Severance Pkg.-Need advice.

Post by oldfatguy »

Pugdog96 wrote: Thu Apr 22, 2021 9:19 pm Is there a down side to 'retiring' that I am not aware of?
If you say you are retiring you likely won't be eligible for unemployment benefits.
hi_there
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Re: Offered Severance Pkg.-Need advice.

Post by hi_there »

How easy would it be for you to find another job if you take the severance package?
Topic Author
Pugdog96
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Re: Offered Severance Pkg.-Need advice.

Post by Pugdog96 »

OP here. Thanks for the replies.
TL;DR I haven't been happy here for several years, felt my position was susceptible to elimination/outsourcing, future of business looks uncertain, I don't see any way my new position can be made bearable. There's been no mention of additional compensation even in vague future terms. My heart and my brain both say take what I can get and get out. No reason to stay, every reason to leave.

I've actually been expecting to either lose my job, or leave, for several years. My actual skill is not getting a lot of utilization, and my attempts to get my boss to delegate some of his (complained about over)work wasn't successful. He also micro-managed, so most tasks were made unnecessarily difficult-"Don't use Verdana-use Calabri."
So the fact he was suddenly gone made me feel "OK, I can clean things up and turn things around", which I could, given time.
The past 2 weeks has made it clear that I'm just going to flail, unless I perhaps put in a bunch of time off the clock, which I've been told not to-illegal, and I'm not inclined to anyhow. They eliminated a $60K position, but they don't even really want to pay me an extra 3 hours regular time on top of my 37/wk? They are talking about hiring some sort of "marketing" person, and there's going to be a new top level manager. Read: another 'chief' not an indian.
scophreak
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Re: Offered Severance Pkg.-Need advice.

Post by scophreak »

I'm curious about the "$10K in a HSA for COBRA". Doesn't this contradict with yearly maximum contribution of $3600 (single)/$7200 (family)?

As far as I am aware the maximum encompasses BOTH company and employee contributions, so I don't see how a $10K contribution is possible.
Mike Scott
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Re: Offered Severance Pkg.-Need advice.

Post by Mike Scott »

Did you say you are out of a job come July in any case? If so, do what you can in your 40 hours, look for another job and figure out how to get the seerance and unemployment lined up while they are still paying you. You can still leave any time you want if it gets bad enough but this would give you a few weeks to figure something out and get finances etc ready for a transiiton.
Nyc10036
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Re: Offered Severance Pkg.-Need advice.

Post by Nyc10036 »

Did they actually offer you the severance package?

If so, I would take it.
And keep doing your 40 hours/week and no more while looking for another job.
humblecoder
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Re: Offered Severance Pkg.-Need advice.

Post by humblecoder »

Pugdog96 wrote: Thu Apr 22, 2021 9:19 pm 4. I'm actually eligible to retire, meaning I would have access to the retirement benefits afforded retirees. Mostly health insurance and some minor perks. I feel "retired" might look slightly better on the resume, as I don't have enough money to actually not work at this point. Is there a down side to 'retiring' that I am not aware of?
I don't think anyone addressed this point. If it will give you access to better health insurance and other perks, what is the advantage of not "retiring" should you decide to leave? Perhaps your retiree health benefits will be better than COBRA or ACA insurance.

Where I work, it is not uncommon for people to "retire" from our company but then go to work somewhere else. By saying that they are retiring, they are able to access their pension and retiree health benefits, but there is no stipulation that you can't continue to work at another company once you retire.
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Pugdog96
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Re: Offered Severance Pkg.-Need advice.

Post by Pugdog96 »

scophreak wrote: Fri Apr 23, 2021 9:01 am I'm curious about the "$10K in a HSA for COBRA". Doesn't this contradict with yearly maximum contribution of $3600 (single)/$7200 (family)?
As far as I am aware the maximum encompasses BOTH company and employee contributions, so I don't see how a $10K contribution is possible.
Thanks, I will look into this and get more details.
2. Single, no dependents (OK, 1 cat).
3. Diabetes as a pre-existing condition, but managed with no serious complications.
4. No, I would be staying on in my new position; however there's no guarantee that that won't change, perhaps in the near future, and I might not get offered the severance package. Since I can't actually do the work of 3.25 people, my future evaluations might not be as stellar as my last 18.
5. Not sure what my job prospects are, but I'm good with tech and mechanical-electrical stuff. Plan on taking a couple months of 'retirement' to de-stress and get my personal life (possessions, health, home repair) in some kind of order.
Thanks, I'm following this thread closely.
bwalling
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Re: Offered Severance Pkg.-Need advice.

