Withdrawing Pension Money if You are Laid Off

If you are laid off from your job, any money you’ve accumulated in a 401k or through profit sharing or other types of pension policy can usually be withdrawn.  Withdrawing pension money if you are laid off isn’t quite as simple as it seems though, and a lot has to do with which pension it is, the type of pension it is and how the plan is set up.

Types of Pension Plans

Some employer pension plans are what is known as defined benefit plans. Under these plans, you receive a fixed amount of benefits once you reach retirement. Many defined benefit plans don’t have an option for early withdrawal under any circumstances, even if you leave the company where you accumulated the pension through voluntary means or because you’ve been laid off.

Some personal pension plan have a set date when you can start receiving benefits, some won’t allow lump sum or annuity payments until you’ve reached a certain age, and some require that you’ve been gone from the employer for a set amount of time before you can withdraw your labor pension money.

Additionally, many plans that do allow for early withdrawal of funds have other set rules about how and when the money will be distributed and these must be followed.  Once you file the appropriate paperwork, some plans will process your lump sum distribution immediately. Other pension administration will set a schedule of monthly or yearly payments to begin at a set time and continue until the funds have been distributed.  Some plans will process these requests only at certain times, so if their yearly time for processing these requests is in December and you’re laid off in January, you’ll have to wait all year before you can begin the process of withdrawing pension money.

If you’re laid off from your job or you leave voluntarily, contact your company about the rules and procedures from withdrawing pension money right away, to be sure you can get the paperwork taken care of properly as soon as possible.

When you Withdraw Your Pension

Most plans will have some sort of option that will allow you to collect your pension money either in a lump sum, or through pre-determined payments, if you’re laid off from your job.  But it’s likely that you’ll have to pay a 10% tax penalty to withdraw the money early because most plans require anyone withdrawing funds before the age of 59 ½ to be subject to that 10% rule.

An exception to this rule is if you’re laid off or you leave your job for any reason during the calendar year in which you turn 55, whether or not that’s the age at which the pension would begin distribution.  Other exceptions can be found through the IRS.

To help determine whether or not your plan allows for early withdrawal, ask your employer or plan administrator for a Summary Plan Description which shows how your benefits are calculated and your individual benefit statement which shows how much you’ve accumulated to date and whether or not your plan has early withdrawal provisions.

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