What Happens to Your Equity and Benefits in a Layoff

The deadline that cannot be recovered

Unvested equity usually goes, health coverage usually ends within the month, and the option exercise clock is usually ninety days. Of those three, only one cannot be fixed afterwards, and it is the one people notice last. It also arrives without any reminder from anybody involved.

If you hold vested stock options, you typically have around ninety days after termination to exercise them. Miss that window and they are gone entirely. Not reduced, not deferred, gone — however long you worked for them and however much they were worth on paper.

Everything else in a layoff can be revisited, appealed, negotiated or corrected later. This one cannot, and no employer is obliged to remind you. Put the date in your calendar in the first week, before you do anything else on the list.

What exercising actually requires

Money, usually more than people expect. You pay the strike price on every share you want to keep, in cash, on that timetable. For a meaningful grant accumulated over several years that can run to a serious sum.

There can also be a tax bill arriving in the same year even where you cannot sell anything. That is the trap at private companies, where no market exists to fund either the exercise or the tax. The paper value and the accessible value are completely different numbers.

So the decision is not simply whether the options look valuable. It is whether you can fund the exercise and the tax while unemployed and without income. That is a genuinely difficult call and it is worth advice rather than a decision made under time pressure in week eleven.

Vesting stops on your last day

Anything unvested on your separation date is normally forfeited outright. There is no proration and no partial credit for the months completed toward the next tranche. The schedule simply stops.

Which makes the separation date itself a negotiable term worth more than most people realize. If a significant tranche vests weeks after the proposed date, moving that date is one of the highest-value things you can ask for, and it sometimes costs the employer very little. A fortnight of payroll against a full tranche is an easy trade.

Some agreements provide for acceleration on a layoff, and most do not. Read the plan documents rather than assuming either way, because the terms vary considerably between employers and even between grants at the same employer. Assuming either outcome without reading is an expensive habit.

Health coverage: what COBRA is and is not

Employers with twenty or more employees must offer continuation of your existing plan, generally for up to eighteen months. That means the same coverage, the same doctors, and your progress toward the deductible carried over intact. Nothing about the cover itself changes on the day you leave.

What changes is the price, and it changes sharply. You pay the full premium, meaning your old share plus the employer’s, plus an administrative charge on top. That is frequently three or four times what was coming out of your paycheck.

The number shocks people because the employer’s contribution was never visible on a payslip. Nothing about the coverage got worse. You are simply seeing what it always cost for the first time, at the worst possible moment.

Why the marketplace usually beats it

Losing job-based coverage triggers a special enrollment period, and marketplace plans are subsidized based on your current income. If you are unemployed, that income is low, which is exactly when the subsidy is largest. That combination is what makes the comparison worth running.

Compare both before electing anything. COBRA genuinely wins in three situations: mid-treatment where changing plan would disrupt care, a deductible you have largely met already, or a specialist not covered elsewhere. Outside those, the subsidized plan is usually far cheaper for equivalent coverage.

There is a timing trap worth naming. Electing COBRA can complicate marketplace enrollment later, and the special enrollment window is limited. Decide deliberately in the first fortnight rather than defaulting into COBRA because that paperwork arrived first.

Retirement money is yours, with conditions

Your own contributions are always entirely yours and nothing can claw them back. Employer contributions vest on a schedule, and under federal rules for defined contribution plans that is no slower than a three-year cliff or a six-year graded arrangement. Those are the outer limits rather than the common practice.

Check where you sit on that schedule, because leaving a few weeks before a cliff forfeits the whole employer portion. If the separation date is still being discussed, that is a concrete argument for moving it. Name the specific date and the specific amount at stake.

You can generally leave the balance where it is, roll it into an individual account or a new employer’s plan, or cash it out. Cashing out triggers tax and usually a penalty, which makes it easily the most expensive of the three at exactly the moment the money looks most useful. Treat it as the last option rather than the obvious one.

The rest of the list

Accrued unused vacation comes first, and several states require it to be paid out regardless of any agreement. Any bonus already earned but not yet paid comes second, and it is frequently omitted from a first draft and frequently added on request. Ask about it specifically rather than assuming it was refused.

Flexible spending account balances usually carry a short deadline after separation, and unspent money is simply lost. Life and disability cover sometimes convert to an individual policy, but only if you act within a defined window that nobody will remind you about. Check the conversion terms in the first fortnight after leaving.

None of these items is large on its own. Together they routinely add up to more than the extra week of severance that people spend most of their energy negotiating for. Working through the list takes an evening and pays better.

The first-week checklist

Download your pay records, benefits statements and equity documents before access is cut, and send them to a personal email address. That takes half an hour and cannot be done afterwards. Send everything to a personal address you will still control.

Then four actions in order. Put the option exercise deadline in your calendar. Compare COBRA against a marketplace plan. File for unemployment immediately rather than waiting for severance to run out. And read the plan documents for anything with a vesting date attached.

This is general information rather than tax or legal advice, and equity decisions in particular turn on your specific plan documents and tax position. An hour with an adviser in the first fortnight is worth considerably more than the same hour in month three. Decisions made early are still open; later ones frequently are not.