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What to do once you've been handed a pink slip

For weeks my co-workers and I knew that layoffs in our Internet company's office were imminent. Our conversations never focused on if it was going to happen. Indeed, all speculation centered on trying to pin down when we'd be paid a visit by the human resources director and given our walking papers.

The running joke in the office was to tell a co-worker that the HR director was flying in from the home office to have a meeting with us in New York. A look of panic would seize the co-worker, and before he could say anything, you'd blurt out, "Just kidding." The co-worker would keep staring, and you'd have to say, "Really, I'm joking. The HR director isn't on her way."

The precariousness of our situation kept the joke relevant, and though it got old, it worked every time.

But when a senior VP stormed out of the elevator one fateful morning and announced that the HR director would be arriving in New York for a 1 p.m. meeting, we knew the day had arrived. He was the type that was paid enough not to joke.

No one really said anything. People just started gathering up their stuff and deleting personal computer files and e-mails.

Hugs and kisses it was not
A militaristic efficiency took over the second the HR director arrived. She immediately gathered everyone around the conference table, handed us individualized information packets explaining our severance packages, told us our computer access would be cut off within 30 minutes and told us to be out of the office by the end of the day. Hugs and kisses it was not. Again, no one really said anything, though the looming computer access cut-off instilled a greater sense of urgency to deleting personal computer files and e-mails.

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This isn't a unique story. Workers in the dot-com industry are being laid off in droves -- a recent study put the number at over 21,000 during the past year. These days, conversations around a dot-com office's water cooler, or perhaps the oft-photographed foosball table, are less about stock options and more about how unemployment insurance works.

Obviously, the top priority for a worker who has been laid off is to find a new job, but there are several other important matters to sort out and take care of once you've been handed a pink slip. Getting to the nearest bar as quickly as possible does count as an "important matter" in this circumstance, but first we'll focus on health insurance, your 401(k), unemployment insurance and those lovely "golden handcuffs" -- stock options.

COBRA won't bite, except into your wallet
This acronym, which derives from the Consolidated Omnibus Budget Reconciliation Act, has become part of the lexicon of the unemployed. COBRA is a federal law that allows you to continue your health care coverage after you leave your job. Here's the part that bites: You are responsible for paying the cost of the coverage, and there is a maximum continuation period of 18 months.

Kirsten Widner, a human resources professional who works in San Francisco, notes that you have 60 days to decide if you want to elect COBRA, and that within those 60 days, you can elect retroactively. This means that if you break your arm on the 59th day, you can elect COBRA and you will be covered. Break your arm on the 61st day, and you'll pay for that cast yourself.

"Generally, the savvy person doesn't elect COBRA unless they need it in that 60 days, because presumably you will find another job within 60 days and your new job is going to offer insurance coverage," she says. "If your new company's insurance picks you up quickly, then there's no point in having paid for it during those 60 days."

There are two circumstances under which you should not play the 60-day waiting game, Widner says.

"If you have a pre-existing condition, you want to elect COBRA immediately. A new medical carrier can exclude you from coverage for a pre-existing condition for 6 months to a year if you can't show that you've had continuous coverage," she says. "The other reason that you should elect immediately is if you plan to go overseas. You don't want to be trying to call and get COBRA activated retroactively if you're traveling."

Unemployment insurance
Each state has different eligibility requirements for unemployment insurance and benefits. Basically, if you've become unemployed through no fault of your own (such as being laid off) and you meet your state requirements for wages earned or time worked during a certain period, you likely will qualify for unemployment benefits.

Natalia Lincoln, one of my former co-workers, applied for unemployment the week after we got the boot.

"You should do it quickly because it takes your benefits a couple of weeks to start up," she said.

Lincoln said the application process was painless. Indeed, she didn't even have to stand in any lines, perhaps the most common image one conjures up when thinking of getting unemployment. In our part of New York, you can apply for unemployment over the phone. Her main recommendation is to make sure you have your federal taxes withheld. "Otherwise, you'll really get kicked in the rear at tax time."

One issue that keeps some from applying for unemployment has nothing to do with eligibility, and is more about a perceived stigma. Nelson Taylor, another of my former co-workers, hasn't yet applied for unemployment for precisely this reason.

"It makes you feel like you're on welfare," said Taylor. "Instead of being laid off, it makes you feel like you were fired."

Lincoln's attitude is more practical: "I didn't ask for this. Our department went belly up. That wasn't me being irresponsible; it's just how the chips fell. Plus, I pay taxes, and now I'm actually reaping a benefit of being a taxpayer. No one should feel bad about getting unemployment checks."

Visit the Department of Labor's Web site to get the details on eligibility requirements, as well as contact information, for the state in which you reside.

The 401(k) temptation
Now that your income has been cut off, the issue of money is front and center. The main thing here is not to make any rash decisions with your retirement money. It's not for rainy days, remember, but for your golden years.

"There's a temptation for a lot of people who have a 401(k) to take their money out of that when they are laid off, as a cushion, or just to get their money back," says Widner. "But there are huge tax penalties for doing that -- huge tax penalties. It's much better, if you can afford it, to leave your money in there and wait until you either get another job, so you can roll it over into your new company's 401(k) plan, or until you set up a personal IRA that you can roll it into."

One other thing: be sure to find out what kind of exit fees, if any, you'll have to pay to transfer your 401(k). Get the details from your HR director and a representative from the financial institution that manages your company's plan.

Stock options, with even fewer guarantees
If none of your options has vested, well, you've got no options. Not that your dreams of dot-com millions were going to come true anyway. But if you've reached a vesting point and have not yet exercised your options, ask your HR director how many days you have to make the purchase.

"If you're being laid off, then it's probably because the company is dealing with some financial issues. If your company is pre-IPO, then I would recommend waiting until the very end of that period. Because you want to see if they are able to make any financial turnaround as part of restructuring," Widner says.

Be sure to double-check the time frame your HR director specifies against the original paperwork you signed at the time you were awarded your options. Here's a major rub: If you decide to exercise your options, and your former pre-IPO company never goes public, your stock is almost guaranteed to be worthless.

Seeking new heights and reaching the bar
Finally, about the matter of getting to the nearest bar, briefly mentioned earlier. There's a natural tendency to let a depressive mood take over at down-and-out bar stool gatherings. Don't let that happen. Focus on the new opportunities that lie ahead.

If that's not working, even after a couple rounds, get ruthless and make fun of all that was wrong with the company that just sent you on your way. People will be raising glasses and laughing, and it will be hard to get a word in edgewise.

-- Updated: May 6, 2003

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See Also
How to save money when you are down and out
Survival tips for the unemployed
Want a job? Try vocational school
Financial advice glossary
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