Leave The Boom & Bust At Work

LEAVE THE BOOM & BUST AT WORK A Three Part Series Outlining A Blow-Out In The Energy Industry And Options For Your Career & Retirement Plans Erik Dullenkopf, CFP®

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he Oil & Gas Industry has seen some hard times since the significant decrease in the price of oil in late 2014. This has had major implications for companies globally, locally, and most importantly for the clients we serve. The result has been a series of large mergers, sales, spinoffs, restructuring and lay-offs. Although this is part of a natural cycle for a commodities based industry with a history of boom and bust periods, the disruptions are never easy for employees of the industry. Over this last couple of years I have gone through this intimately with many clients and I have learned a lot as we navigated these changes together.

With the expectation of continuing change ahead, I wrote a three part series of articles called ‘Leave the Boom & Bust At Work,’ identifying some common decisions and strategies one may want to consider when facing a reduction in workforce. These articles include a case study and real-life examples of how to optimize and even take advantage of this type of situation, including: • • • • •

What to look for in a severance package Options for your 401k Adjusting to a new cash-flow Continuing your health and life insurance Strategies for your employer stock

These articles will be featured on the Screaming Eagle Wealth Management website, social media & PDF form for distribution to those that need them. I encourage you all to read the articles and share them with friends, family and colleagues that may find them useful at a challenging point in time.

Announcements from major oil companies indicate many more layoffs will coming in the near future and I feel it is my obligation as a member of the oil & gas community to share what I have learned from my experiences so that employees facing a forced retirement can feel confident in their future.

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LEAVE THE BOOM & BUST AT WORK A blow-out can happen at any time in the energy industry. Don’t let your guard down when it comes to your career and retirement plans.

First article in a series.

KEY TAKEAWAYS • Be prepared for the inevitable changes that come with the boom and bust nature of a commodities-based industry.

• Have easily accessible savings outside of your retirement in case of an emergency.

• Spend some time getting your financial house in order before surprises hit.

• Take full advantage of rich employee benefits that oil & gas industry employers provide.

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. Boone Pickens, the corporate raider and oil industry disruptor once said: “It’s important to show a new look periodically. Predictability can lead to failure.”

Many of you have made a great living by working hard, keeping your skills sharp, by helping your company innovate, and by staying ahead of the curve in the always-volatile oil and gas industry. But, while uncertainty and speculation is part of your working life, you don’t want that instability disrupting your retirement plan and family’s well-being. As many of you know, life circumstances change all the time and retirement planning is not a one-and-done exercise.

The following case study involves hypothetical couples, with various realistic experiences. Due to the complexity of each scenario, we have combined them and are providing the solutions that were most applicable to their situation. The strategies provided may not be specific or applicable to your situation.

Just the other day, John and Mary came in to see me. Before they sat down, I could tell from the look on their faces that they were concerned. John and Mary are normally an

upbeat, energetic couple in their early 60s. Not today.

We started working together about a year ago to develop a comprehensive retirement and wealth management plan.

We had an in-depth conversation about how much longer John wanted to work at his job as a highly-compensated reservoir engineer at a major oil company. Mary was recently retired.

We went through our Consultative Wealth Management Process and identified the couple’s ability to achieve these goals and then built an action plan from there. Based on their nice income and good savings habits, they were in very solid shape. But, things had changed.

YOU NEVER KNOW WHAT LIFE WILL THROW AT YOU About a year after our first meeting, John’s company went through a restructuring due to a protracted slump in oil prices. (Refer to image on next page)  Many longstanding employees like John were asked to retire earlier than originally planned. It’s never easy for any employee to go through a layoff or forced retirement, especially for older workers who haven’t

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• Adjusting the couple’s risk profile to be more in line with their new stage of life.

• Consolidating various retirement accounts for ease of management.

• Reducing the couple’s exposure to a $200,000 concentrated stock position (from past employer company stock) that accounted for over 13 percent of their overall liquid assets.

• Utilizing net unrealized appreciation (NUA) to been on the job market in decades. reduce the tax consequences of employer stock in John’s retirement account.

