How Private Pension Plans Work... When You Don't
It is important to understand how quitting, being laid off, or being temporarily absent can affect your membership in employer-sponsored private pension plans:
- Supplemental pension plan
- Top-hat plan
- Group RRSP
- Deferred profit sharing plan (DPSP)
- Employees profit sharing plan (EPSP)
- Retirement compensation arrangement
Permanent End to Employment
When you stop working, your pension plan membership may end. If this is the case, you may be entitled to a retirement pension or other benefit. But being entitled does not necessarily mean it is payable immediately, particularly if you are not yet of retirement age.
As a general rule, you should receive a statement of your accrued benefits and the terms of payment. If not, or if you need more information, contact your plan administrator or your employer.
Defined Contribution Pension Plans, Group RRSPs, and Other Capital Accumulation Plan
The funds in your account will provide you with a retirement income when the time comes. In the meantime, they will continue to earn interest:
- Within the plan, when possible;
- When transferred to another plan, if permitted;
- When transferred to another savings vehicle, like a locked-in retirement account (LIRA), RRSP, or other vehicle, depending on your options and possibilities offered to you.
When you retire, the amounts accumulated are converted to provide you with an income from your plan, annuity contract, life income fund (LIF), registered retirement income fund (RRIF), or other income vehicle, depending on your options and possibilities offered to you.
Defined Benefits Pension Plan or Similar Vehicle
Depending on your age and the normal age of retirement set out in your plan, you may be entitled to a deferred, early, normal, or postponed pension. If this is the case, you decide when to start drawing an income according to the terms that apply.
Depending on the specific provisions of your plan, it may be to your advantage to start drawing a pension at a certain age because of additional benefits. It is up to you to find out how to make the most of your plan and consult your plan administrator or a financial advisor if need be.
Instead of receiving the pension provided by your plan, you can also transfer the value of your benefits (usually before age 55) to another plan or savings vehicle, depending on your options and the possibilities offered to you. When you retire, the funds accumulated are converted so you can draw a retirement income from a life annuity contract, life income fund (LIF), or other income vehicle, again depending on your options and the possibilities offered to you.
- The savings and income vehicles you can select will differ depending on whether or not the funds must be set aside exclusively for retirement purposes.
- If you are not entitled to a retirement pension or other benefit from your plan, your contributions plus interest will usually be returned to you.
- Depending on the terms of the plan and applicable legislation, you may also be entitled to:
- Receive a refund;
- Transfer the accumulated benefits to your new employer's pension plan through a general agreement. The terms of transfer and the treatment of the funds after the transfer may be to your advantage. Ask about it.
- When you stop working for your employer, your pension plan membership may not end, notably if your former employer and new employer participate in the same plan and there is no interruption in service or in the payment of contributions.
A temporary absence such as maternity leave, parental leave, sick leave, workplace injury leave, or layoff with recall rights usually does not terminate the employment relationship or your membership in a plan.
However, it all depends on the real temporary nature of the absence, your work conditions, the plan, and applicable legislation. During a temporary absence, you can continue to accumulate benefits in your plan, provided the required contributions for you and your employer are paid. Depending on the plan, some specific conditions may apply.
For more information, contact:
- Your plan administrator or employer
- Commission des normes du travail, at www.cnt.gouv.qc.ca/en, under "Labour Standards," "Sickness, accident and family obligations"
- Commission de la santé et de la sécurité du travail at www.csst.qc.ca/portail/en under "Legislation" then "Act respecting industrial accident and occupational diseases"Sections 2, 93, 116, 235, and 240
If you and your employer's contributions are not paid during your temporary absence, your plan may allow you to make up the payments. Inquire about the terms and resulting tax impact.
Worth knowing about...
- When your pension funds are transferred, the provisions of the source plan no longer apply.
- If a plan becomes insolvent and your employer goes bankrupt, it can have an impact on the amount of benefits you receive. In some cases, the amounts due may be claimed from the trustee in bankruptcy.
- If your SPP is subject to the Supplemental Pension Plans Act, see the booklet Understanding Your Pension Plan published by Régie des rentes du Québec and online at www.rrq.gouv.qc.ca/en in section « Publications - Supplemental pension plans ».
- Permanent end of employment is not the only cause of pension plan closure. You could also cease membership in your plan if:
- The plan is terminated;
- You are no longer in the employee category to which the plan applies;
- You retire, die, or in some cases become disabled.
- As a final note, you should be aware that when you leave your job, you usually also cease to be a member of your group insurance plan.