Retirement and Health 

Care Coverage...

Questions and Answers 

for Dislocated Workers
This publication has been developed by the U.S. Department of Labor, 

Employee Benefits Security Administration (EBSA).

To view this and other EBSA publications, visit the agency’s Website at: 

dol.gov/agencies/ebsa. 

To order publications or speak with a benefits advisor, contact EBSA 

electronically at: askebsa.dol.gov.

Or call toll free: 1-866-444-3272 

This material will be made available in alternative format to persons with 

disabilities upon request: 

Voice phone: (202) 693-8664 

TTY: (202) 501-3911 

This booklet constitutes a small entity compliance guide for purposes of the Small 

Business Regulatory Enforcement Fairness Act of 1996.
RETIREMENT AND HEALTH CARE COVERAGE...QUESTIONS AND ANSWERS FOR DISLOCATED WORKERS

Table of Contents

Introduction 1

Protecting Your Health and Retirement Benefits 1

Maintaining Your Health Coverage 2

Enrolling in Another Plan 2

Special enrollment in a spouse’s plan

Continuing in Your Old Plan 4

Who offers COBRA coverage

Electing and paying for coverage

How long COBRA coverage lasts

Possible benefits for trade affected workers

Finding Individual Health Coverage 7

Health Insurance Marketplace

Medicaid and CHIP

Protecting Your Retirement Assets 9

Access to retirement funds

Consequences of early withdrawal

Safety of retirement assets

Summary 13

For More Information 14

RETIREMENT AND HEALTH CARE COVERAGE...QUESTIONS AND ANSWERS FOR DISLOCATED WORKERS 1

Introduction

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, What happens to my health 

benefits? Can I continue health coverage until I get another job? Do I have access to my retirement 

funds?

You may have rights to certain health and retirement benefit protections 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. You also may have more affordable or more 

generous options for health coverage available to you and your family through other group health 

plan coverage, such as through a spouse’s plan, the individual Marketplace and certain governmental 

programs. 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.

Protecting Your Health and 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 health and retirement plan participants and their beneficiaries. 

The Health Insurance Portability and Accountability Act (HIPAA) provides special enrollment rights 

in other group health coverage for workers and their family members (for example, in a spouse’s 

employer-provided plan). 

The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides workers with the right to 

continue their health coverage in their former employer’s plan for a limited time after they lose their 

jobs. 

The Affordable Care Act (ACA) also provides special enrollment rights for individual coverage 

in the Health Insurance Marketplace (Marketplace). The ACA includes additional health coverage 

protections for dislocated workers and their families. For example, group health plans and Marketplace 

plans cannot deny health coverage to individuals due to a preexisting condition. 

The following questions and answers explain these laws and how they may affect you.
2 U.S. DEPARTMENT OF LABOR

Maintaining Your Health Coverage

One of the first questions dislocated workers ask is: What happens to my health coverage? 

HIPAA, COBRA, and the ACA all provide ways 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 knowing your rights, you can make informed decisions that will keep you and your family covered. 

Even if you are healthy, you never know when you might need health coverage. You can pay a little 

now and save a lot later. And, if you don’t have minimum essential health coverage, you may have to 

pay a fee when you file your taxes. You also will have to pay all of the costs for your health care. If 

you are covered by an employer plan, any Marketplace plan, Medicare, Medicaid, CHIP, or certain 

other coverage, you will not have to pay the penalty. 

Enrolling in Another Plan

HIPAA – the Health Insurance Portability and Accountability Act – offers protections for people who 

lose their jobs and their health coverage. The law provides additional opportunities to enroll in a group 

health plan if you lose other coverage or experience certain life events and 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.

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, visit naic.org/state_web_map.htm for contact information for your state. 

The following questions explain how HIPAA can help you.

Q I’ve lost my job. Is there any way I can get health coverage for me and my 

family?

A One 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 members 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. 
RETIREMENT AND HEALTH CARE COVERAGE...QUESTIONS AND ANSWERS FOR DISLOCATED WORKERS 3

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. 