Needless to say, this news caught John and Mary off guard. John did receive a generous severance package that • Maximizing the contribution to John’s 401(k) and health savings account (HSA) before John was included more than half of his $225,000 annual salary, officially let go from his company, and plus his $50,000 bonus and $30,000 in accumulated • Working with a CPA to discuss other ways to reduce John vacation and sick pay. He also received $150,000 in employer stock from his restricted stock units accelerating and Mary’s tax liability in the current year. Again, they were facing an abnormally high income year due to the lump their vesting. Due to John’s severance package, we knew sum severance John received from his ex-employer. it would be an unusually high tax year for the couple.

In addition to the above, we would review the couple’s We also knew that neither John nor Mary wanted to go out and find another job. So, we re-evaluated the couple’s estate plan for updates due to changes in their family structure. We would work with a health insurance financial plan and their ability to achieve all the things specialist to evaluate the best coverage option for the that were originally important to them. couple before they turned 65. We would also design a long term care (LTC) insurance policy for John and MAPPING OUT RETIREMENT GOALS Mary, review their auto and home insurance with their If nothing else, John and Mary felt strongly about P&C agent, increase the coverage on their umbrella maintaining their standard of living throughout policy and increase the deductibles on their auto and retirement and leaving a small legacy to their home to reduce their premium. Finally, we would grandchildren. They wanted to move from California determine a sustainable tithing level and look at special to Texas to be closer to John’s elderly father. They also cash and non-cash donations that the couple could wanted to build a house near John’s dad and buy a small airplane so they could more easily make frequent make to their church in their current high income year. trips back to California where the majority of their ADVANCED PLANNING IN ACTION family still resides. Finally, they wanted to travel, to If you are familiar with our firm’s process, you’ll notice support their grown children and grandchildren as that the steps we took with John and Mary above needed and to continue donating to their church and involved the 5 key components of advanced planning: to charities that are important to them.

1. Wealth Preservation 2. Wealth Enhancement SOLUTION 3. Wealth Transfer Given all the factors at work, including John’s 4. Wealth Protection unexpected early retirement, a number of strategic 5. Charitable Giving adjustments to their plan would need to be made (see below):

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By following our Consultative Wealth Management Process, John and Mary have retired earlier than expected and haven’t looked back. In addition to settling into their new plane and home in Texas, they’re busy fixing up their California residence so they can start renting it out for additional income. Finally, they’re planning a trip to Mexico and will bring along their children and grandchildren.

WHAT TO LOOK FOR IN A SEVERANCE PACKAGE John and Mary were smart—and a little bit lucky. John essentially received a “golden handshake” from his former company and we helped him make the most of it. Not everyone is so lucky. If you are impacted by a restructuring, you may not be thinking 100-percent clearly as so many anchors in your normal routine have been disrupted. Take the time to review your options carefully and don’t agree to anything (verbally or in writing) that you don’t understand. If nothing else, make sure you: • Max out your 401(k) & HSA. • Evaluate your options for your 401(k).

• Review your risk tolerance and exposure to concentrated stock positions.

• Take advantage of outplacement services or other

assistance your employer provides to update your resume and prep for new job interviews.

• Ensure continuous health insurance coverage through either your spouse, COBRA or a Covered California plan.

CONCLUSION In my next article, we’ll take a closer look at these and other important severance considerations. I learned from my late father the value of always preparing for the unexpected. When my father passed away suddenly in 2005, his thriving aviation business was forced to close. However, thanks to dad’s advance planning, our family was well taken care of. By naming our practice Screaming Eagle Wealth Management, I am hoping to keep the spirit of my father’s hard work and foresight alive for years to come.

If you or someone close to you is concerned about a layoff, restructuring or early buyout at your company, please don’t hesitate to contact us and we’d be happy to set up an appointment for you.

Commonwealth Financial Network® or Screaming Eagle Wealth Management do not provide tax or legal advice. Please consult a tax or legal professional for advice regarding your specific situation. Erik P. Dullenkopf, CFP® (CA Insurance license #0F97513) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Screaming Eagle Wealth Management.

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LEAVE THE BOOM & BUST AT WORK: PART TWO IN A THREE PART SERIES Don’t let layoffs and restructurings derail your retirement plans and life goals. Look at these six considerations.

