As the markets tank, businesses from automakers to financial companies and airlines to newspapers are offering workers buyout packages. Most workers would prefer to have the job, but if your company offers you a buyout there are ways to maximize what you take away.
First, if a dreaded offer meeting ever comes, take a deep breath, grab a pen and paper and ask questions.
"As the employer talks, take notes," said labor lawyer A. Stevenson Bogue, of
Omaha law firm McGrath North. "Go through it and make sure you understand it. Before you sign anything, make sure you understand your rights and what rights you're relinquishing. Ask any questions about parts you don't understand."
Then, sleep on it. There will be a deadline for you to decide on the offer, but it won't be the day it's outlined. In the interim, consult your financial advisor, an accountant and an attorney.
Minnesota financial advisor
Nicole Middendorf said she has a number clients awaiting a buyout offer from Minneapolis-based Northwest Airlines as that company merges with Delta. She's helping them plan ahead.
"Most buyouts are based on years at the company and role at the company," Middendorf said. "(They may include) cash, stock options, executive compensation, a bonus check, straight stock and rarely 401(k) or profit sharing."
In the case of mass layoffs, individual employees will have very little power to change the broad terms of the buyout. But there may be some negotiating room about how and when the money is delivered.
"Is it lump sum? Will they withhold taxes or do you have to take taxes on it?" Middendorf said, ticking through some of the questions her clients seeks answers for before they accept a buyout. "The scary thing has been that some people get big checks and think they've got a lot of money and then April 15 comes. If you get close to the end of the year, ask if they'll pay part this year and part next year to have the income show over two years."
Lisa R. Featherngill, director of financial and estate planning for
North Carolina's Calibre, said some workers worry that an Obama administration would raise taxes and they're opting for a lump sum to take advantage of current rules.
Featherngill said you can take control of your options even before your company offers the buyout. Read the contract to see whether stock options fully vest at severance, or whether the company would pay the employee's portion of COBRA health insurance.
"Know your company's definition of retirement age, because it affects when you get various benefits. Say you leave at age 50 with 20 years of service and are considered retirement-age. You get full pension benefits," she said. "If you're not within that definition … anything you haven't vested today is forfeited."
Featherngill advises clients who aren't considered retirement-age to negotiate as hard as they can. She prompts them to ask, instead of a lump sum, for the same dollars paid over a number of months with employment-level contributions continuing to be made on 401(k)s and health benefits.
"It's almost as if you're employed (for your day-to-day household budgeting)," she said.
Bogue said knowing the contracted formula before negotiations begin may give employees' their last bit of wiggle room to negotiate.
"You don't have much ability as an employee to fight, (but) if you weren't paid according to formula you could fight about that. The employee is put in position to play on employer's sense of fairness, but there's not much basis to fight," Bogue said.
An attorney can look over the buyout and look for gray areas, Bogue said. The attorney can also help the employee understand what rights he or she is signing away by taking the buyout, such as relinquishing the right to sue the employer.
Finally, Middendorf said, once you sign on the dotted line, have a plan in place to use the money wisely and find another job as soon as possible.
"There have been so many people who get the money and then think they don't need to worry or work -- health insurance will eat you alive," Middendorf said. "Use (the money) as an opportunity to get yourself in a better financial place. Don't just live off the severance money -- go get a job right away."
Finding new income may give you a chance to use the buyout as a windfall to pay off debt, save for retirement or squirrel away rainy-day cash.
"Work with someone on an asset allocation strategy. Be smart about how it's invested," said Featherngill.
