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Plant and business closings,
downsizings, and reductions in hours affect
employees in numerous adverse ways. Workers lose income, the security of a
steady job and, often, the health and retirement benefits that go along with
working full time. As a dislocated worker, you may have many questions, some of
them concerning your health and retirement benefits. For instance, Do I have
access to my retirement funds? What happens to my health benefits? Can I
continue health coverage until I get another job?
You may have rights to certain retirement protections and health benefits
even if you lose your job. If your company provided a group health plan, you may
be entitled to continued health benefits for a period of time if you cannot find
a job immediately. When you find a new job, you may have fewer barriers to
health care coverage. And with a change in employment, you should understand how
your retirement benefits are affected. Knowing your rights can help you protect
yourself and your family until you are working full time again.
This booklet addresses some of the common questions dislocated workers ask.
In addition, there is a brief guide to additional resources at the back.
Together, they can help you in making critical decisions about your health care
coverage and your retirement benefits.
The Employee Benefits Security Administration (EBSA) enforces and administers
the Employee Retirement Income Security Act of 1974 (ERISA), which provides a
number of rights and protections for private-sector retirement and health plan
participants and their beneficiaries.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA)
provides important protections for millions of working Americans and their
families who need to maintain health coverage between jobs or limit exclusions
for preexisting conditions under a new health plan.
The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) provides
workers with the right to continue their health coverage for a limited time
after they lose their jobs.
The following questions and answers pertain to these laws and how they may
One of the first questions dislocated workers ask is: What happens to my
HIPAA and COBRA both may provide a way to continue coverage. Remember, you,
your spouse, and your dependents each have the right to decide among various
options for continuing health coverage. For instance, you may enroll in your
spouse’s plan while one of your dependents may elect COBRA coverage through
your former employer’s plan.
By acquainting yourself with HIPAA and COBRA, you can make informed decisions
that will keep you and your family covered.
HIPAA – the Health Insurance Portability and Accountability Act of 1996 –
offers protections for people who lose their jobs and their health coverage.
And, when you find a new job that offers health benefits, HIPAA will allow you
to enroll in the plan with fewer restrictions. The law’s umbrella of
Provides additional opportunities to enroll in a group health plan if you
lose other coverage or experience certain life events;
Limits the ability of a new employer’s plan to exclude coverage for
Prohibits discrimination against employees and their dependents based on any
health factors they may have, including prior medical conditions, previous
claims experience, and genetic information; and
Guarantees that certain individuals will have access to, and can renew,
individual health insurance policies.
For health coverage that is insured, HIPAA may be complemented by State laws
that offer additional protections. Check your plan documents or ask your plan
administrator to see if your plan is insured. If it is, contact your State
insurance commissioner’s office to see what your State law provides.
The following questions explain how HIPAA can help you.
Often, the most cost-effective option for maintaining health coverage is
special enrollment. If other group health coverage is available (for example,
through a spouse’s employer provided plan), special enrollment in that plan
should be considered. It allows the individual and his/her family an opportunity
to enroll in a plan for which they are otherwise eligible, regardless of
enrollment periods. However, to qualify, enrollment must be requested within 30
days of losing eligibility for other coverage.
After you request special enrollment due to your loss of eligibility for
other coverage, your coverage will begin on the first day of the next month.
You and your family each have an independent right to choose special
enrollment. A description of special enrollment rights should be included in the
plan materials you received when initially offered the opportunity to sign up
for the plan.
Special enrollment rights also arise in the event of a marriage, birth,
adoption, or placement for adoption. You have to request enrollment within 30
days of the event. In special enrollment as a result of birth, adoption, or
placement for adoption, coverage is retroactive to the day of the event. In case
of marriage, coverage begins on the first day of the next month.
Special enrollees must be offered the same benefits that would be available
if you were enrolling for the first time. You cannot be required to pay more for
the same coverage or have longer preexisting condition exclusion periods than
other individuals who enrolled when first eligible for the plan.
One of the most important things HIPAA does is help those people with
preexisting conditions get health coverage. Under HIPAA, a plan can look back
only 6 months for a condition that was present before the start of coverage in a
group health plan. If medical advice, diagnosis, care, or treatment was
recommended or received during that time for a condition, the plan can impose a
preexisting condition exclusion period. This means that the condition may not be
covered for a certain period of time. However, you will still be eligible for
the plan’s other benefits.