Post by bwalling »

thousandaire wrote: Fri Apr 23, 2021 8:03 am Not sure what you mean by the tax hit. 18k lump sum gets taxed the same as 18k paid biweekly. I guess you won't be able to shelter some of it through 401k. Certainly an acceptable downside considering you'll be getting paid without having to work.
When you're paid $1k/week, you're taxed at a $50k annual income level and the associated tax brackets. When you're paid $18k/week, you're taxed at a $900k annual income level and the associated tax brackets. Some payroll systems are stupid and calculate that way. You'll get it back in your refund, but it sucks in the near term, especially if it's related to a period of unemployment when you might otherwise want that money.

OP: Ask your employer if they'll pay it out biweekly, or if their payroll department can ensure the taxes are calculated correctly.
Retired2013
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Re: Offered Severance Pkg.-Need advice.

Post by Retired2013 »

Pugdog96 wrote: Fri Apr 23, 2021 10:49 am
scophreak wrote: Fri Apr 23, 2021 9:01 am I'm curious about the "$10K in a HSA for COBRA". Doesn't this contradict with yearly maximum contribution of $3600 (single)/$7200 (family)?
As far as I am aware the maximum encompasses BOTH company and employee contributions, so I don't see how a $10K contribution is possible.
Thanks, I will look into this and get more details.
2. Single, no dependents (OK, 1 cat).
3. Diabetes as a pre-existing condition, but managed with no serious complications.
4. No, I would be staying on in my new position; however there's no guarantee that that won't change, perhaps in the near future, and I might not get offered the severance package. Since I can't actually do the work of 3.25 people, my future evaluations might not be as stellar as my last 18.
5. Not sure what my job prospects are, but I'm good with tech and mechanical-electrical stuff. Plan on taking a couple months of 'retirement' to de-stress and get my personal life (possessions, health, home repair) in some kind of order.
Thanks, I'm following this thread closely.
https://info.nystateofhealth.ny.gov/essentialplan

If you can keep your gross income (MAGI) for a family size of one around $19,000 and anything else comes from your Roth account per year, you would have FREE medical except for $1 or $3 drugs, Federal tax of $645 and once you are 59.5, with the $20,000 NYS IRA / Pension exemption per person, NO NYS taxes. I'm currently working on this planning for someone that wants to retire but she is turning 60.

Also, I think the last time I looked, NYS has about 900,000 people on "The Essential Plan". More people are on this plan vs. the ACA. You receive a 1095-B at yearend so no reconciliation on the tax return for subsidies. If you think about it, in NYS, about 1 in every 20 people are on the plan.
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Pugdog96
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Re: Offered Severance Pkg.-Need advice.

Post by Pugdog96 »

OP here: I just had a meeting with my boss and HR. The only suggestion they had about the tax bite is I could put more of my earned income in my 403(b) to compensate. I didn't tell them I did that last night... But it's a lump sum and taxed heavily.
To keep my current health care, I would have to pay 102% of what I pay and what my employer pays now. If I leave drop the plan, that's the end of that option. I can't go back.
The $10K health care contribution goes into a "HRA-Health Reimbursement Account". I looked into it and basically the employer controls it. It's an amount, and you can draw on it, but it has no returns or interest. I don't think the employer is going to go under, so that's not a worry. So, one year of my current plan, or maybe 3 years of something cheaper.
They are basically giving me until Wed to decide, but I guess I could drag it out a little if I wanted to. I think they are trying to get people to decide so they can start planning, not rush people into bad decisions.
They indicated I can get unemployment if I am actively looking for work.
Last edited by Pugdog96 on Sat Apr 24, 2021 10:17 pm, edited 1 time in total.
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Beensabu
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Re: Offered Severance Pkg.-Need advice.