KEY TAKEAWAYS • Consider taking your career in a different direction.

• Always consider the result of your decisions on an after-tax basis.

• Weigh new options for your 401(k) and pension carefully--these may be the largest assets you own.

• Take advantage of ALL benefits and options to which you are entitled during this stressful transition in your life.

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s we discussed in Part 1 of this series, boom and bust cycles have long been part of the energy industry’s DNA. Yet workforce reductions still catch many workers (and their families by surprise). While most companies have a welldefined severance process, to jolted workers, it can seem like a whirlwind of rumors, HR-speak and forms to sign when you are not thinking 100 percent clearly.

Take the time to review your options carefully and don’t agree to anything (verbally or in writing) that you don’t understand.

As the HR manager for a global energy company confided to me recently, mid-career employees are especially vulnerable since they’re far from retirement, but don’t have the flexibility and mobility of younger workers. “They may find themselves unsure of the job market available to them,” she said, “and they will really

need to figure this out quickly and make sure they have a network to find new opportunities.” If they aren’t successful, she said they should be prepared to for a period of unemployment, belt tightening and possibly downsizing their homes, she added. Don’t let this happen to you.

REAL WORLD EXAMPLE Recently, a 57 year-old client of ours knew he was on the verge of receiving an 18-month severance package.

“When it runs out,” he told me at the time,“I’ll be almost 59. I’ve got a lot of money saved up, but I don’t

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think I’ll quite get there (retirement) if I stop working now. I don’t want to be in my late 50’s, trying to find a job, just so I can work for another three to four years.”

payroll (with benefits), but were only required to come to the office at their employer’s discretion. If you’re not familiar with the WARN Act, it’s a US labor law requiring most employers with 100 or more employees In many industries, including yours, it’s a vicious cycle. to provide 60 calendar-day advance notification of If Company A is letting folks go due to depressed oil plant closings and mass layoffs of employees. The prices, Company B and Company C are letting folks company will maintain their regular paychecks and go for the same reason. It puts displaced workers in a then start the severance compensation after the 60-day difficult spot, especially those in the mid to later stages WARN period ends (either via lump sum payment or of their careers. They are highly experienced and very payout over time) depending on company policy. knowledgeable, but during a downturn, few companies While 401(k) contributions are not taken out of your are hiring. They need to decide ASAP if: severance paycheck(s), those contributions CAN be 1. They have accumulated sufficient assets and made while you are still receiving regular paychecks income to retire early. during the two-month transition period. MAX out 2. They’ll change industries and try to apply their those contributions while you still can! Our two skill-set to a healthier sector of the economy. aforementioned clients sure did.

3. They’ll go to work for a smaller independent

producer.

They received regular paychecks during January and 4. They’ll become an independent consultant to February of this year before starting severance on the industry. It’s not unusual for laid-off workers to March 1. So, we substantially increased their 401(k) get hired back as consultants by the same company contribution percentage to well over 50-percent of that let them go. each paycheck during January and February. That way, they could achieve their full year contribution of 6 KEY SEVERANCE CONSIDERATIONS $18,000 for 2017 ($24,000 if over age 50).

Primer on severance packages By law, severance packages should include a By the way, you can do the same-thing even if your payout of your accrued sick days and accrued termination starts mid-year or later. Just do a little vacation days. At most companies, severance is math with you advisor and then make the appropriate typically based on the length of your employment (see changes through your company’s 401(k) website. If you examples below). It can be paid as a lump sum or as a have a Health Savings Account (HSA), do the exact continuation of salary spread out over several months. same thing. NOTE: The 2018 annual contribution limit that individuals with single medical coverage can contribute to a HSA is $3,450, a $50 increase from 2017. For those covered under qualifying family medical plans, the annual HSA contribution limit is $6,900 (up from $6,750 in 2017).