For example, you may have had arthritis for many years before you came to
your current job. If you did not have medical advice, diagnosis, care, or
treatment – recommended or received – in the 6 months before you enrolled in
the plan, then the prior condition cannot be subject to an exclusion period. If
you did receive medical advice, diagnosis, care, or treatment within the past 6
months, then the plan may impose a preexisting condition exclusion for
However, plans cannot apply preexisting condition exclusion periods to
pregnancy, genetic information, or conditions that are present in children who
are enrolled in health coverage within 30 days after birth, adoption, or
placement for adoption.
The maximum length of a preexisting condition exclusion period is 12 months
after your enrollment date (18 months if you are a late enrollee, who does not
sign up with the employer’s health plan at the first opportunity or through
special enrollment). Be aware that some plans may have a shorter exclusion
period or none at all.
Generally, you can reduce the length of a preexisting condition exclusion
period by proving you had prior health coverage, or “creditable coverage.”
Most types of coverage can be used as creditable coverage, such as participation
in a group health plan, HMO, COBRA, Medicare, Medicaid, or an individual
The maximum preexisting condition exclusion period under the plan is offset
and can be eliminated by the amount of your creditable coverage. As long as you
do not have a break in coverage of 63 days or more, your creditable coverage can
be used to reduce your preexisting condition exclusion period. Any coverage you
had prior to a break of 63 days or more will not count as creditable coverage.
For example, if you had 9 months of creditable coverage and did not have a
break in coverage of 63 days or more before enrolling in a new plan, your
preexisting condition exclusion period would be reduced from the maximum 12
months to 3 months. If, instead, you had 15 months of creditable coverage
without a break of 63 days or more, you could fully offset and eliminate the
If you are between jobs and do not have health coverage for 63 days or more,
then you may lose the ability to use the coverage you had before the break to
offset a preexisting condition exclusion period in a new health plan.
As long as any break is no longer than 63 days, you will not have a
significant break. You can count different periods of prior coverage you had to
accumulate 12 months of creditable coverage (18 months for late enrollees). For
instance, if you had 6 months of group health plan coverage and a 30-day break
in coverage, followed by 8 more months of coverage, both periods of prior health
coverage can be added together and counted. In this example you would have 14
months of creditable coverage to offset a preexisting condition exclusion
There are several ways. You can:
Special enroll in your spouse’s group plan if it allows family members to
Sign up for COBRA continuation coverage. You probably will have to pay for
this temporary coverage for yourself and any family members who were part of
your previous plan, but COBRA can prevent or reduce a break in coverage. To
learn more, see the chapter on COBRA below.
Buy an individual health insurance policy. See below.
Contact your State insurance commissioner’s office to find out whether your
State has a high-risk pool for people who cannot otherwise get health benefits.
You can offer proof through a “certificate of creditable coverage.” This
is a document that shows your prior periods of coverage, the dates on which they
began and ended, contact information for your old plan, and information about
your HIPAA rights. Upon losing health coverage, you should automatically receive
a certificate from your health plan, HMO, or health insurance company. You can
also request a certificate before you lose your coverage. HIPAA requires that
health plans issue certificates even if they do not exclude coverage for
Make sure the information is accurate. Contact the administrator of your
former plan if anything on the certificate is wrong.
Keep the certificate in a safe place in case you need it. It will be
necessary if your new group health plan imposes preexisting condition exclusion
periods or if you purchase an individual insurance policy.
If you have trouble obtaining a certificate, your new group health plan must
accept other evidence of creditable coverage, if you have it. It is important,
therefore, to keep accurate records that can be used to establish periods of
creditable coverage. That evidence can include:
Pay stubs that reflect a deduction for health coverage premiums;
Explanation of benefits forms (EOBs);
Copies of premium payments or other documents showing evidence of coverage;
Verification by a doctor or your former plan.
No. A health plan cannot deny you and your family eligibility or benefits
because of certain health factors. These health factors include: health status,
physical and mental medical conditions, claims experience, receipt of health
care, medical history, genetic information, evidence of insurability, and
The plan also cannot charge you more than similarly situated individuals
because of these health factors. However, the plan can distinguish among
employees based on bona fide employment-based classifications, such as those who
work part time or in another geographic area, and establish different benefits
or premiums for those different groups.