A special enrollment right also arises for employees and their dependents who lose coverage 

under a state Children’s Health Insurance Program (CHIP) or Medicaid or who are eligible to 

receive premium assistance under those programs. The employee or dependent must request 

enrollment within 60 days of the loss of coverage or the determination of eligibility for premium 

assistance. You may be eligible for assistance under CHIP or Medicaid to pay your group health 

premiums. For more information, see the chapter on Finding Individual Health Coverage on 

page 7.

Q What coverage will I get when I take advantage of a special enrollment 

opportunity?

A 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 than other 

individuals who enrolled when first eligible for the plan.

Q Can my new plan deny me coverage or benefits because I have a preexisting 

condition?

A Under the ACA, a group health plan cannot deny coverage to an individual due to a preexisting

condition. A plan generally cannot limit or deny benefits relating to a health condition that was 

present before your enrollment date in the plan. 

Q Can my new group health plan deny or charge me more for coverage based 

on my health status?

A 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 disability. 

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 employmentbased classifications, such as those who work part time or in another geographic area, and 

establish different benefits or premiums for those different groups.
4 U.S. DEPARTMENT OF LABOR

Continuing in Your Old Plan

Another way to maintain health coverage between jobs is to elect COBRA continuation coverage. 

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) 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.

Q Which employers are required to offer COBRA coverage?

A 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, including those that apply to insurers of employers with less than 20 

employees (sometimes called mini-COBRA). Check with your state insurance commissioner’s 

office to see if such coverage is available to you.

Q What if the company closed or went bankrupt and there is no health plan?

A 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 continued coverage.

Q How do I find out about COBRA coverage and how do I elect to take it?

A 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. 
RETIREMENT AND HEALTH CARE COVERAGE...QUESTIONS AND ANSWERS FOR DISLOCATED WORKERS 5

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.

Certain Trade Adjustment Assistance (TAA) Program participants have a second opportunity 

to elect COBRA continuation coverage. Individuals who are eligible and receive Trade 

Readjustment Allowances (TRA), individuals who would be eligible to receive TRA, but have 

not yet exhausted their unemployment insurance (UI) benefits, and individuals receiving benefits 

under Alternative Trade Adjustment Assistance (ATAA) or Reemployment Trade Adjustment 

Assistance (RTAA), and who did not elect COBRA during the general election period, may get 

a second election period. This additional, second election period is measured 60 days from the 

first day of the month in which an individual is determined eligible for the TAA benefits listed 

above and receives such benefits. For example, if an individual’s general election period runs 

out and he or she is determined eligible for TRA (or would be eligible for TRA but have not 

exhausted UI benefits) or begin to receive ATAA or RTAA benefits 61 days after separating from 

employment, at the beginning of the month, he or she would have approximately 60 more days 

to elect COBRA. However, if this same individual does not meet the eligibility criteria until the 

end of the month, the 60 days are still measured from the first of the month, in effect giving the 

individual about 30 days. Additionally, a COBRA election must be made not later than 6 months 

after the date of the TAA-related loss of coverage. COBRA coverage chosen during the second 

election period typically begins on the first day of that period. More information about the Trade 

Act is available at doleta.gov/tradeact/.

Q If I elect COBRA, how much do I pay?

A 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, 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. 

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 or pay the entire cost 

of health coverage, including COBRA coverage, for terminating employees and their families 

as part of a severance agreement. If you do receive this type of severance benefit, talk to your 

plan administrator about how this would impact your COBRA coverage and/or your special 

enrollment rights. 
6 U.S. DEPARTMENT OF LABOR

Q If I elect COBRA can I later enroll in a Health Insurance Marketplace plan? 

A If you elect COBRA continuation coverage, you will have another opportunity to request special 

enrollment in a Marketplace plan or new group health plan if you have a new special enrollment 

event, such as marriage, the birth of a child, or if you exhaust your continuation coverage. To 

exhaust COBRA continuation coverage, you must receive the maximum period of continuation 

coverage available (usually 18 months for job loss) without early termination. Keep in mind if 

you choose to terminate your COBRA coverage early or fail to pay your COBRA premiums with 

no special enrollment opportunity at that time, you generally will have to wait to enroll in other 

coverage until the next open enrollment period for the Marketplace or the new group health plan.

