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Transition Planning - Taking the Best Deal (Part 2)
part 1 
This is the second of a two part series on Transition Planning. Last time we reviewed severance payments and in this issue we'll cover pensions and other benefits. If you change jobs through downsizing, early retirement or deciding on a new career, you may receive many forms of payment from your former employer. You could have to make decisions involving hundreds of thousands of dollars and you will need to review pension documents and other complex reports. As your financial advisor, my role is to help you understand your options and assist you in selecting those best suited to your needs relative to your overall financial plan.
Pensions and Other Benefits
If you are a member of a pension plan or other group programs you may be entitled to benefits regardless of your reasons for leaving. Group RRSP and Deferred Profit Sharing Plan assets are usually transferable to a personal RRSP upon departure. If you are a member of a Defined Contribution Pension Plan and the company's vesting requirements have been met, you can transfer the account to a Locked-In RRSP. If the vesting requirements have not been met there will be a refund of employee contributions and growth but employer contributions revert to the company.
Many companies offer life insurance programs that can be converted to private coverage upon departure. You usually have 30 days to convert, but the new policies tend to be expensive. Convert anyway to ensure that you have coverage then shop around for something cheaper. If you find something that is less expensive you can cancel the original policy but if you are deemed uninsurable you'll at least have some coverage, albeit expensive. Long Term Disability coverage should be reviewed because you may be uninsured for a few months when switching jobs. An LTD bridge policy that extends until the new employer's group plans become effective should be considered.
The most difficult decision involves Defined Benefit Pension Plans, which pay an income based on salary and years of service. If you leave the plan before being eligible for early retirement you must decide between retaining the right to receive the deferred income or electing payment of a lump sum to a Locked-In plan. The analysis starts with a required rate of return and this can be calculated using BMO Nesbitt Burns Pathfinder financial planning software.
Estate planning should also be considered. Most defined
benefit plans will pay a surviving spouse 60% of the pension after the employee's death and all payments usually stop after the second death. If the employee selects the lump sum however, the spouse will be entitled to a 100% rollover and the after-tax value of whatever remains after the second death will be transferred to the children or other beneficiaries.
If you receive a termination package from your employer, or you are simply interested in knowing what your options
are if you are looking to change jobs, please give me or a
member of my team a call and we can review your benefits package and see how the pieces fit into your financial plan. It can be complex and time consuming but the analysis must be laid out so you can make the best choices for your situation.
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