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Heed the WARN period Two of our clients were let go on December 31st of last year. As per the WARN Act, there was a period of 60 days in which they remained on the

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Adjust to keep standard of living the same with new

cash flow Once your severance begins, you will no longer have 401(k) contributions taken out of your pay, regardless of whether you receive your final salary in a lump sum or bi-weekly paychecks. Your final compensation will

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be taxed at a higher rate if the total amount of taxable income, minus tax deductions, is higher than it was in a previous year. You may notice more money going into your checking account every month. Caution!

That doesn’t mean you should start living a more lavish lifestyle. Instead, start saving the amount that would have gone into your 401(k) account while you were working. You need to sock that amount away somewhere safe and avoid spending it. You should be using that severance money to build up your retirement savings even if the money’s not technically in a retirement account.

Build up a cash emergency fund of at least three to six months’ worth of expenses. Consider a money market account with the most competitive rate which can be found on various online banks listed at bankrate.com.

After your emergency fund is full, open a “taxable” (non-retirement) investment account invested with the time horizon specific to this account in mind. Don’t invest in stock markets if your time horizon is less than three years. It’s not worth the risk.

Review the three basic options for your 401(k) with your advisor (image below)

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Take advantage of outplacement services Many companies that go through large layoffs and restructurings will hire outplacement firms to help displaced workers re-write their resumes, work on interview skills and often provide some direction about where to find a new job. It costs you nothing to attend.

You should take advantage of this benefit, even if you don’t plan to go back to work right away or if you want to become a consultant or contractor.

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Apply for unemployment benefits Clients of ours have been through this before.

After their severance ran out, they were eligible to receive unemployment benefits—even if they were retired and never planned to go back to work. Some highly compensated workers may feel uncomfortable about applying for unemployment, but you paid into the system throughout your working life, so you might as well collect it. Just make sure you know the rules if you start doing consulting work or temporary contract work during a time when you are collecting unemployment benefits. If you’re not sure, check with the Employment Development Department (EDD).

In California, the maximum benefit is $450 per week

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for 12 to 26 weeks. Also remember, unemployment benefits are taxable. You must certify every two weeks (online or via phone) your job-finding activity. Benefits stop if you get hired, start a business or start doing consulting work.

CONCLUSION Layoffs are never easy, regardless of your age, industry or stage of career. But, by maintaining your composure

and keeping the big picture in mind, you can substantially increase your odds of finding your next great career opportunity or getting a rewarding jump start on your retirement. Next time we’ll discuss ways to continue your health insurance, and to prepare for potential larger medical bills in retirement. We’ll also discuss treatment of employer stock and net unrealized appreciation considerations.

Commonwealth Financial Network® or Screaming Eagle Wealth Management do not provide tax or legal advice. Please consult a tax or legal professional for advice regarding your specific situation. Erik P. Dullenkopf, CFP® (CA Insurance license #0F97513) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Screaming Eagle Wealth Management.

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LEAVE THE BOOM & BUST AT WORK: PART THREE IN A THREE PART SERIES Maintaining your health insurance, life insurance and appreciated employer stock if you are asked to leave your company voluntarily or otherwise

KEY TAKEAWAYS • Make sure your health insurance coverage is seamless and that you have a policy with benefits and a

premium that’s ideal for you.

• If you still need life insurance, your best option depends heavily on your medical history.

• Don’t let your retirement success depend solely on the stock price of your employer.

• Work with a professional to determine whether utilizing Net Unrealized Appreciation is right for you.

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n Part 1 of this article series, we discussed the importance of getting your financial house in order before unfortunate surprises hit. This includes knowing what to look for in a severance package and building accessible savings outside of your retirement account if you are impacted by a layoff or other life emergency. In Part 2 we discussed six key financial considerations when you are impacted by a workforce reduction. Here we will discuss ways to maintain your health and life insurance coverage if you lose your job.

We will also discuss ways to get the most out of your accumulated employer stock.

CONTINUE HEALTH INSURANCE If you lose your job in the later stages of your career, you will have some important healthcare decisions to make. That’s because Medicare does not kick in until age 65. If you are still working at age 65 or older, then you don’t have to participate in Medicare and you can continue to use your group plan. But if you are laid off BEFORE age 65—or if you decide to retire before 65-then you may be asking yourself: “How am I going to fill in that gap?”