Post by Beensabu »

Pugdog96 wrote: Thu Apr 22, 2021 9:19 pm My supervisor was gone, and I was asked if I could assume his duties (or most of them). With about 30 minutes between "something is happening" and "come meet with the big manager and somebody from HR", I said OK. It turned out I was supposed to do my job, my boss' job, plus cover for about 1.25 other people who are going to leave, plus of course 'other duties as needed'. I have done my job and my boss' job at several times, and it's...just too much. Even with 10-15 hours/wk overtime, working through breaks and lunch, no vacation days... I asked for more hours, and it was turned down.
So I am basically flailing, while the non-critical stuff backs up.
Get out while the getting's good.
I don't think the employer is going to go under, so that's not a worry.
Based on what you have said previously, it's a worry.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Dottie57
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Re: Offered Severance Pkg.-Need advice.

Post by Dottie57 »

I think staying will be miserable.

At age 61 I took a voluntary separation. Best thing to do.
togb
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Re: Offered Severance Pkg.-Need advice.

Post by togb »

Sounds like a tough situation and not one that will get better soon. You've gotten a lot of good advice. I lean to thinking you should take the severance and not look back. In addition to checking on health care costs/options, check to see what unemployment will pay in your state. I've been looking at what furloughed employees get and it ranges from 175-600 per week, depending on what state they live in. There is also a 300/week federal boost, which I think lasts through September if your job loss is Covid related. Definitely ask your HR to confirm that the company's situation and resulting impacts to jobs/employees is Covid related. It's best financially if you separate due to job not being needed/funded, than a voluntary resignation.
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Re: Offered Severance Pkg.-Need advice.

Post by sailaway »

Pugdog96 wrote: Fri Apr 23, 2021 3:32 pm OP here: I just had a meeting with my boss and HR. The only suggestion they had about the tax bite is I could put more of my earned income in my 403(b) to compensate. I didn't tell them I did that last night... But it's a lump sum and taxed heavily.
It will likely be held at the supplemental rate (22% federal). However, that does not affect the taxes owed. If you over withhold, you get a refund next year. It changes when you get your money, but not how much you get.
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Pugdog96
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Re: Offered Severance Pkg.-Need advice.

Post by Pugdog96 »

OK, I started another thread about my 2020 taxes and the Saver's Credit:
viewtopic.php?f=1&t=347166
But now I have a question about my 2021 taxes. I've increased my contribution to my 403(b) account to most of my pay. However, I just read this: https://www.politico.com/news/2021/04/2 ... den-484476
"New estimates by Congress’s official forecasters show Democrats’ tax cuts — included in their March stimulus package — will drive down tax rates on low- and middle-income people so much this year that those earning less than $75,000, on average, will owe nothing in federal income taxes."
So...I might contribute this year and not avoid Federal taxes, but have to pay whatever the tax rate is when I take the money out? That doesn't sound good. This doesn't look "proposed; it looks like a done deal. Can anybody confirm or deny this?
If things go as planned(!) my gross income will be about $35K in 2021, certainly not more than $50K
I'm sure I can google the answer, but if I put money in my 403(b), can I 'change my mind' and take it out and pay the (supposedly non-existent) taxes without penalty? Since I can't put it in retroactively, although I guess I could start a tIRA.
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Re: Offered Severance Pkg.-Need advice.

Post by Jack FFR1846 »

Personally, I would have declined the manager role. But I've been there and rejected that because I'm a technical guy and am not interested in herding cats. In addition, I always have made clear when starting a new job or new role that I work 8-5 m-f. If you need 1.25 people, then I'm going to leave that 0.25 amount of work to be not done. You don't like that as a company? Then keep the appropriate amount of people. I have had a manager ask me to do XYZ extra, not short term, but forever. I've always briefly described the tasks I'm doing and asked the manager "so which of these do you want me to stop doing in order to get XYZ done? I've seen too many people think they're taking it for the team, working 60 hours a week for nothing. Come review time, they get no more than I get. I'm not burned out from attempting to plug all the holes in a sinking ship. Sure....when there's a project deadline and we need to complete stress testing of a product before it heads to big dollars official testing, I'll work the weekend to get this done. But when things calm down, I'm taking comp time to make up for it.
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Watty
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Re: Offered Severance Pkg.-Need advice.