If you decide to change plans, you may want to keep your COBRA coverage until your 

Marketplace plan is effective to avoid a gap in coverage. 

Q When does COBRA coverage begin?

A 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.

Q How long does COBRA coverage last?

A Generally, individuals who qualify initially are covered for a maximum of 18 months, but 

coverage may end earlier under certain circumstances. Those circumstances include: 

n Premiums are not paid on time; 

n Your former employer decides to discontinue a health plan altogether; 

n You obtain coverage with another employer’s group health plan; or

n 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), an employee’s death or 

divorce, or when an employee’s child ceases to meet the definition of a dependent child under the 

health plan.

Q Who can answer other COBRA questions?

A 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 COBRA jurisdiction. 

More details about COBRA coverage are available at www.dol.gov/agencies/ebsa/laws-andregulations/laws/cobra and also are included in the booklet An Employee’s Guide to Health 

Benefits Under COBRA. To receive a copy or to speak to a benefits advisor, contact EBSA online 
RETIREMENT AND HEALTH CARE COVERAGE...QUESTIONS AND ANSWERS FOR DISLOCATED WORKERS 7

at askebsa.dol.gov or call 1-866-444-3272. For the telephone number of the nearest HHS office, 

call the Federal Citizen Information Center at 1-844-USA-GOV1 (872-4681) or visit usa.gov.

Possible benefits for trade affected workers

The Trade Adjustment Assistance (TAA) Program assists workers who have lost or may lose their 

jobs due to the negative effects of global trade. This program seeks to provide adversely affected 

workers with opportunities to obtain the skills, credentials, resources, and support necessary to become 

reemployed.

Through grants to states, workers who are part of a worker group that is covered by a certified TAA 

petition 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. For more information about the TAA 

Program, visit doleta.gov/tradeact/ or call the Department of Labor’s Employment and Training 

Administration at 1-877-US2-JOBS.

In addition, certain individuals may be eligible for a refundable Federal income tax credit that can help 

with qualified monthly premium payments. The Health Coverage Tax Credit (HCTC), while available, 

may be used to pay for specified types of health insurance coverage (including COBRA continuation 

coverage).

Those potentially eligible for the HCTC include workers who lose their jobs due to the negative effects 

of global trade and who are eligible to receive certain benefits under the Trade Adjustment Assistance 

(TAA) Program, as well as certain individuals who are receiving pension payments from the Pension 

Benefit Guaranty Corporation (PBGC). The HCTC pays 72.5 percent of qualified health insurance 

premiums, with individuals paying 27.5 percent. For more information on TAA, visit doleta.gov/

tradeact/.

Individuals who are eligible for the HCTC may claim the tax credit on their income tax returns at the 

end of the year. The tax credit also may be available as an advance monthly payment beginning in 

2017. Qualified family members of eligible TAA recipients or PBGC payees who enroll in Medicare, 

pass away, or finalize a divorce, are eligible to receive the HCTC for up to 24 months from the month 

of the event.

Individuals with questions about the Health Coverage Tax Credit should visit IRS.gov/HCTC.

Finding Individual Health Coverage 

The Health Insurance Marketplace is another way that workers who lose their jobs can find health 

coverage for themselves and their families. The Marketplace offers comprehensive health coverage 

and you may be eligible for a tax credit that will lower your monthly premiums and cost-sharing 

reductions that will lower your out-of-pocket costs for deductibles, coinsurance, and copayments. 

The Marketplace offers “one-stop shopping” to find and compare private health insurance and certain 

other options. In the Marketplace you can see what your premium, deductibles, and out-of-pocket 

costs will be before you make a decision to enroll. You can also choose between different categories 

and types of plans. 
8 U.S. DEPARTMENT OF LABOR

A Marketplace plan, like a group health plan, cannot deny you coverage due to a preexisting condition. 