Another way to maintain health coverage between jobs is to elect COBRA
While dislocated workers may lose health coverage from their former employer,
they may have the right to continue coverage under certain conditions. Health
continuation rules enacted under COBRA (the Consolidated Omnibus Budget
Reconciliation Act of 1986) apply to dislocated workers and their families as
well as to workers who change jobs or workers whose work hours have been
reduced, thus causing them to lose eligibility for health coverage. This
coverage is temporary, however, and the cost may be borne by the employee.
To be eligible for COBRA coverage, you must have been enrolled in your
employer’s health plan when you worked and the health plan must continue to be
in effect for active employees. In addition, you must take steps to enroll for
COBRA continuation benefits.
Employers with 20 or more employees are usually required to offer COBRA
coverage and to notify their employees of the availability of such coverage.
COBRA applies to private-sector employees and to most State and local government
workers. In addition, many States have laws similar to COBRA. Check with your
State insurance commissioner’s office to see if such coverage is available to
If there is no longer a health plan, there is no COBRA coverage available.
If, however, there is another plan offered by the company, you may be eligible
to be covered under that plan. Union members who are covered by a collective
bargaining agreement that provides for a medical plan also may be entitled to
Employers or health plan administrators must provide an initial general
notice if you are entitled to COBRA benefits. You probably received the initial
notice about COBRA coverage when you were hired.
When you are no longer eligible for health coverage, your employer has to
provide you with a specific notice regarding your rights to COBRA continuation
benefits. Here is the sequence of events:
First, employers must notify their plan administrators within 30 days after
an employee’s termination or after a reduction in hours that causes an
employee to lose health benefits.
Next, the plan administrator must provide notice to individual employees and
their covered dependents of their right to elect COBRA coverage within 14 days
after the administrator has received notice from the employer.
Finally, you must respond to this notice and elect COBRA coverage
by the 60th
day after the written notice is sent or the day health care coverage ceased,
whichever is later. Otherwise, you will lose all rights to COBRA benefits.
Spouses and dependent children covered under your health plan have an
independent right to elect COBRA coverage upon your termination or reduction in
hours. If, for instance, you have a family member with an illness at the time
you are laid off, that person alone can elect coverage.
When you were an active employee, your employer may have paid all or part of
your group health premiums. Under COBRA, as a former employee no longer
receiving benefits, you will usually pay the entire premium -- that is, the
premium that you paid as an active employee plus the amount of the contribution
made by your employer. In addition, there may be a 2 percent administrative fee.
While COBRA rates may seem high, you will be paying group premium rates,
which are usually lower than individual rates.
Since it is likely that there will be a lapse of a month or more between the
date of layoff and the time you make the COBRA election decision, you may have
to pay health premiums retroactively -- from the time of separation from the
company. The first premium, for instance, will cover the entire time since your
last day of employment with your former employer.
You should also be aware that it is your responsibility to pay for COBRA
coverage even if you do not receive a monthly statement.
Although they are not required to do so, some employers may subsidize COBRA
Once you elect coverage and pay for it, COBRA coverage begins on the date
that health care coverage ceased. It is, essentially, retroactive. In addition,
the health care coverage you receive is the same as it is for active employees.
Generally, individuals who qualify initially are covered for a maximum of 18
months, but coverage may end earlier under certain circumstances. Those
Premiums are not paid on time;
Your former employer decides to discontinue a health plan altogether;
You obtain coverage with another employer’s group health plan; (There may
be some exception if your new employer’s health plan excludes or limits
benefits for a “preexisting” condition – basically a medical condition
present before you enrolled in the plan. Please see the discussion of HIPAA
You become entitled to Medicare benefits.
Employers may offer longer periods of COBRA coverage but are only required to
do so under special circumstances, such as disability (yours or a family member’s),
your death or divorce, or when your child ceases to meet the definition of a
dependent child under the health plan.