Option 1: Take advantage of your former employer’s retiree medical plan if it has one. A retiree medical plan is a generous benefit. Just be aware that certain eligibility requirements come into play. For instance, some companies use a “points” system to determine whether or not you qualify. You may need a minimum of 80 points to qualify (i.e. age 60 + 20 years of service or age 57 + 23 years of service). If you do qualify, then for the next five years, you can stay on your former employer’s health plan and it will be very inexpensive (typically around $250 per month for a married couple). Again, many companies do not offer a retiree medical plan, so it’s likely you’ll have to pursue other options.

Option 2: Check to see if you can join your spouse’s health plan. If your spouse works and is eligible for a group health plan, then a layoff is usually considered a “qualifying event.” This will allow you and your spouse to jump onto that plan. In most cases, joining your spouse’s plan is less expensive than going out on the open exchange or maintaining a separate health plan for yourself.

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Option 3: If your spouse does not work, or works for a small company that has no employee health plan, then you must resort to either the COBRA plan or Covered California (California’s version of the Affordable Healthcare Act). a) The COBRA plan (Consolidated Omnibus Budget Reconciliation Act), allows you to remain on your former employer’s plan for up to 18 months after terminating employment, but you will have to pay the premiums in full yourself. Your employer won’t be subsidizing them. b) Covered California - The best part about Covered California is that you will be accepted even if you have pre-existing medical conditions. This can be invaluable to someone lacking access to the options listed previously. You may or may not be eligible for government subsidies here, depending on your household income. In order to sign up for a Covered California plan, you need to have a qualifying event (such as a layoff, or discontinuance of COBRA) or wait until the next open enrollment period to begin. Also, if your employer offers to pay for the COBRA during the early stages of your layoff period—I have seen coverage ranging from six months to the duration of the worker’s severance payout—it is NOT considered a qualifying event when your former employer stops paying. This means you will have to wait for open enrollment if you want to switch plans.

your standard of living for another 30 years, then you don’t necessarily need life insurance for income replacement. Older couples often decide to continue their life insurance coverage because they want to provide immediate liquidity to pay off remaining debts, or to pay for their own funeral expenses, or to leave a tax-free legacy, should one or both spouses pass away. Again, they’re generally not using life insurance for job-related income replacement.

NOTE: Health coverage is extremely complicated these days. There are independent health care consultants who can help you evaluate various options and to determine whether it’s better to stay on COBRA or go out on the open exchange. Your income, health and age all come into play. If you don’t know such a specialist, we will be happy to refer you.

THE CONVERSION OPTION Conversion is a longer-term option than portability.

It’s also more expensive. Conversion makes sense for people who don’t think they will be considered healthy enough to pass a standard physical exam or make it through the underwriting process, as this will not be required. Conversion allows you to purchase an individually owned Whole-Life policy (not your employer’s), from the same insurance company that offers the group life plan through your former employer. The Whole Life policy is designed to last no matter how long you live, with a guarantee that the premium will never increase. However, under this type of plan, your policy will be more expensive than it was as an employee. That’s due to what the insurance industry calls “adverse selection”—i.e. it’s riskier for the insurer to cover you because they don’t know how potentially poor your health may be.

LIFE INSURANCE Most workers can obtain basic life insurance and voluntary supplemental life insurance through their employer. It’s an invaluable way to protect your families economic well-being if you die during the early or mid-stages of your career. However, if you leave your employer—or are forced to leave—there are several ways to maintain life insurance. Just make sure you really need it before spending the time, or money, to obtain a new policy.

In most cases, you’ll want life insurance if you are 40 years old and have young children and a mortgage.

Life insurance is especially important if you don’t have significant savings built up, which is often the case for younger workers. But, if you are over 60 and you and your spouse have sufficient assets to maintain

If you leave your employer and want to continue your life insurance, but don’t think you are healthy enough to quality for life insurance on your own, then the portability or conversion options can be a solution (see below). If you are in good health, you can shop for life insurance through many local licensed agents.

PORTABILITY Portability can be a good short-term solution, especially for workers who want to maintain life insurance coverage while they are between jobs. Under the portability option, you remain part of your past employer’s plan, but now you must pay the premiums since they’re no longer subsidized by your employer.