Post by Watty »

Pugdog96 wrote: Mon Apr 26, 2021 6:19 am But now I have a question about my 2021 taxes. I've increased my contribution to my 403(b) account to most of my pay. However, I just read this: https://www.politico.com/news/2021/04/2 ... den-484476
"New estimates by Congress’s official forecasters show Democrats’ tax cuts — included in their March stimulus package — will drive down tax rates on low- and middle-income people so much this year that those earning less than $75,000, on average, will owe nothing in federal income taxes."
So...I might contribute this year and not avoid Federal taxes, but have to pay whatever the tax rate is when I take the money out? That doesn't sound good. This doesn't look "proposed; it looks like a done deal. Can anybody confirm or deny this?
That article was not real clear but it seems to be considering the money you received in the stimulus check as a negative tax. For example if you got a $2,000 stimulus check and you have to pay $2,000 in federal income tax then those would offset each other and the article would consider your net taxes to be $0. It may have also been adjusting the total tax for child tax credits.
GT99
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Re: Offered Severance Pkg.-Need advice.

Post by GT99 »

Pugdog96 wrote: Fri Apr 23, 2021 3:32 pm OP here: I just had a meeting with my boss and HR. The only suggestion they had about the tax bite is I could put more of my earned income in my 403(b) to compensate. I didn't tell them I did that last night... But it's a lump sum and taxed heavily.
I just want to make sure you're completely clear on something here. Your lump some is not taxed any differently than any other income you have. It will just have greater tax withholding by your employer upon payment. You will get that money back as a refund when you do your taxes next year. You may know this, but your phrasing implies otherwise so I just wanted to be sure.
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Re: Offered Severance Pkg.-Need advice.

Post by fortunefavored »

Pugdog96 wrote: Fri Apr 23, 2021 10:49 am 5. Not sure what my job prospects are, but I'm good with tech and mechanical-electrical stuff. Plan on taking a couple months of 'retirement' to de-stress and get my personal life (possessions, health, home repair) in some kind of order.
Thanks, I'm following this thread closely.
Red alert red alert... do not take any time off between jobs.. it will be very very easy to slip into unemployable+"retired" and then you end up claiming social security early and withdrawing retirement funds and permanently lowering your standard of living.

If you know you need a job from now->full retirement age, you should go 110% on the job search starting today.
Fired2020
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Re: Offered Severance Pkg.-Need advice.

Post by Fired2020 »

I was faced with a very similar situation as the original poster in September, the difference being I would have had to apply for a new role (as I'd been required to do a few times in the past) so I didn't necessarily control my future. I allowed them to terminate me; they paid me 26 weeks' severance while I collected unemployment at the same time (I'm still collecting on unemployment).

I've had NO regrets. I still have lunch a few times a month with one of my co-workers so I'm well aware of what I'm "missing". The company treated me great for 16 years and I left with no ill-feelings.
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Pugdog96
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Re: Offered Severance Pkg.-Need advice.

Post by Pugdog96 »

Well, I got some additional information. The HRA is basically only good for premiums for the health plan I have now.
So it is basically 10 months of health care. But, OK.
I have to use up my FSA by my end date or I lose it. OK.
I'm still trying to find out about the tax rate. It appears it just gets taxed as regular wages at the Federal level.
(The reason I'm concerned is I got a lump sum payment before, and it seemed it got whacked from about $3000 to about $1600. It was much more than the 22% mentioned.
I saw something on line that NYS taxes some payments at a higher rate. I'm inquiring about that to my employer.
So, Federal-wise, they didn't change the tax laws, the article is claiming because of the Stimulus payment, I will be effectively paying no tax. So putting money in my 403(b) is still a good idea.
Thanks again to all who replied.
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Chip Munk
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Re: Offered Severance Pkg.-Need advice.

Post by Chip Munk »

Pugdog96 wrote: Mon Apr 26, 2021 3:13 pm I have to use up my FSA by my end date or I lose it. OK.
Check the rules for your FSA. You might be able to claim back the full annual amount of your FSA contributions even though you are leaving part way through the year and have contributed only about 1/3 of that amount to date.