COBRA administration is shared by three Federal agencies. The Department of
Labor (DOL) handles questions about notification rights under COBRA for
private-sector employees. The Department of Health and Human Services (HHS)
handles questions relating to State and local government workers. The Internal
Revenue Service (IRS), as part of the Department of the Treasury, has other
More details about COBRA coverage are included in the booklet
Guide to Health Benefits Under COBRA. To receive a copy, call 1.866.444.EBSA
(3272). You can also be connected to the EBSA office nearest you at this number.
For telephone numbers of the nearest HHS and IRS offices, call the Federal
Information Center at 1.800.688.9889 or visit www.usa.gov.
The Trade Act of 2002 (TAA) created new programs that can assist certain
dislocated workers. TAA provides assistance to two groups: (1) workers who lose
their jobs due to the effects of international trade (TAA-eligible individuals)
and (2) retirees who are receiving benefit payments from the Pension Benefit
Guaranty Corporation because it has taken over their pension plan (PBGC-eligible
Through grants to states, TAA-eligible individuals may be eligible for
training, job search and relocation allowances, and income support while in
training. TAA funds are allocated to states throughout the year. To check on the
status of TAA in your state, visit www.doleta.gov/tradeact or call the
Department of Labor TAA Call Center at 1.877.US2.JOBS.
In addition, TAA created the Health Coverage Tax Credit (HCTC), an
advanceable tax credit of up to 65 percent of the premiums paid for certain
types of health insurance coverage (including COBRA coverage). The HCTC may be
available both to TAA-eligible individuals and to PBGC-eligible individuals who
are at least 55 years old but not yet eligible for Medicare.
Individuals who are eligible for the HCTC may choose to have the amount of
the credit paid on a monthly basis to their health coverage provider as it
becomes due or may claim the tax credit on their income tax returns after the
end of the year.
For questions about eligibility for the TAA tax credit for qualified health
insurance coverage, call the HCTC Customer Contact Center at 1.866.628.HCTC (TDD/TTY:
1.866.626.HCTC (4282)). You may also visit the HCTC Web site online at
www.irs.gov by entering the keyword “HCTC.”
You can buy your own individual health insurance policy whether you quit your
job, were fired, or were laid off. HIPAA guarantees access to individual
insurance policies and State high-risk pools for eligible individuals. You must
meet all of the following criteria:
Had coverage for at least 18 months, most recently in a group health plan,
without a significant break;
Lost group coverage, but not because of fraud or non-payment of premiums;
Are not eligible for COBRA continuation coverage or have exhausted COBRA
Are not eligible for coverage under another group health plan, Medicare, or
Medicaid, or have any other health coverage.
The type of health coverage you are guaranteed may differ from State to
State. Check with your State insurance commissioner’s office if you are
interested in obtaining individual coverage.
In addition, children in families who do not have health coverage due to a
temporary reduction in income (for instance, due to job loss) may be eligible
for the State Children’s Health Insurance Program (S-CHIP), a Federal/State
partnership that helps provide children with health coverage.
States have flexibility in administering S-CHIP programs. They may choose to
expand their Medicaid programs, design new child health insurance programs, or
create a combination of both. To find out more about the program in your State,
call 1.877.KIDS NOW (1.877.543.7669) or visit www.insurekidsnow.gov on the Web.
The Employee Retirement Income Security Act of 1974, or ERISA, protects the
assets of millions of Americans so that funds placed in retirement plans during
their working lives will be there when they retire.
ERISA does not require that retirement benefits be disbursed before normal
retirement age, usually age 65. By that age, an employee is usually “vested”
in a retirement plan—that is, the employee has earned the right to retire with
benefits which cannot be forfeited.
Dislocated workers face two important issues when they leave employment:
access to retirement funds and the continued safety of their retirement plan
Generally, if you are enrolled in a 401(k), profit-sharing, or other type of
defined contribution plan (a plan in which you have an individual account), your
plan may provide for a lump sum distribution of your retirement money when you
leave the company.
However, if you are in a defined benefit plan (a plan in which you receive a
fixed, pre-established benefit), your benefits begin at retirement age. These
types of plans are less likely to allow you to receive money early.
