ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, January 22, 1996 TAG: 9601230027
SECTION: MONEY PAGE: 6 EDITION: METRO
DATELINE: NEW YORK
SOURCE: JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
By now, a census of downsized workers from major U.S. companies should be enough to populate a small country. In most cases, they left the job with money in hand - not only severance pay, but also a payout from the retirement plan.
Displaced workers usually have a choice about how to handle retirement funds. Your employer should give you a bye-bye packet, explaining the options offered by your particular plan. In general, here's what you should consider:
If you qualify for a traditional pension. That's a pension that pays you a fixed monthly benefit for life, once you reach retirement age. How much you get depends on how long you worked for the company and what salary you earned.
If you're laid off before you're old enough to take early retirement benefits, that pension awaits you. Typically, you start collecting at age 65, but sometimes younger. The monthly benefit doesn't grow; it's fixed on the date you leave the job. But even if small, it's always worth having.
Some workers forget they're due pensions from companies that they worked for long ago. Leave a note about it in your personal-finance file, so your family will collect it for you if you get an illness that erases it from your mind.
You have better choices if you're laid off at an age when you can retire early. You get your pension right away, along with other retiree benefits. AT&T, for example, is offering the people leaving its ranks life insurance and a subsidized retiree medical plan.
But early takers often get lower monthly incomes. If you can afford it, and you qualify, you might be able to put off collecting your pension until you're entitled to higher payments.
AT&T is temporarily sweetening its plan for those it lays off, says pension plan administrator Kathleen DeCou. If they're two years short of qualifying for retirement, they'll get a retirement benefit anyway.
A few companies give employees the option of taking their pension's current value in a lump sum. Whether that's a good idea depends on how you're fixed.
You might want the lump sum if: you're a super investor who can run its value up and can afford the loss if your investment goes to pot; you have no savings or borrowing power and need cash to live on; your health is poor, so you don't want to wait for payments; you want to roll the money into your new employer's retirement plan; or you don't need the money but want to invest it for your heirs. To defer paying taxes on the money, roll it into your new employer's plan or into an Individual Retirement Account.
If you're an inexperienced or conservative investor, however, and will need that pension to help pay your basic bills, wait for retirement and take your money in the form of an income for life.
If you have a 401(k) or similar plan: Accounts worth $3,500 or less are usually paid out in cash. With larger accounts, you generally have two broad choices: Take the lump sum, or leave it invested in your ex-employer's plan.
If you take it and spend it, you'll owe income taxes on the money. There's also a 10 percent penalty if you're younger than 55. (That age applies only to withdrawals from your company plan after you retire, quit or are fired. If you have a personal retirement account, the 10 percent penalty applies until you reach 591/2.)
You can roll the money into an IRA or into your new employer's retirement plan, but be sure to ask for a ``direct rollover.'' That way, all your money will be transferred. If the check is payable to you, and you deposit it into an IRA, 20 percent will be withheld for income taxes. You'll have to add back that 20 percent out of your own pocket, then claim it as a refund on your tax return. If you don't add back the money when you start a new IRA, the 20 percent will be taxed as a withdrawal.
A tip on investing the money: Start with an IRA in a money-market mutual fund, where there's virtually no risk of loss. If you need cash to live on, take it from your IRA bit by bit. Once you're back on the job, you can switch the remaining IRA money into stock-owning mutual funds, for growth.
Alternatively, you may be able to keep the money in your ex-employer's plan - a good idea, if you like your investment choices there. But check the rules on when you can take the money out.
LENGTH: Medium: 80 linesby CNB