A plan generally cannot limit or deny coverage or benefits relating to a health condition that was 

present before your enrollment date in the plan. Marketplace coverage may be state or Federally 

facilitated. 

Q When can I enroll in Marketplace health coverage if I lose my job?

A Losing your job-based health coverage is a special enrollment event which allows you to enroll 

in a Marketplace plan outside of the open enrollment period. To qualify for special enrollment, 

you must select a plan either within 60 days before losing your job-based coverage or within 60 

days after losing your job-based coverage. Keep any documentation you have of your current 

coverage and effective dates because you may need it when you request special enrollment in a 

Marketplace plan.

Additionally, every year (usually in mid-November), there is an open enrollment period when 

anyone can enroll in coverage in a Marketplace health plan. During open enrollment, you also 

can change from your current Marketplace plan to another Marketplace plan. Your insurance 

company will send you information about the updated premiums and benefits for your current 

plan so you can review and decide if you want to make changes. 

Q If I enroll in coverage through the Marketplace, when does coverage begin?

A The date your coverage will start depends on when you select a plan. For more information, 

visit HealthCare.gov.

If you need health coverage in the time between losing your job-based coverage and beginning 

coverage through the Marketplace (for example, if you or a family member needs medical 

care), you may wish to elect COBRA continuation coverage from your former employer’s 

plan. Electing COBRA will ensure you have health coverage until the coverage through the 

Marketplace begins. For more information, see the chapter on Continuing in Your Old Plan 

on page 4.

Q How do I apply for coverage through the Marketplace?

A You can apply for Marketplace coverage online or get more information at HealthCare.gov or 

by calling 1-800-318-2596 (TTY users should call 1-855-889-4325). Before you begin, preview 

plans and prices available in your area. 

Q When I get a new job, can I change my health coverage?

A When you get a new job, you can consider enrolling in your new employer’s group health plan 

if they offer one. Talk to your new employer about eligibility for the new plan, the benefits it 

offers, and how to enroll. If you have Marketplace coverage at the time you get a new job, 

consider how your new eligibility for employment-based group health coverage will impact any 

related tax credit you may have been receiving. Be sure to consider your new plan’s eligibility 

requirements, including any waiting period that applies, so that you have coverage in place until 

you enroll in your new plan.
RETIREMENT AND HEALTH CARE COVERAGE...QUESTIONS AND ANSWERS FOR DISLOCATED WORKERS 9

Medicaid and CHIP

When you fill out a Marketplace application, you also can find out if you and your family qualify for 

free or low-cost coverage from Medicaid and/or the Children’s Health Insurance Program (CHIP). 

Medicaid is a state-administered health coverage program for low-income families and children, 

pregnant women, the elderly, people with disabilities, and in some states, other adults. While the 

Federal government provides a portion of the funding and sets guidelines, states have choices in how 

they design their program so Medicaid varies by state. To find information on your state’s program, 

visit medicaid.gov/Medicaid-CHIP-Program-Information/By-State/By-State.html. 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 Children’s Health Insurance Program (CHIP), a 

Federal/state partnership that helps provide children with health coverage. States have flexibility in 

administering CHIP programs. They may choose to expand their Medicaid programs, design separate 

child health insurance programs, or create a combination of both. 

You can apply for and enroll in Medicaid or CHIP any time of year. If you qualify, your coverage can 

begin immediately. Visit HealthCare.gov or call 1-800-318-2596 (TTY 1-855-889-4325) for more 

information or to apply for these programs. You can also apply for Medicaid by contacting your state 

Medicaid office. To learn more about the CHIP program in your state, call 1-877-KIDS NOW (543-

7669) or visit insurekidsnow.gov on the Web.

Protecting Your Retirement Assets

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 investments.

Q Can I get my retirement money if I am laid off?

A 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, preestablished 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 
10 U.S. DEPARTMENT OF LABOR

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 administrator. 