Whether you have a defined contribution or a defined benefit plan, the form
of your retirement plan distribution (lump sum, annuity, etc.) and the date your
benefits will be available to you depend upon the provisions contained in your
plan documents. Some plans do not permit distribution until you reach a
specified age. Other plans do not permit distribution until you have been
separated from employment for a certain period of time. In addition, some plans
process distributions throughout the year and others only process them once a
year. You should contact your plan administrator regarding the rules that govern
the distribution of your benefits.
One of the most important documents defining your benefits is the Summary
Plan Description (SPD). It outlines what your benefits are and how they are
calculated. A copy of the SPD is available from your employer or retirement plan
In addition to the SPD, your employer also should give you—or you may
request—an individual benefit statement showing, among other things, the value
of your retirement benefits, the amount you have actually earned to date, and
your vesting status. These documents contain important information for you,
whether you receive your money now or later.
ERISA does not require that retirement plans provide lump sum distributions.
Lump sum distributions are possible only if the plan documents specifically
provide for them.
Yes. Receiving a lump sum or other distribution from your retirement plan may
affect your ability to receive unemployment compensation. You should check with
your State unemployment office.
In addition, withdrawing money from your retirement plan may result in
additional income tax. You can defer these taxes, however, if you keep the money
in your plan or if you “roll over” the money into a qualified retirement
plan or Individual Retirement Account (IRA). There are provisions in the
Internal Revenue Code that allow these rollovers.
Generally, your plan must withhold 20 percent of an eligible rollover
distribution for tax purposes. However, in the case of a “direct rollover”
where you elect to have the distribution paid directly to an eligible retirement
plan, including an IRA, there is no tax withholding, and the full amount of your
eligible rollover distribution is paid into the new eligible retirement plan. If
you do not elect a direct rollover, you will have to make up the 20 percent
withholding to avoid tax consequences on the full rollover amount. The Internal
Revenue Service does not require a 20 percent withholding of an eligible
rollover distribution that, when added to other rollover distributions made to
you during the year, is less than $200.
Under IRS rules, and in order to avoid certain tax consequences, you have 60
days to roll over the distribution you received to another qualified plan or
IRA. If you have a choice between leaving the money in your current retirement
plan or depositing it in an IRA, you should carefully evaluate the investments
available through each option.
Withdrawing money from your plan before retirement age also affects the
amount of money you will accumulate over time. The graph below shows the
consequences of receiving money from your retirement plan and not depositing it
in another qualified plan within the required time limit.
As the graph shows, your plan keeps the full amount it earns through
investments because its earnings are not fully taxed (until you receive a
distribution). As a result, retirement plan accounts can grow faster than
comparable taxable accounts (see graph). Let’s say, for instance, that you
have $10,000 in a retirement plan account or IRA, and it earns an average return
on investment of 10 percent. In 20 years it will grow, with compounding, to
$67,300. If you withdraw this amount after you reach age 59½ (the age at which
you can receive money without a 10 percent penalty) and pay 28 percent income
tax on that amount, you will keep $48,400.
On the other hand, if you close your retirement plan account before age 59½,
taxes will claim a portion of the funds you receive and will reduce your return
every year thereafter. As a result, the value of your account after 20 years
will be approximately $24,900, assuming the same rate of return and tax bracket.
As shown in the graph, the tax consequences of early withdrawal will cost you 45
percent of your account balance at retirement.
Before you request retirement funds from the plan, you should talk to your
employer, bank, union, or financial adviser for practical advice about the
long-term and tax consequences.
If you receive retirement funds, you may want to hire someone to manage your
money. The law generally requires money managers to be clear and open about
their fees and charges and to explain whether they are paid by commissions or
for the sales of financial products, such as annuities and mutual funds. Ask
questions, get references, and avoid anyone who guarantees good investment
Generally, your retirement funds should not be at risk even if a plant or
business closes. Employers must comply with Federal laws when establishing and
running retirement plans, and the consequences of not prudently managing plan
assets are serious.
In addition, your benefits may be protected by the Federal government.
Traditional pension plans (defined benefit plans) are insured by the Pension
Benefit Guaranty Corporation (PBGC), a Federal government corporation. If an
employer cannot fund the plan and the plan does not have enough money to pay the
promised benefits, the PBGC will assume responsibility as trustee of the plan.
The PBGC pays benefits up to a certain maximum guaranteed amount.
