The Best Fall In Years For Job Seekers
Job-seekers from rank-and-file workers to senior executives are preparing their résumés for what
may be the strongest fall hiring season in years.
Numerous indicators suggest the job market is brightening after a long gloomy spell. The
national unemployment rate, at 5%, is at the lowest level since September 2001; job searches are
becoming shorter and job changes are becoming more frequent.
The "job quit" rate, which approximates the opportunities for workers to switch jobs, rose every
month this year compared with year-earlier levels, according to the federal Bureau of Labor
Statistics. Job searches in the second quarter took 3.1 months, down from the year-earlier
quarter, when it took an average of 3.8 months to find employment, according to outplacement
firm Challenger, Gray & Christmas.
There's stepped-up activity on the employer side, too, with a growing number of companies
posting open positions. Heidrick & Struggles, an executive-search firm, has seen an increase this
year in both employers seeking new executives as well as executives looking for new
employment.
Executive-recruitment firm Korn/Ferry International, meanwhile, says business
rose 40% this fiscal year from the previous year. And more companies are adopting variable-pay
programs, such as bonuses, that are based on performance, as new projections have executive pay
increases holding steady next year.
But while finding new employment may be getting easier, making the switch to a new employer
is increasingly complicated. With changes in tax laws and a growing selection of benefits to keep
track of (such as flexible spending and health-savings accounts), it's become just as critical to
have a job-exit strategy as a job-hunting plan.
Some steps are obvious, like comparing the old benefits package with the new one. Others are
too often afterthoughts, such as checking deadlines for company-match payouts in 401(k)s,
making sure there aren't gaps in your insurance coverage, and closing or transferring retirementsavings accounts.
Financial planners advise clients to start dealing with such matters before
accepting a new job -- otherwise you could pay a hefty price.
Here are some things to consider:
Retirement-savings plans.
First, it's important to check the timetable for any significant
company contributions to retirement plans. It may be worth delaying your departure date to get
them.
There are many options for what to do with your old 401(k) plan, the first of which is to drain all
the money out of the account. People under age 59 ½ often do so, but they get hit with federal and state income
taxes and a 10% penalty to Uncle Sam. Some planners advise leaving the money in
the old plan if you're happy with the investments you have. (It's usually allowed, as long as the
balance is more than $5,000.)
Those who might later wish to take a loan from their 401(k), on the other hand, should roll funds
into the new plan after checking with human resources to see if the move allowed. But the mostflexible
option is to roll the money into an individual retirement account, which lets you pick
among many investments, including mutual funds, annuities, and individual securities, says
Doug Flynn, a financial planner in Garden City, N.Y.
Karin Maloney Stifler, a financial planner in Hudson, Ohio, encourages her clients to order a
direct rollover when they transfer money, in which your old plan provider moves money directly
to another 401(k) or IRA -- so you don't have to. You never take receipt of the money, so you
don't risk missing the 60-day deadline for transfers and owing taxes and penalties.
Some of these considerations apply to other kinds of retirement accounts, too. Those with a
defined-benefit pension plan who withdraw a lump sum before age 59 ½ will pay income taxes
and a 10% penalty, unless they roll the money into an IRA. The same holds for profit-sharing
plan distributions, if the plan is part of retirement savings. (If you're over 55 and retired,
however, you won't pay the 10% penalty on a profit-sharing plan distribution).
With a profit-sharing plan, how much you'd receive depends on that year's profits and the
percentage paid out. The plan valuation often occurs on the calendar year, says Samer Hamadeh,
chief executive of job-search site Vault.com. If the valuation is soon, you may want to wait to
leave until after the contribution is made to your account. Everyone with a profit-sharing stake
should receive a summary plan description that tells when the plan is valued and when profits are
distributed.
Flexible-spending accounts
If you have a flexible-spending account, you've set aside some of
your pretax annual salary to pay for many medical expenses that are eligible under Internal
Revenue Service rules, such as eyeglasses, co-payments and some over-the-counter medications,
unless your employer prohibits them. The entire sum you've chosen to set aside is available as of
the start of the plan year -- typically Jan. 1 -- though it's deducted in equal amounts from your
paychecks throughout the year.
You must spend the money within a calendar year; recent legislation added a 2½-month grace
period, though your employer isn't required to offer it. Only expenses incurred during the
employee's period of coverage are eligible for reimbursement. But if you spend the entire sum in
the account before it's all been taken from your paychecks, then switch jobs, you aren't required
to repay the difference, says Scott Halstead, chief executive of WageWorks, which sells FSAs
and other health-spending accounts and consults with companies on them. The result: You're
allowed to spend more than you've actually put in the account.
Health-savings accounts. Health-savings accounts are a little different. To be eligible for an
HSA, your employer must have a qualifying high-deductible health plan. Personal contributions
are tax-deductible; employers may also contribute. Total annual contributions are capped at the
deductible or at $2,650 for an individual or $5,250 for a family, whichever is less. The money
doesn't vanish if you don't spend it within a set period of time; it grows tax-free in the account.
Before age 65, if you withdraw funds other than for eligible expenses, you'll pay taxes and a 10%
penalty; after 65, if you withdraw for nonmedical expenses, tax will still apply, but the penalty
will not.
If you have an HSA, however, sit tight -- those leaving a job take the money with them,
including any employer donations, even if the account was opened through a company plan.
(Some employers spread their contributions over the year, rather than provide a lump sum on
Jan. 1, to reduce their exposure).
Health insurance
Many employees are only eligible for new health insurance after a few
months at a new job, so there's usually a lapse between the time an old policy ends and a new
one begins. Employees typically can elect to extend old benefits under the Cobra law, which lets
them continue coverage at group rates for 18 months after leaving a job. One caveat: Since the
company is no longer subsidizing a portion of the premium, it could cost you substantially more
on the open market. Cobra covers both medical and dental insurance, but Ms. Stifler
recommends getting major dental work before leaving, then using Cobra for medical insurance
only.
Stock options
It's common to see a 90-day deadline from your last day at work to exercise
vested stock options, unless you're fired. Employees hold either nonqualified stock options or
incentive stock options, which are treated differently for tax purposes. If you're granted a batch
of options, it's often the case that 25% of them will vest each year over four years. Upon vesting,
many people engage in cashless exercises, receiving the spread between the option price and the
stock's market value.
They pay ordinary income taxes on any profits. For example, if you're
granted 10,000 options with a strike price of $8.50, 25% are vesting, and the company stock is
trading at around $30, you could make around $50,000 ($21.50 per option), before taxes, if you
engage in a cashless exercise before you leave. Others buy and hold their options, hoping to
reduce their taxes.