Pension Plan Portability
Employer sponsored retirement savings plans range from defined contribution (DC) plans, to deferred profit sharing plans (DPSPs), to registered retirement savings plans (RRSPs) and tax free savings accounts (TFSAs). Over the course of your career, you may be a participant in one or more of these programs. You may even have benefits under a program with a prior employer. The question often arises: what are my options for retirement benefits earned in a savings program if I leave the company?
DC pension plan benefits may be subject to locking-in rules in order to preserve the benefits for retirement income. Locking-in means that the pension money payable to you is only accessible for the purpose of providing a lifetime of retirement income. Under a DC pension plan, if you leave the company you can elect to transfer the value of your vested benefits to another pension plan, a locked-in RRSP or, in some cases, take funds as cash. You can also elect to keep your funds in the pension plan after you leave your employer and they will continue to be invested. You will receive statements depending on the plan’s statement protocol and you will have control of your personal investment mix within the plan options, however you won’t be able to contribute to the plan.
Under a group RRSP or a TFSA, if you leave your employer you can elect to keep your assets in the plan, but you may have to transfer them to a related program or a separate division within the plan. In many cases, that can be done on your behalf automatically.
If you are in a DPSP, the vested benefits of company contributions must be transferred out of the plan within 90 days from leaving the company. These amounts can be taken as cash or transferred to another DPSP or RRSP. Taking any retirement benefits as cash in normally not advised, as it will negatively impact your retirement income and trigger tax payments (except for TFSAs).
Should I take it or leave it?
Your decision to leave your account assets with the company plan or move it to a new plan will depend on many factors, including:
- Does my new employer have a plan that can accept transfers into it?
- Do I want to set up another plan?
- What investment management fees would I pay in a new plan compared to the company plan?
- Are there any fees for a transfer to a new plan?
Portability is entirely up to you. You always have the right to take it with you!