With the unemployment rate settling in at 9.4% in July, it should come as no surprise when a few of your clients tell you they've lost their jobs. As a planner, they'll look to you for the latest information on how termination will affect their benefits and taxes. You should be prepared to discuss which benefits an employer is required to continue and which ones they are not. Based on your clients' overall financial picture, you should make recommendations about which benefits they should choose to continue, factoring in both cost and stability.

COBRA BENEFITS

A terminated employee is entitled to continue benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA) for approximately 18 months. Two types of insurance are covered under COBRA, medical and dental plans. A terminated employee has 60 days to make a COBRA election that is retroactive.

In the past, former employees had to pay the full premium for continued coverage, although it was at the employer-negotiated group rate. Effective March 1, however, former employees only have to pay for about one-third of the full premium for up to nine months for themselves and their dependents. The federal government will pay the remaining two-thirds of the premium.

Despite the change, it remains costly to continue insurance under COBRA "COBRA is very expensive," says Rene Rosenberg, author of The Good Life After 50. "There may be cheaper alternatives, such as joining an association that offers members medical benefits."

Rosenberg adds that it's always better for clients to look into a networking association while they're still working. "Join a group you have an interest in anyway, such as the National Association of Female Executives, which offers health insurance to its members at a cheaper rate than COBRA."

Another option is to "look into your state's insurance plan," says Grace Beasley, Director of human resources at Bideawee, a New York-based animal welfare organization. "Every state should have a medical plan that you can join if you are out of work."

BENEFITS NOT COVERED

Life insurance is not covered under COBRA. Unlike with medical insurance, a group life insurance plan is usually much more expensive than purchasing an individual term policy. When a former employee converts a group plan into an individual plan, the premium goes up each year based on the employee's age, and the premium is usually more expensive than a standard term policy for that employee's age.

Planners must help unemployed clients decide whether they need insurance and, if so, how much. Then, planners need to take into account their age and health. If a client has health problems and is uninsurable, it makes sense to keep his or her life insurance if the client can afford the premiums.

COBRA also doesn't cover disability, so employees are not offered short-term disability as a benefit upon termination. As for long-term disability, it's up to the company to decide if it will continue coverage. Planners should look seriously at a client's age and health when recommending an individual disability plan. Finally, companies usually don't offer continuation of long-term-care insurance coverage when terminating an employee, since this coverage is expensive for companies to offer.

TAKING STOCK

In addition to health and life insurance, there are many benefits laid-off employees can negotiate with their former employers at termination. For example, whether stock options will continue after termination varies by company.

Benefits typically depend on what is written in the plan document. Some companies tell employees they have until a certain date to exercise; others give the employee an accelerated expiration. If an employee has internal stock options and leaves, he may convert to non-qualified stock options and therefore be taxed differently. In this situation, a planner not qualified to do stock options analysis must urge clients to see a tax advisor or other qualified planner.

In uncertain times, for job security, it makes sense for planners to recommend exercising and holding the stock, so the client does not lose the options. "As a general rule of thumb, it's a good idea for an employee to exercise options on a regular basis," says Mari Paul, a recruiter and founder of Life Science Leaders in Sacramento, Calif. "That way, it doesn't make the employer suspicious when the employee is exercising options."

Employee stock purchase plans (ESPPs) also vary from firm to firm. Some plans offer employees as much as a 15% discount to buy shares; others require a minimum holding period for the shares. Also, when an employee sells shares held for more than 12 months, some plans will tax the proceeds as long-term capital gains (LTCG). Some plans require the employee to hold the stock for two years from the offering period or, if disposition does not occur, one year after the shares are transferred. Planners should advise the employee to consult with a tax advisor on disposition and how the shares will be taxed.