For those who received severance with the option of getting it installments or lump sum, which did you choose and why? Is there a benefit such as saving on taxes if one is picked over the other? Our dept hasn't been let go, yet, but feel like it might be very soon.
13 replies (most recent on top)
Insurance, insurance, insurance.
Poster above nailed it. If you have insurance through a new employer or through someone else in your household, your primary considerations are tax related. A big lump sum in one year may hurt a lot less than spreading that over 2 years.
Unsubsidized health and dental insurance is expensive. Carefully consider that before requesting that fat lump sum payment.
As for negotiating severance terms ... LOL. Good luck with that. I know a lot of people who have been displaced over the years. Nobody ever received a penny more than what their severance package laid out. I'm sure at a higher level there may be more flexibility but for regular business positions, Director level and below, there are no negotiations.
I also believe that the lump sum would be taxed at 25%, like bonuses. now if your tax rate is less than that you will get it back next tax filing but if your tax rate is greater than that you will need to pay the difference.
boiling it down, there are two considerations.
- health insurance - are you covered elsewhere - new employer, spouse's employer? then this one doesn't matter, move on to #2. If you aren't covered elsewhere: If you take payments over severence period you can still "buy" WF health insurance at the same price you do today - which is subsidized. If you take lump sum then you can elect cobra coverage - where you pay full, unsubsidized premiums to participate in the same plan. In the latter situation this may or may not be better than what you can find on the open market depending on what kind of coverage you want or need.
- taxes. if the lump sum pushes you into a higher marginal tax bracket for the year you take the payment - then you pay more in taxes than taking it over time.
@ga Its not the same price in every state and that was for the high end Medical, Dental, Vision, Legal and Life. My new Medical (which is a significantly better version of UHC is less than 10 a month for me, adding spouse made it 50. PER month. So yes, significantly cheaper!
there could be tax implications for taking a lump sum vs installments, ultimately depends on if the lump sum moves you into a different tax bracket or not.
$750 less? Wtf...my monthly is $250 for me and kids. And that's for the HRA plan, not HSA.
@dd It’s not cobra during severance. It continues to be their overpriced regular insurance.
@dd+1jw167wdc Nothing you’ve said is wrong per se, but we’re talking about free benefits continuance during severance not COBRA which comes after. Though the idea that a single individual could negotiate better COBRA rates such that counsel cost is subsidized via the savings is pretty sus.
Hard to say what fits your situation -- HR has to tell you exactly what COBRA health insurance will cost you. Reasonable Flat fee for Severance Agreement Review by an attorney is probably less than $500.
Take the lump sum and have taxes withheld. Many of the other replies are MISLEADING and probably WRONG when it comes to insurance -- i.e., health insurance coverage and/or COBRA subsidies are typically Negotiable in severance agreements -- so there is no reason to "take installments to continue health insurance coverage" -- you get COBRA coverage for up to 18 months. The relevant point is the COST of health coverage, so you would want to try to negotiate that as part of severance, or at the very least get the exact $ amount that COBRA will cost you.
I opted for installments. I took a few months off (while also collecting unemployment)and then got a job. The two paychecks were great! Saved a lot and paid off debt while I began moving my accounts, cash balance plan and 401k. Once I was able I got on my new employer’s insurance because it was significantly cheaper- 750.00 a month cheaper!
The grass IS greener away from WF.
If they don’t have a sweetener for the lump sum in recognition of their insurance savings, you could willfully not take the insurance at the new employer until severance runs out (check if that qualifies as a significant event as grounds for mid-year enrollment once it does) which may not be as good. I’d avoid the lump sum if I thought it was more expensive.
My understanding is insurance is one of the primary drivers of why you'd take lump sum versus the biweekly installments. If you don't have insurance through another company you'd want to keep it in installments so you continue to be covered. If you do have insurance, they'll give you the lump sum as they don't need to pay for insurance. Honestly if I get another position within the next month and start on the first day I am no longer employed with WF, I'm 100% taking the lump sum.