The FSA at the megacorp where DH worked was set up that way. When he opted for early retirement and left half way through the year, we had already submitted and been reimbursed for claims exceeding what he had contributed to date. We did not have to pay anything back when he left. This was a few years ago, so the FSA rules may have changed in the meantime.
Figaro
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Re: Offered Severance Pkg.-Need advice.

Post by Figaro »

I'm just going to comment on the aspect of withholding of taxes.

Every year around bonus time I did this trick to ensure I did not have too much of my lump sum withheld.

At least a month before you leave, make sure you change your w-4 withholding to "exempt" do this for both federal and state. Submit it to your HR team and have them confirm that when will be effective date.

They will not be able to withhold your pay at the 20% level. Problem is, your tax bill will still be your tax bill come April 2022. So you need to calculate how much tax you owe, including income from unemployment in (which I think you should be eligible for). As long as you pay your last year's tax liability thru withholding you don't pay an additional penalty. If you need to true up the tax a bit just pay a quarterly estimated tax payment.

Hope things work out for you. You may qualify under the last stimulus bill for fully subsidize COBRA coverage now thru end of September as well (just something to look into). Many employees have not figured out how to approach this yet as they await IRS further guidance on the matter (which is kind of really annoying for the unemployed folks).
SnowBog
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Re: Offered Severance Pkg.-Need advice.

Post by SnowBog »

Pugdog96 wrote: Mon Apr 26, 2021 3:13 pm Well, I got some additional information. The HRA is basically only good for premiums for the health plan I have now.
So it is basically 10 months of health care. But, OK.
I have to use up my FSA by my end date or I lose it. OK.
I'm still trying to find out about the tax rate. It appears it just gets taxed as regular wages at the Federal level.
(The reason I'm concerned is I got a lump sum payment before, and it seemed it got whacked from about $3000 to about $1600. It was much more than the 22% mentioned.
I saw something on line that NYS taxes some payments at a higher rate. I'm inquiring about that to my employer.
So, Federal-wise, they didn't change the tax laws, the article is claiming because of the Stimulus payment, I will be effectively paying no tax. So putting money in my 403(b) is still a good idea.
Thanks again to all who replied.
Unless you need the lump sum in the short term, I wouldn't be worried about the taxes. I doubt the amount is going to change, and sounds like you've already increased your 403b election.

If they take out too much in taxes, you'll get back the difference next year when you file.

If they don't take out enough, you can always estimate your taxes and make an estimated payment if you don't want to risk making a big payment next year. (Or if you haven't yet, contribute to IRA and/or HSA if offered through your next job.)

Personally, if you were looking to leave anyway (and might be forced out regardless), I'd strongly consider taking the severance ASAP (while they are still offering it), filing for unemployment, and if you haven't yet, start looking ASAP for a new job.

Regarding insurance, if I'm understanding correctly it's basically 10 months paid and presumably access to COBRA after that. I suspect you'll find better/cheaper options via ACA (or your state plan), or through your future employer. So I'd take the 10 months paid unless/until you can switch to a better long term plan.

Best of luck to you!
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Pugdog96
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Re: Offered Severance Pkg.-Need advice.

Post by Pugdog96 »

Thanks again to everybody who replied. I accepted the offer to 'retire', so I have to get through the next 8 weeks.
I honestly couldn't think of any reason to stay other than "I'd still have a job". With no guarantee I'd have a job (or a $25K severance package) the next time 'the Grim Reaper' came, that seemed a poor reason to stay. Added with the fact I haven't been happy, and have been very stressed and unhappy since my workload was doubled, it's clearly time to make an exit.
1. Still not clear what the tax rate on the severance pay will be. I'm not worried about what amount is withheld, just the actual percentage I have to pay. However, I've increased my 403(b) contribution and will just have to accept whatever it works out to.
2. I'm getting about 10 months health insurance; before it runs out I will have looked into other, more affordable plans.
3. I'm going to keep my dental plan; the premiums work out to about what I would pay for cleanings out of pocket.
4. I'm going to get new eyeglasses and uses whatever amount is left in my FSA ASAP.
5. I need to do more research into unemployment. There is a job fair several days after my last day of employment, so I have marked that on my calendar and plan on going.
I'll update this when I have anything to add.
fuddbogle
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Re: Offered Severance Pkg.-Need advice.