You don’t have to prove your “medical insurability,” but since portability is supposed to be a short-term solution, your premiums will continue rising sharply each year that you maintain the policy.

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REVIEW EMPLOYER STOCK AND NET UNREALIZED APPRECIATION (NUA) CONCENTRATION STOCK RISK Many of our clients hold large blocks of their employer’s stock. These holdings typically comprise shares they have accumulated over the years via their 401(k) plans, their stock options, or their discounted employee stock purchase plans. While holding large amounts of employer stock seems like the right thing to do as a loyal employee, it can be very risky. Do you really want to leave your family’s financial future vulnerable to the ups and down of a single stock or industry (i.e. your employer’s?). No matter how strong a company you work for (or worked for), there are a wide variety of factors that can rapidly decrease the value of your employer’s stocks. As a rule of thumb, I don’t recommend holding more than 10 percent of your net worth in any single stock—including company shares. No hard feelings, just diversify.

TAX CONSEQUENCES OF STOCK HELD OUTSIDE A 401(K) In addition to the words of caution above, there are several other things to be aware of when you have employer stock owned outside of your retirement account. In a “taxable” non-retirement account, you will NOT simply pay ordinary income taxes on all of your distributions like you would in a traditional IRA or 401(k). You will have either a capital gain, or loss, for each “lot” of stock you purchased or were awarded.

(If the stock pays an ordinary dividend, then that may also be taxed as ordinary income tax rates.)

losses (or gains) that will have big consequences for you.

If you recognize that you indeed have a large “unrealized” GAIN, you may want to think twice about selling the stock, or maybe even spreading out those sales, and related tax consequences, over several years.

If you recognize that you have a large unrealized LOSS, you may want think carefully about how ready you are to realize that loss now—or do you believe the company stock value will rise again? If you decide that you need the cash now or would like to diversify and sell the stock at a loss, you will “bank” that loss until it is offset by capital gains in the future. Under current law, those losses will not expire and you may retain this “loss carry-forward” for a very long time. This is actually a nice consolation prize.

EXAMPLE: If you had a $200,000 capital loss realized, then you would have $200,000 of capital gains that you could realize any time in the future without owing any taxes!

UTILIZING NUA FOR STOCK INSIDE A 401(K) Not everyone has the ability, or desire, to own employer stock inside their 401(k) retirement plan.

If you do, be aware of your options for that employer stock when you decide to move those stocks out of your 401(k) plan into an IRA. Most retirees will “rollover” their entire 401(k) into an IRA, which means all of the investments held inside the 401(k) are sold and deposited into the IRA as cash. A complex and

You need to make sure that the cost basis for each lot you own is accurately recorded with the broker who holds them! If it isn’t, find your broker(s) ASAP before you decide to sell any of the stock. If you have held these stocks for a long time, chances are they have generated significant taxable Boom & Bust // Part 3 page 11

little known strategy is to utilize your Net Unrealized Appreciation (NUA) in your employer stock inside your 401(k). The NUA is the gain you have achieved in the employer stock you own above your cost basis (i.e. what you paid for it). You can elect this special tax treatment by moving these shares into a non-retirement account.

The key benefit of this strategy is that you will pay long term capital gains tax on those future distributions.

This is opposed to paying ordinary income tax rates on what you would have paid on those future distributions had they been from a traditional IRA. For certain people, the capital gains rate can be half the rate of their ordinary income tax. However, this is not always the best strategy to elect. Should you want to elect the NUA distributions, you will need to pay ordinary income taxes on the entire cost basis of those shares in the year you move them from your 401(k) into your taxable account. Therefore, the lower the cost basis and the larger the gain in your stock, the better

this option will be for you. For many of my clients, this strategy is not advantageous. But, for the few who have owned their stock for a very long time, and who have a large gain and low cost-basis, it will save them a tremendous amount of taxes.

Always remember to consult your CPA and Certified Financial Planner before executing the NUA strategy.