Defined contribution plans, on the other hand, are not insured by the PBGC.
If your retirement benefit remains with your former employer, keep current on
any changes your former employer makes, including changes of address, mergers,
and employer name. If you move, give the plan your new contact information.
To help employees monitor their retirement plans and thus ensure retirement
security, EBSA has issued a list of 10 warning signs that may indicate your plan
has financial problems. They are included in the guide Ten Warning Signs That
Your 401(k) Contributions Are Being Misused, available at www.dol.gov/ebsa.
If, for any reason, you suspect your retirement benefits are not safe or are
not prudently invested, you should pursue the issue with an EBSA regional
office. Call 1.866.444.EBSA (3272) to be connected to the office nearest you.
In a defined contribution plan, the plan administrator generally gathers
certain retirement plan and tax-related information and submits it to the IRS.
This process may delay plan termination and subsequent payment of any benefits.
You should contact your plan administrator for information on status and length
of time before you receive your money.
In a defined benefit plan, the plan administrator generally files certain
documents with the IRS and the PBGC. Once the PBGC approves the termination,
benefits are generally distributed in a lump sum or as an annuity within 1 year
Regardless of the type of benefit plan, you should know the name of the plan
administrator. This information is contained in the latest copy of your Summary
Plan Description. If you can’t find the name of your plan administrator, you
may wish to contact your company’s personnel department, your union
representative (if there is a union), or the IRS or PBGC (in the case of most
defined benefit plans).
If you do decide to contact one of these agencies, you may need to know your
employer’s identification number, or EIN, a 9-digit number used for tax
purposes. The EIN can be found on last year’s wage tax form (Form W-2). An
EBSA regional office may be able to help you obtain this information.
If an employer declares bankruptcy, there are a number of choices as to what
form the bankruptcy takes. A Chapter 11 (reorganization) bankruptcy may not have
any effect on your retirement plan and the plan may continue to exist. A Chapter
7 (final) bankruptcy, where the employer’s company ceases to exist, is a more
Because each bankruptcy is unique, you should contact your plan
administrator, your union representative, or the bankruptcy trustee and request
an explanation of the status of your plan.
Know in advance the plan rules that govern the way your retirement plan
assets and health care benefits are treated if you are laid off. The following
documents contain valuable information about your health care and retirement
plans and should be helpful to you as a dislocated worker. You should be able to
obtain most of them from your plan administrator, union representative, or human
Summary Plan Description -- A brief description of your retirement or health
Summary Annual Report -- A summary of the plan’s annual finances. The
summary should contain names and addresses you may need to know;
Enrollment forms listing you and/or your family members as participants in a
Earnings and leave statements;
Certificates of creditable coverage (furnished by your former employer(s)) --
Informs your new employer that you had health coverage;
Statements showing how much money is in your retirement plan account or the
value of your retirement benefits.
Save these documents, as well as memos or letters from your company, union,
or bank, that relate to your retirement or health plans. They may prove valuable
in protecting your retirement and health benefit rights.
The Employee Benefits Security Administration offers more information on
HIPAA, COBRA, and ERISA. The following booklets, available by calling the agency’s
toll-free number, may be particularly useful:
Your Health Plan and HIPAA...Making the Law Work for You
An Employee’s Guide to Health Benefits Under COBRA
Work Changes Require Health Choices...Protect Your Rights
What You Should Know About Your Retirement Plan
Your Guaranteed Pension (PBGC)
For copies of the above publications, please
call our toll-free number 1.866.444.EBSA (3272)
Your Guaranteed Pension and other information on terminated pension plans are
available on the Pension Benefit Guaranty Corporation Web site at www.pbgc.gov
or call PBGC at 202.326.4000.
For specific questions pertaining to your rights to retirement or health
benefits under HIPAA, COBRA, or ERISA, please contact the EBSA regional office
nearest you. To locate regional offices, call 1.866.444.EBSA (3272) or visit EBSA’s
This publication has been developed by the U.S. Department of Labor, Employee Benefits Security Administration. For a complete list of EBSA publications, call toll-free at: 1.866.444.EBSA (3272). This material will be made available in alternate format upon request: Telephone: 202.693.8664, Text Telephone: 202.501.3911.
This booklet constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.