Steps you take now can ease pain later if you lose your job

— -- Are you worried about your job? You probably should be.

The Federal Reserve Board expects the economic downturn to last through 2009. Some economists believe unemployment could hit 9% before the economy improves.

If you're feeling insecure about your job, there are steps you can take now that will make a layoff less painful. Some suggestions:

•Avoid borrowing from your 401(k) plan. Since the economic crisis began, nearly 20% of employers have seen an increase in loans from 401(k) plans, according to Watson Wyatt.

That's not surprising, because many Americans are cash-strapped, and other forms of loans — such as home equity lines of credit — have become much harder to get.

But in an uncertain job market, a 401(k) loan is a bad idea. Most companies require workers who leave — voluntarily or not — to repay the balance within 60 to 90 days, says James Cox, financial planner at Harris Financial Group in Colonial Heights, Va. Otherwise, the amount you owe will be treated as a distribution, which means you'll have to pay income taxes on the balance, plus a 10% early-withdrawal penalty if you're under age 55.

•If your company is still offering open enrollment, consider signing up for the lowest-cost health insurance option. That will reduce the cost of continuing your coverage if you're laid off.

Under the Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, employers with 20 or more workers must allow laid-off employees to continue their coverage for up to 18 months.

However, you're required to pay 100% of the premium, plus administrative fees.

In addition, you must stay with the plan you signed up for while you were working, says Blaine Bos, senior health and benefits consultant for Mercer, a health care consulting firm.

Many employers offer their workers plans that charge a lower premium in exchange for a higher deductible. Ordinarily, such a plan may not be your first choice. But if you think you're going to lose your job, signing up for one of these plans could reduce your COBRA premiums.

If you're young and healthy, you may be able to find an individual insurance policy that's less costly than COBRA.

But if you or your dependents have a pre-existing condition, individual insurance will likely be very expensive, or you may not be able to buy it at all.

•Exhaust the funds in your health care flexible spending account. A health care flexible spending account allows you to contribute pretax dollars to pay for unreimbursed medical and dental expenses, such as deductibles and co-payments.

The accounts are funded by deductions from your paycheck, and you must decide during open enrollment how much you want to contribute during the year.

Most people who sign up for flex accounts are aware that they're required to forfeit any funds they haven't used by the end of the year. But many employees don't realize that this "use it or lose it" rule also kicks in if they leave their jobs. If you're laid off in July, for example, you can't take money accumulated in your account with you, or use the money to pay for expenses incurred after your last day on the job.

There is an exception to this rule for employees who sign up for COBRA, Bos says. In that case, you can spend unused funds on eligible expenses, but you can't use it for COBRA premiums, he says.

There's also a flip side to the "use it or lose it" rule that could work to your benefit, says Nancy Collamer, author of The Layoff Survival Guide.

Suppose you've elected to contribute $1,200 to your spending account during the year, and by July, you've submitted claims for the entire amount. If you're laid off, your company can't come after you for the balance, even though you've contributed only $600.

Once the ax falls, your first instinct may be to set off for the nearest tavern.

But resist this urge. You'll need all your wits about you for the exit interview, because the terms of your departure could affect your unemployment benefits.

In general, you're eligible for unemployment benefits if you lost your job through no fault of your own. If you left voluntarily, or were fired for misconduct, you're usually ineligible.

For that reason, your exit interview "is a great time to clear up any grayness or vagueness" about the terms of your dismissal, says Bruce Clarke, chief executive of Capital Associated Industries, a Raleigh, N.C.-based human resources consultant.

If you were laid off for economic reasons, he says, "You want that message to be very clear."

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: