what to do with severance pay?

formerlyGDaisy09

So upon returning to work following my maternity leave I learned that I will be layed off sometime before July (before the end of this fiscal year). I will be rehired to my job under a different company...Technically I'm employed by a university now, I will be re-employed by the medical center, so I'm not out a job, but it does raise several questions for me when planning our finances. I should receive a fairly large severance check (1 week of pay for every year I've worked (7 weeks pay) and all the vacation I've earned that would have been awarded to me for use on July 1st (~4 weeks), so 11 weeks of pay). 

What is unclear to everyone, is if we will maintain seniority for things like vested retirement matching, we've heard that this is still under negotiation, so I hope that the change will result in maintaining my retirement match, however I fully expect that I may have to start over; it takes 5 years for retirement match to be vested at the medical center. So while it is really tempting to take the severence check and pay-off a few student loans to get us some immediate releif in our monthly budget, I wonder if I should invest it in a retirement account instead to make-up for the potential loss in retirement matching if I find my next career move is outside of the medical center before 2021? 

The other piece of this that I don't think I can do much about is that my health insurance benefits will change mid-year, which will reset all deductibles and max-out-of pockets. given that both places have HDHPs that is potentially lots of money. 

advice and opinions welcome!

short+sassy

Something to keep in mind, at least this has always happened to me, is there will be a big chunk of taxes taken out of that severance pay...more than what would usually be taken out if it was given to you one paycheck at a time.  It will work itself out when you file your taxes next year but, for now, it will be a hit.

I'd be more inclined to pay off the student loans now.  If your retirement match and vesting stays the same, great!  If not, then use some of the extra money in your budget from paying the loans off to then bump up your retirement.  That way, you've made up the extra you'll be missing if you don't stay at your job long enough to be vested.

As for resetting the deductibles, that's another good point to keep in mind.  I would plan out my expected medical expenses before/after the switch.  Then figure out how much I would have to come out of pocket, considering everything going towards the deductible with the current company will be gone by mid year and I'll have to start over.  Super lame!!  But, unfortunately, that is how it works.

formerlyGDaisy09

short+sassy said:

Something to keep in mind, at least this has always happened to me, is there will be a big chunk of taxes taken out of that severance pay...more than what would usually be taken out if it was given to you one paycheck at a time.  It will work itself out when you file your taxes next year but, for now, it will be a hit.

I'd be more inclined to pay off the student loans now.  If your retirement match and vesting stays the same, great!  If not, then use some of the extra money in your budget from paying the loans off to then bump up your retirement.  That way, you've made up the extra you'll be missing if you don't stay at your job long enough to be vested.

As for resetting the deductibles, that's another good point to keep in mind.  I would plan out my expected medical expenses before/after the switch.  Then figure out how much I would have to come out of pocket, considering everything going towards the deductible with the current company will be gone by mid year and I'll have to start over.  Super lame!!  But, unfortunately, that is how it works.

Thanks, yes, I'm figuring lots of taxes will be taken out as the payroll system has no way of recognizing the one time lump payment as anything different than a monthly paycheck, so it'll basically look like my salaray quadrupled and it'll appear to the payroll system that I'm in a much higher tax bracket. 

Overall I think this is going to be a good thing. most benefits are about equal, the hospital makes a higher contribution towards my HSA (in exchange for an even higher deductible, but overall we aren't high healthcare utilizers). vacation days roll-over year-to-year instead of where I am now where they are use them or loose them days. And salaries are closer to industry standard (where the university pays about 40% below insdustry standard). the big potential loosing place is the vested retirement, but if I do stay the 5 years the hospital matches 7% while the university only matches 3%. 

AprilZ81

Will they pay out your severance in a lump sum or on your normal pay schedule?

In my (granted limited) experience in situations like this they usually honor your original start date for purposes of seniority and service based benefits like vesting and vacation accrual.  

I would probably hold on to your severance and vacation payout for a little bit until you have a full understanding of the changes to your benefits.  Once you figure that out you can then pay off some student loans or fund some ROTHs or something that makes sense.

CuriousKiddosMama

I would probably pay the student loans and then use the extra $ freed up every month to increase your contributions.

formerlyGDaisy09

AprilZ81 said:

Will they pay out your severance in a lump sum or on your normal pay schedule?

In my (granted limited) experience in situations like this they usually honor your original start date for purposes of seniority and service based benefits like vesting and vacation accrual.  

I would probably hold on to your severance and vacation payout for a little bit until you have a full understanding of the changes to your benefits.  Once you figure that out you can then pay off some student loans or fund some ROTHs or something that makes sense.

from everything I hear the severance will be paid out in one lump, it will definitely happen before the end of the fiscal year (june 30th), the medical school is pushing for it to happen sooner rather than later. my original start date was in June...so I'm hoping they're planning to pro-rate partial years if they pay out sooner. 

The big question mark is if the hospital is going to honor the seniority we all earned with the medical school. They are technically a seperate company, so I don't think they're obligated to honor any seniority we earned with the medical school. I'm hopeful that maintaining seniority will get negotiated for us by the medical school, in some ways it's in the hospital's best interest as well because they're on a mission to attract and keep younger workers, and loosing seniority is something that would make many (not me since we just invested a ton in our house, but many younger workers who are perhaps still renting) look at places like Boston if they're going to have to start earning seniority all over again anyways. 

We're looking at a big tax refund this year too (and then we'll both be changing our witholdings), so if maintaining seniority gets negotiated we would definitely be able to pay-off something big like several student loans or our car loan. 

brij2006

I would be tempted to sit on it for a bit until the dust settles with the transition to the new company.

Erikan73

If I were in your position I would probably initially put all the money into a savings account & forget about it for a little bit. At least until you know what is happening regarding pay & insurance under the new company. This way if you have to start over with deductibles and co-pays, you can use some of the money then to help out with that. Then maybe a few months later after you are settled under the new company and with what the income is, use what is left to reduce student loans since that would make your current budget situation easier. I know it's important to save for retirement, but it shouldn't come at the expense of making things more difficult now.

formerlyGDaisy09

...turns out my position is in an exception category and I will not be getting any severance pay. So I'll be back to square 1 as a new employee (no vacation time, and a 5 year wait to keep any retirement matching, and starting over on a new insurance deductible mid-year), and there is no compensation from my old company for terminating my position. I will get to cash-out earned vacation time. 

My boss has a high incentive to keep me around (it would literally take months for me to properly train a replacement) so I'm hoping he'll be willing to go up to bat for/with me with HR. But otherwise my new plan is to search for something else for as soon as my current project is done. 

short+sassy

formerlyGDaisy09 said:

...turns out my position is in an exception category and I will not be getting any severance pay. So I'll be back to square 1 as a new employee (no vacation time, and a 5 year wait to keep any retirement matching, and starting over on a new insurance deductible mid-year), and there is no compensation from my old company for terminating my position. I will get to cash-out earned vacation time. 

My boss has a high incentive to keep me around (it would literally take months for me to properly train a replacement) so I'm hoping he'll be willing to go up to bat for/with me with HR. But otherwise my new plan is to search for something else for as soon as my current project is done. 

Hmph!!  Well!  If you will be a "new employee" anyway, sounds like it is time to renegotiate your salary also.

That's really, really lousy.  Hopefully your boss can do something about it.

jtmh2012

That sucks and is just plain wrong in my opinion.  Personally, I'd start looking now.  Project or no project.

formerlyGDaisy09

jtmh2012 said:

That sucks and is just plain wrong in my opinion.  Personally, I'd start looking now.  Project or no project.

Thanks. I am looking now. If i switched from academic work (which is ALL going to be grant funded) to industry work I could basically double my salary, and eliminate this issue of being a psudo-employee. My boss has been totally open that he'd love to keep me, but when the time comes he'll help me get where I want to go. So, it's time to start that conversation, and hopefully get his help in negotiating my "new" job to make it worth sticking around to the end of this project. 

This is going to involve relocation as there is no industry where we live (in my line of work, I basically have no choice in employer if we're staying where we are). H's best chance at a promotion and raise is also relocation, so I've now given him permission to apply to any positions he sees in certain locations (near my parents and a couple metro areas in the region I'd be interested in moving to). If he gets one of the jobs before my projects wrap-up we'll list the house and he may do some long distance commuting short-term. So spring cleaning plans will involve getting the house in tip-top shape so that if we have to list it, it's ready to go (wish I'd known about this restructuring before we put all that work into the house last summer). All this is way complicated having an infant around. 

short+sassy

formerlyGDaisy09 said:

jtmh2012 said:

That sucks and is just plain wrong in my opinion.  Personally, I'd start looking now.  Project or no project.

Thanks. I am looking now. If i switched from academic work (which is ALL going to be grant funded) to industry work I could basically double my salary, and eliminate this issue of being a psudo-employee. My boss has been totally open that he'd love to keep me, but when the time comes he'll help me get where I want to go. So, it's time to start that conversation, and hopefully get his help in negotiating my "new" job to make it worth sticking around to the end of this project. 

This is going to involve relocation as there is no industry where we live (in my line of work, I basically have no choice in employer if we're staying where we are). H's best chance at a promotion and raise is also relocation, so I've now given him permission to apply to any positions he sees in certain locations (near my parents and a couple metro areas in the region I'd be interested in moving to). If he gets one of the jobs before my projects wrap-up we'll list the house and he may do some long distance commuting short-term. So spring cleaning plans will involve getting the house in tip-top shape so that if we have to list it, it's ready to go (wish I'd known about this restructuring before we put all that work into the house last summer). All this is way complicated having an infant around. 

Although it sounds like a lot of turmoil, maybe this will turn into a blessing in disguise.  I'm putting my rose colored glasses on and picturing you and your H getting way better jobs in a new place.