By the time U.S. workers reach age 42, they have held an average of 11 different jobs, according to a 2012 Labor Department study. Sometimes we are forced to change employers because we’re laid off. In happier cases, we switch jobs because we have found one with more interesting work, more opportunity for career growth or better pay. But whatever the reason, changing jobs can have big financial implications.
While a new employer may offer higher pay, that isn’t the only financial consideration. You should also compare the benefits offered by your current and prospective employer, including the health plan, disability coverage, life insurance and, of course, the retirement plan.
Here’s some more information on these financial considerations:
Get vested. Before you give notice at your old employer, take a close look at the retirement plan’s vesting arrangement. For example, if your employer matches part of your 401(k) contribution and you are leaving voluntarily, see whether you can delay your departure until you are entitled to your share of the match. Otherwise, you may be leaving thousands of dollars of retirement benefits behind.
Consider an IRA rollover. Once you start your new job, you may want to contact your old employer’s HR department or 401(k) custodian and arrange to have your 401(k) or similar retirement-plan balances transferred to a rollover IRA at an investment firm. This can simplify your finances, give you more investment choice and allow you to reduce investment costs. Look into moving your 401(k) balance through a trustee-to-trustee transfer, rather than having the check made out to you. If you have the check made out to you, your old plan will send you 80% of your account balance, with the other 20% sent to the IRS. You can reclaim that 20% on your next tax return—but only if you roll over 100% of the balance within 60 days. Unless you have a lot of spare cash, that can be tough to do. After all, your old employer sent you a check for just 80% of the balance.
Protect your pension. Your old employer may be among the dwindling list of companies that offer a traditional defined benefit pension plan. Even if the company no longer offers the plan or funds existing accounts, you may still be eligible for payments from it. Before you leave, find out whether you can receive a distribution which could be rolled into an IRA or if you have to wait until you retire to receive any payments. If you have to wait, be sure to keep relevant information that explains your expected benefit in a safe place.
Ask about health insurance. Your new employer may have a waiting period before you can join the health plan—which means you might want to investigate coverage under COBRA, named after the Consolidated Omnibus Budget Reconciliation Act of 1986. If your old employer had a health plan and you are eligible, you should get a COBRA notice, giving you 60 days to decide whether you want the coverage. This insurance is not cheap: The cost is 102% of the premium that the employer pays, according to the Labor Department. But you can keep coverage for up to 18 months for you and your family, including coverage for pre-existing conditions. This could protect you until your new employer’s coverage kicks in.
Look into life and disability coverage. Find out whether your new employer’s disability insurance covers both short- and long-term disabilities, and what percentage of your salary you will get each month if you can’t work. If the coverage is limited, you may need to buy a policy on your own. Similarly, find out how much employer-provided life insurance you will receive, if any, and then consider how much supplemental coverage you should buy on your own.
Sign up for your new retirement plan. Your new employer may automatically enroll you in its 401(k), 403(b) or other employer-sponsored plan at a modest contribution rate. But you may be able to get into the plan more quickly—and at a higher contribution rate—if you are proactive and sign yourself up as soon as you’re hired.
Once you’ve decided to make the leap, you’ll be busy wrapping up work at your old employer and trying to prove yourself to your new colleagues. But remember, it’s important to tend to these crucial financial details too.