Decoding Your Company Pension Plan

How much is your money earning inside your company pension plan?

If you change jobs, can you take your contributions with you?  Don’t know?  Don’t feel bad.  Most people are wildly ignorant about company pension plans.

But that’s your money working in the plan.  You owe it to yourself to find out what’s going on.  You can’t get a fix on your savings goals unless you know how your pension plan fits into the scheme.

Related: Time To Revisit Your Employer Sponsored Pension Plan

Here are five crucial questions to ask about your pension plan to determine how it stacks up:

Is my employer putting dollars into my pension plan in addition to my contributions?

Employers often match employees’ contributions dollar-for-dollar.  About 25% of pension plans are funded entirely by the employer.  If your employer doesn’t add any money, it’s a very bad plan indeed.

How soon will my employer’s contributions legally belong to me?

The correct term is “vesting”, meaning you have the right to the money your employer contributed.  The norm for vesting used to be up to 10 years, but legislation has changed it now to 2 years.

If you quit before the vesting period, you are entitled only to your own contributions (plus interest or other earnings), whereas if you wait until after the vesting period the employer’s contributions would be yours too.  Note that if you receive non-vested money, you will have to pay tax on the proceeds, or you have the option of depositing it to a regular RRSP to defer the tax.

Related: Should You Make RRSP Contributions If You Have A Pension?

Can I take the money in cash if I leave?

Usually contributions are “locked in” after 2 years of contributing to your company pension plan.  Then the money must stay in the plan to give you regular pension payments at retirement age or be transferred to a Locked in Retirement Account (LIRA).

Some are locked in sooner – good news for the compulsive spender who won’t be exposed to the temptation of taking the cash and blowing it.  For the saver it’s not that good.  Many pensions earn an interest rate that is no higher than a short term GIC!  Some plans allow you to choose from a variety of mutual funds.  Make sure you review it regularly.

How much can I expect to receive from my pension plan?

In the most common types of pension plan, the payment (including CPP) will probably equal from 1.4% to 2% of your average annual salary, multiplied by your years of service.

If that average salary is calculated on “final years”, count yourself fortunate.  The math will be based on your highest paid five years.  Many company pension plans use a “career average”, a sad case for the employee who put in a lot of years on the lower paid rungs that will drag down their average.

Related: Defined Contribution Plan

If my spouse reaches pensionable age, then dies, will his/her plan pay me anything?

The choice was probably made when the pension plan was originally set up.  In most plans, contracted payments are for the pensioners’ lifetime only.  For slightly lower payments (probably 50 – 70% of what the single benefit is) the payments can continue on to the spouse after death.

Pension documents are not the liveliest of reading material.  However, it is in your best interest to know what the contributions are, can you top them up, how they are invested, and how (and at what age) the money will be paid out.

Make changes now if necessary and if you are allowed to.  When you retire and start receiving less money than you expected, it will be too late.

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  1. Dana on April 12, 2012 at 1:33 pm

    Great article. My plan is funded entirely by my employer at 9% of my salary which makes me feel very fortunate! Does this mean I have a defined-contribution plan?

    • Boomer on April 12, 2012 at 1:46 pm

      @Dana: It sounds like a defined benefit plan. A defined contribution plan specifies how much you would contribute to the plan and the payout would depend on how much is eventually deposited and how the investments performed.
      In contrast, a defined benefit plan tells you how much you will actually receive as a monthly payment. You can usually get this information from your annual statement.
      You’re lucky. Your type of plan has become increasingly rare.

  2. Dana on April 12, 2012 at 2:01 pm

    Thanks. We had a pension meeting a while back and I could have sworn that the guy that came in to speak with us said it was a defined-contribution plan, so I’ll look into it. Some of the figures he provided made me feel very lucky indeed: Less than half of Canadians have an employer-sponsored pension plan and of those in the private sector, it’s less than 30%. Standard rate is 4.5%. I work for a small, 90-year-old professional association (not-for-profit).

    I will continue to contribute to an RRSP as well as I plan to use the Home Buyers’ Plan in the not-too-distant future.

  3. Mark Last on July 23, 2012 at 6:19 pm

    Can other provinces accept my LIRA that was obtained thru the commuting of my pension from an Ontario company? Is this dependent upon the financial institution in the other jurisdictions being willing and able to administer the LIRA according to Ontario’s regulations, etc?

    • Boomer on July 24, 2012 at 11:13 am

      @Mark Last: LIRAs can be administered anywhere. The regulations regarding withdrawal amounts, age you can start withdrawing, etc. are bound by the province that set up the original pension – in your case Ontario.

  4. Yvonne Michaud on February 5, 2017 at 1:40 pm

    I am a retiree from Air Canada with a defined benefit pension and health benefits, for which I pay the premiums. I am moving permanently to Panama. Will my pension be deposited to my panamian bank account along with my CPP and OAS? Will my health benefits (Claim Secure–RSA) have any standing in Panama ?? I am about to open a Panamian bank account. I also have investments in Canada which are paying me approx 550 a month. Do these have to be terminated or can the funds simply be deposited into my Panamian bank account in USD??

    • boomer on February 5, 2017 at 4:35 pm

      @Yvonne Michaud: You need to contact your pension & health benefits departments at Air Canada, and arrange for investment deposits with whoever is holding those investments.

  5. susan gibson on March 29, 2017 at 12:54 am

    Hello, I am just wondering if you can tell husband passed away in Aug of 2013 and I as his common-law spouse of 20 years was entitled to his pension. His eldest daughter challenged my right to the pension and lost. It has now been awarded to me but I am curious to know if it has been earning interest this whole time or if they only have to pay me up until the date of his death.

  6. boomer on March 29, 2017 at 11:52 am

    @ susan gibson – I’m sorry for your loss. The monthy amount of the survivor benefit is stipulated in the pension documents. No interest is paid.
    However, if your payments were delayed due to the lawsuit, you may be entitled to interest on those payments. Ask your lawyer.

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