Post by fuddbogle »

Pugdog96 wrote: Fri Apr 23, 2021 10:49 am
scophreak wrote: Fri Apr 23, 2021 9:01 am I'm curious about the "$10K in a HSA for COBRA". Doesn't this contradict with yearly maximum contribution of $3600 (single)/$7200 (family)?
As far as I am aware the maximum encompasses BOTH company and employee contributions, so I don't see how a $10K contribution is possible.
Thanks, I will look into this and get more details.
but I'm good with tech and mechanical-electrical stuff.
My neighbor used to be an illustrator but was mechanically inclined. He changed career paths and got into a maintenance position at.....the Post Office. He had to start working odd shifts due to lack of seniority but after a few years has gotten on a desirable shift. He says based on the nature of the average backend PO worker (not overly ambitious, not my job stuff) he stays busy and feels he can actually make a difference. His coworkers appreciate the work he does. It's a job he would recommend for an hourly mechanically inclined motivated person.
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Pugdog96
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Offered Severance Pkg.-Need advice, updated.

Post by Pugdog96 »

Well, minor update, leaving me with a slight sense of vindication:
I talked to my manager, and he informed me that they were having trouble filling my position.
The people who are qualified, are over-qualified, and want much more then they want to pay.
The rest are unqualified; i.e. have none of the certifications, hands-on experience, or retail experience.
Of course, none of the candidates will have 20 years of working in this particular workspace, or have 20 years of building rapport with the customers. Obviously, the bean-counters don't figure this into the equation. I'm still guessing from the job description that the qualified candidates want $70K/ year or more.
Actionable point: Manager asked if I'd be open to staying on longer. I'm considering the pros and cons.
Pro: I would have an income for longer, I would have more time to wrap up any loose ends, I might get a pay increase of 11- 12% starting in July. They seem to have lowered the expectations of what I can do somewhat, although it's still a high workload. I've been lowering my self-expectation to get everything done, which has somewhat reduced the stress I'm feeling.
Cons: I really was looking forward to getting out of there on the set date and having some closure. I've seen stuff drag on here for months with the hiring process. I also might have to train the 'new manager' they are hiring, meaning there may be problems as I try to explain the convoluted processes we currently follow. If something bad happened, it's conceivable I could forfeit my severance package, which would be a big blow.
Open to any thoughts any one has to offer.
Trader Joe
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Re: Offered Severance Pkg.-Need advice, updated.

Post by Trader Joe »

Pugdog96 wrote: Fri May 28, 2021 9:46 pm Well, minor update, leaving me with a slight sense of vindication:
I talked to my manager, and he informed me that they were having trouble filling my position.
The people who are qualified, are over-qualified, and want much more then they want to pay.
The rest are unqualified; i.e. have none of the certifications, hands-on experience, or retail experience.
Of course, none of the candidates will have 20 years of working in this particular workspace, or have 20 years of building rapport with the customers. Obviously, the bean-counters don't figure this into the equation. I'm still guessing from the job description that the qualified candidates want $70K/ year or more.
Actionable point: Manager asked if I'd be open to staying on longer. I'm considering the pros and cons.
Pro: I would have an income for longer, I would have more time to wrap up any loose ends, I might get a pay increase of 11- 12% starting in July. They seem to have lowered the expectations of what I can do somewhat, although it's still a high workload. I've been lowering my self-expectation to get everything done, which has somewhat reduced the stress I'm feeling.
Cons: I really was looking forward to getting out of there on the set date and having some closure. I've seen stuff drag on here for months with the hiring process. I also might have to train the 'new manager' they are hiring, meaning there may be problems as I try to explain the convoluted processes we currently follow. If something bad happened, it's conceivable I could forfeit my severance package, which would be a big blow.
Open to any thoughts any one has to offer.

What is the status of your job search? Any interviews? What were the results? How many applications have you submitted?
Topic Author
Pugdog96
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Re: Offered Severance Pkg.-Need advice, updated.