CONCLUSION Workforce reductions are never easy, regardless of your age, industry or stage of career. But, by staying calm and getting your financial house in order as a job-seeker, consultant or retiree, you can substantially increase your odds of landing your next great career opportunity or getting a rewarding jump start on retirement.

Commonwealth Financial Network® or Screaming Eagle Wealth Management do not provide tax or legal advice. Please consult a tax or legal professional for advice regarding your specific situation. Erik P. Dullenkopf, CFP® (CA Insurance license #0F97513) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Screaming Eagle Wealth Management.

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FACING A LAYOFF? ALWAYS HEED YOUR WARN PERIOD Boom and bust cycles have long been part of the energy industry’s DNA. Yet workforce reductions still catch many workers (and their families by surprise). If you or someone close to you is impacted by a layoff or voluntary retirement option, take the time to review your options carefully. Never agree to anything (verbally or in writing) that you don’t understand—100 percent. The following case study involves hypothetical couples, with various realistic experiences. Due to the complexity of each scenario, we have combined them and are providing the solutions that were most applicable to their situation. The strategies provided may not be specific or applicable to your situation.

CASE STUDY Some of our clients were let go on December 31st of last year. As per the WARN Act, there was a period of 60 days in which they remained on the payroll (with benefits), but were only required to come to the office at their employer’s discretion. If you’re not familiar with the WARN Act, it’s a US labor law requiring most employers with 100 or more employees to provide 60 calendar-day advance notification of plant closings and mass layoffs of employees. The company will then start the severance compensation after the 60-day WARN period ends (either via lump sum payment or payout over time) depending on company policy.

website. If you have a Health Savings Account (HSA), do the exact same thing.

While 401(k) contributions are not taken out of your severance paycheck(s), those contributions CAN be made while you are still receiving regular paychecks during the two-month WARN period. MAX out those contributions while you still can! Our two aforementioned clients sure did.

I tell all of our clients that we’ll be happy to schedule a meeting with you and your CPA--or help you find a CPA--and strategize together about different things we can do for you before year-end to mitigate taxes.

There are even more options to consider if you start your own business or become a consultant during this high-tax year.

Our clients received regular paychecks during January and February of this year before starting severance on March 1. So, we substantially increased their 401(k) contribution to well over 50-percent of each paycheck during January and February. This way, they could achieve their full year contribution of $18,000 for 2017 ($24,000 if over age 50). You can still do this, too if your termination starts mid-year or later. Just do a little math with you advisor and then make the appropriate changes through your company’s 401(k)

Furthermore, you can turn up the contributions to your spouses’ 401(k) or 403(b) if they work at an employer with such a retirement plan. These strategies will not only add one final boost to your retirement funds but also provide some much needed tax shelter in a potentially high-tax year. I’ve seen lump sum pension payouts, on top of vested stock options, unused vacation days, sick days and a bonus add up to a total taxable income of a couple hundred thousand dollars.

CONCLUSION Layoffs are never easy, regardless of your age, industry or stage of career. But, by maintaining your composure and keeping the big picture in mind, you can substantially increase your odds of finding your next great career opportunity or getting a rewarding jumpstart on your retirement. If you or someone close to you is concerned about a workforce reduction at your company, please don’t hesitate to contact us. We’d be happy to help.

Commonwealth Financial Network® or Screaming Eagle Wealth Management do not provide tax or legal advice. Please consult a tax or legal professional for advice regarding your specific situation. Erik P. Dullenkopf, CFP® (CA Insurance license #0F97513) is a Registered Representative and Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Screaming Eagle Wealth Management.

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ABOUT THE AUTHOR

Erik Dullenkopf, CFPÂŽ is the founder of Ventura, California based Screaming Eagle Wealth Management. The firm specializes in working with families in the oil & gas industry and guides them in successfully managing their transition into and throughout retirement. By focusing on this niche, Erik and his team brings unique knowledge and insight about commonalities, struggles and benefits that the everchanging oil and gas industry faces.

Erik Dullenkopf, CFPÂŽ Wealth Manager

CA Insurance Lic. #0F97513 305 S. Kalorama Street, Suite F Ventura, CA 93001 805.643.7700

erik@screamingeaglewm.com www.screamingeaglewm.com