Expert: Ed McFarland - 6/8/2005

Question
my employer is laying off many of our employees and is giving a lump severence payout.  we are being told that there will be no money taken out for a 401k contribution and also therefore no company match.  it would seem that the payout should be treated exactly as a paycheck since every other deduction will be the same.  we have convinced them that they should make the 401k contribution for our vacation and sick pay we have accrued but they insist the severence is somehow different.  any thoughts?  would it make a difference that some are taking a voluntary layoff while others have no choice.  in either instance people are getting the same letter stating that the separation is due to lack of work.  thanks for any assistance you can give.  we are losing in excess of 200 good employees and i want them to get everything they deserve.  thanks again, david.

Answer
David,

Severance is different. For one thing in most states it is not a right unless you have union that bargained for it.

Realize that a layoff happens because of a lack of work and therefore a lack of money.

What I would do to make sure people don't hurt themselves financially is to get information about how to roll over their 401k into an IRA and the perils of avoiding a huge tax hit if people take out their retirement money ahead of time.

Good luck