Post by Pugdog96 »

Trader Joe wrote: Fri May 28, 2021 10:10 pm What is the status of your job search? Any interviews? What were the results? How many applications have you submitted?
I plan on taking the summer off, when I "retire" from my current job. I have a variety of personal issues to attend to, I would like to take a real vacation for the first time in over a decade, and I'm thinking about selling my house and relocating. I've talked to enough people and looked at some job postings, and I don't think I will have a hard time finding another job when I am ready.
Of course, Covid-22 or a major market crash could change the job market, but in that case I'd probably be laid off anyhow.
I have money saved, no debt, and I live frugally.
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Watty
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Re: Offered Severance Pkg.-Need advice.

Post by Watty »

Pugdog96 wrote: Fri May 28, 2021 9:46 pm I talked to my manager, and he informed me that they were having trouble filling my position.
.....
I'm still guessing from the job description that the qualified candidates want $70K/ year or more.

I might get a pay increase of 11- 12% starting in July.
......
Open to any thoughts any one has to offer.
They are not having any problems finding people, they just do not want to pay the market rate and they are not offering you the market rate to stay.

If this is what the qualified candidates expect then that is likely what you will be able to get in your next job.

I have seen situations where people left a job and the company was in a bind so they ended up contracting back for six months or a year at double(or more) their original salary. By offering you "maybe 10%" is it pretty clear that they are not really in a bind, they are just being cheap.

If you stay then you may also lose your severance if you then leave in six months since you are in effect declining the severance package. If you do decide to stay for a while it would be good to require a lump sum bonus check equivalent to your severance just to make sure that you will get it. They most likely will not agree to that since they are being so cheap, or are in financial trouble and cannot pay it.

The company is a mess when they are laying people off but then hiring replacements. Most likely they were just trying to get rid of expensive older workers only to find out that replacing them is not easy or cheaper.
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Pugdog96
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Offered Severance Pkg.-August update

Post by Pugdog96 »

Thought I would post an update.
Manager asked me to stay on until September, to help the new people get trained. After an extremely unpleasant, stressful day, I wound up getting upset and leaving early. I discussed this with the manager and he was understanding, but I told him I had decided to stick to my original retirement date. I did submit the paperwork, and was officially retired. However, I agreed to go back in for 1-2 weeks as a contractor, which turned into 3 weeks. On the plus(?) side, I was able to show the new people where everything was, make sure they had access/ passwords, etc, so they have a chance to do the job. At the same time, it was very stressful, I won't get any benefits for the last 3 weeks I worked, effectively I worked for less. I also don't think the new people have much chance to succeed, as the workload is just too high. So I only have a couple loose ends to tie up, and I'm done.
I did get my severance pay; however, I made an error. The termination agreement says the severance is not eligible for retirement contribution, which I took as 'cannot be put in your 403(b), when what it means is 'not eligible for matching contribution'. Since I asked repeatedly about the taxation on the package and could not get an answer, I was putting most of my pay into my retirement account, figuring on having the lump sum as a cushion for the next few months. Surprise! $11K was put in 403(b), and I only got about $4K in my bank account. So, it did reduce the tax bite :oops: They cut my total contributions off at $23K for the year; I'm not sure where they got this from, unless it's an internal limit. Internet says $19K is the max, but I'm over 50 so can contribute an extra $6K.
Edit: I had set my contribution to 85% of my pay, so they followed my instructions. I should have put a set amount, but I was thinking it wouldn't affect the lump sum. They DID imply there was no way to tax defer the lump sum.
HR/Payroll has not been helpful, so I don't expect much help from them; I actually need to clarify more important things with them. I haven't had much time to sit and calculate what my options are or even how much money I need.
If I try to get money back out of the 403(b) now, if that's possible, I will owe taxes on it. It appears I could take money out next year without penalty under some 'life changes' clause? I will be 58 next year. It's possible I will have little no other income next year, if I decide to relocate.
I have about $10K cash, which I can live on for over six months, barring unforeseen events. I have about $25K in a taxable account, Vanguard brokerage. Mostly in VTI at this point. I also have $50K+ in a VG Roth which I could access in a pinch.
Anyhow, that's the update and I apologize for the word salad. I'm actually realizing the stress, uncertainty and change over the past few months (on top of the pandemic) has taken mental and emotional toll on me and am trying to get some assistance with that. So I thank you all for your advice and support through this time.
Last edited by Pugdog96 on Fri Aug 06, 2021 3:48 pm, edited 1 time in total.
02nz
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Re: Offered Severance Pkg.-August update