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.

Q Is my plan required to give me a lump sum distribution?

A 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.

Q If I withdraw money before I retire, are there potential adverse effects?

A 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. 
RETIREMENT AND HEALTH CARE COVERAGE...QUESTIONS AND ANSWERS FOR DISLOCATED WORKERS 11

As the graph shows, if your money is left in the plan, it grows tax free until it is distributed, after 

20 years in this example. At that point, when the money is distributed to you, you pay taxes on it 

so your account balance decreases (see lower ending point in graph). On the other hand, if you 

remove your money from the plan initially, and do not roll it over into an IRA, then your account 

balance decreases during that initial year (see lower starting point in graph), as you pay taxes 

and a 10 percent penalty for withdrawing the money before age 591⁄2. After that, your account 

grows for the next 20 years but at a lower rate of growth, because you are paying taxes on your 

investment earnings. 

Let’s say, for instance, that you have $10,000 in a retirement plan account or IRA. Your money is 

invested in a mix of stocks and bonds that earns an average return on investment of 6.4 percent. 

In 20 years, your account will grow, with compounding, to $34,400. If you withdraw this amount 

after you reach age 591⁄2 (the age at which you can receive money without a 10 percent penalty) 

and pay 25 percent income tax on that amount, you will keep nearly $25,800. 

However, if you close your retirement plan account before age 591⁄2, your account balance will 

decrease from $10,000 to $6,500 after paying the 10 percent penalty and 25 percent income tax. 

In addition, your account grows for the next 20 years but at a lower rate of growth, because you 

are paying taxes on your investment earnings. As a result, the value of your account after 20 

years will be approximately $18,800, assuming the same rate of return and tax bracket. As shown 

in the graph, the tax consequences of early withdrawal will cost you 27 percent of your account 

balance at retirement. 
12 U.S. DEPARTMENT OF LABOR

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 performance.

Q If I am laid off, are my retirement funds safe?

A 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 dol.gov/agencies/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. Contact EBSA online at askebsa.dol.

gov or call 1-866-444-3272 to be connected to the office nearest you.

Q What if my company goes out of business and the retirement plan 

terminates?

A 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 of termination. 
RETIREMENT AND HEALTH CARE COVERAGE...QUESTIONS AND ANSWERS FOR DISLOCATED WORKERS 13

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.

Q What if the company declares bankruptcy?

A 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 complicated matter. 

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.

Summary

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 resource 

coordinator. 

n Summary Plan Description – A brief description of your retirement or health plan; 

n Summary of Benefits and Coverage – An easy-to-understand summary of your health plan 

coverage that is provided with a glossary of common terms;

n Summary Annual Report – A summary of the plan’s annual finances. The summary should contain 

names and addresses you may need to know; 

n Enrollment forms listing you and/or your family members as participants in a plan; 

n Earnings and leave statements; 

n Notices or letters showing the date your health care coverage ended or will end;

n 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.
14 U.S. DEPARTMENT OF LABOR

For More Information

The Employee Benefits Security Administration offers more information on HIPAA, COBRA, ACA, 

and ERISA. The following booklets, available by calling the agency’s toll-free number, may be 

particularly useful: 

n An Employee’s Guide to Health Benefits Under COBRA 

n Work Changes Require Health Choices...Protect Your Rights 

n What You Should Know About Your Retirement Plan

For copies of the above publications, please visit askebsa.dol.gov. Or call our toll-free number 

1-866-444-3272.

If you have specific questions pertaining to your rights to retirement or health benefits under HIPAA, 

COBRA, ACA, or ERISA, contact our benefits advisors electronically at askebsa.dol.gov or by 

calling toll free 1-866-444-3272. 

Your Guaranteed Pension and other information on terminated pension plans are available on the 

Pension Benefit Guaranty Corporation Website at pbgc.gov. Or call PBGC at 1-800-400-7242.

EMPLOYEE BENEFITS SECURITY ADMINISTRATION

UNITED STATES DEPARTMENT OF LABOR

September 2016