Post by 02nz »

Pugdog96 wrote: Fri Aug 06, 2021 10:59 am ... They cut my total contributions off at $23K for the year; I'm not sure where they got this from, unless it's an internal limit. Internet says $19K is the max, but I'm over 50 so can contribute an extra $6K. HR/Payroll has not been helpful, so I don't expect much help from them; I actually need to clarify more important things with them. I haven't had much time to sit and calculate what my options are or even how much money I need.
If I try to get money back out of the 403(b) now, if that's possible, I will owe taxes on it. It appears I could take money out next year without penalty under some 'life changes' clause? I will be 58 next year. It's possible I will have little no other income next year, if I decide to relocate.
I have about $10K cash, which I can live on for over six months, barring unforeseen events. I have about $25K in a taxable account, Vanguard brokerage. Mostly in VTI at this point. I also have $50K+ in a VG Roth which I could access in a pinch.
Anyhow, that's the update and I apologize for the word salad. I'm actually realizing the stress, uncertainty and change over the past few months (on top of the pandemic) has taken mental and emotional toll on me and am trying to get some assistance with that. So I thank you all for your advice and support through this time.
OP, it sounds like a very stressful situation indeed. Take some time for a breather. Mental health is so important.

I'm not aware of a "life changes" clause that would waive the early withdrawal penalty. HOWEVER, there is an IRS rule that, if you retire from your employer in the year in which you turn 55, or later, you can withdraw from that employer's 401k/403b without penalty. That would apply to you, as long as your plan actually permits it. I imagine that it likely does, but check the plan documents or with the administrator to confirm.

In any years of low or zero income, you'll want to fill up at least the standard deduction (a little over $12K for singles) with withdrawals or Roth conversions from your tax-deferred balance.

Also, it probably doesn't matter much at this point but the 403b contribution limit is $19,500 plus $6,500 age-based catchup, so total of $26K.

Best of luck.
ShowMeTheER
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Re: Offered Severance Pkg.-Need advice.

Post by ShowMeTheER »

I think they screwed up your 403b contribution, not you. Likely they should not have taken a deduction (and no match either, but you knew that). If this was a rare event for them (your lump sum severance) then I’m not surprised.

Their risk though, not yours, so push back only if you want that cash in the bank.

Too bad it ended on a sour note, but 2 months from now you will barely remember and you’ll be enjoying your next phase.
Colorado14
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Re: Offered Severance Pkg.-Need advice.

Post by Colorado14 »

This sounds like a very stressful situation for you. Thank you for the update. It may or may not seem this way, but you are better off without this job. This company is a sinking ship. Take some time to focus on your health, clear your mind of this job, then consider next steps. Don't make any major decisions right now. Taking care of your health is your new top priority. Best of luck to you.
Katietsu
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Re: Offered Severance Pkg.-Need advice.

Post by Katietsu »

There is a good chance that the 403b contribution will not be a problem. The income tax part is a wash and pulling money out just leaves you with the same taxes as if you had taken the money directly. As far as a penalty, the rule of 55 is an IRS guideline that allows you to avoid paying the 10% early withdrawal penalty on 403(b) retirement accounts if you leave your job during or after the calendar year you turn 55. So unless your plan has some additional restriction, I think the “mistake” could be beneficial or at least of no consequence.
terran
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Re: Offered Severance Pkg.-Need advice.

Post by terran »

Since you're over 55 years old when you separated from service you can withdraw from the 403(b) without paying an early withdrawal penalty. You'll still pay tax as you will whenever you withdraw, but you'll be no worse off than if you hadn't contributed in the first place, and probably better off if you wait until next year to withdraw. The age 55 penalty-free early withdrawal option goes away if you roll the 403(b) over to an IRA. While there's no penalty to withdraw, your employer may limit your withdrawal options. Worst case scenario in this case is you withdraw everything, keep what you want for spending and roll the rest over to an IRA within 60 days. Personally, I'd leave the 403(b) where it is for now and live off your non-tax advantaged investments as long as you can as that gives you the most time to find a job or figure out your next step. Once you're 59.5 years old you can roll over to an IRA and still withdraw whenever you want without paying penalties (you'll still pay tax).
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