By the Sun Life team
What is an employee retirement plan, and how can it help you reach your retirement savings goals? Learn about the different types of retirement plans and their respective benefits.
One of the prominent financial benefits Canadians enjoys is the workplace pension plan. But what exactly is an employee retirement plan? And how can it help you reach your retirement savings goals?
There are several types of employee pension plans. Therefore, it is essential to know the distinctive characteristics and the respective advantages of the different methods.
How to get the most out of your retirement plan
To maximize your retirement savings, you need to be familiar with your employer’s pension plan. And if you don’t have a workplace pension plan, you can set up your plan. Either way, a SunLife Financial advisor can help.
What happens to your pension plan if you quit your job?
If you leave your job, your options will vary depending on applicable laws and the plan.
Here are some scenarios:
You leave your money in the plan you are going.
You transfer the value to another pension plan (if the latter allows it).
You share the commuted value to a registered retirement savings plan (if the funds are not locked-in) or to a locked-in vehicle (if they are).
You get back the value in money, minus the tax to be paid (if the value is not blocked).
In some provinces, vesting depends on years of service or membership in the plan. If you quit your job earlier, you get back your contributions and their income. However, you do not receive your employer’s contributions or related income.
If you are leaving a plan for any reason, it is a good idea to consult a financial adviser. They can explain your options to you. A SunLife Financial advisor can answer your questions and resolve your doubts.
Are there any fees associated with the Employee Retirement Plan?
For a defined benefit plan, you have no direct costs to pay. However, investment management fees or actuarial fees may be deducted.
You may pay fees for investment management, administration, or other services for a defined contribution plan. In addition, they are generally lower than those associated with another type of plan.
What are the benefits of an employee retirement plan?
There are all sorts of benefits:
Lower fees. The employer negotiates with service providers on behalf of all employees who participate in the plan. The costs are therefore generally lower than with an individual project.
Free money. The employer must contribute to the employee pension plan that it sets up. Some employers also offer a top-up program. Not contributing or not participating in the project is in a way tantamount to refusing free money.
Tax deductions. Your contributions are tax-deductible. So you pay less tax now. Plus, the money you contribute and your investment earnings are tax-sheltered until you withdraw them.
Accumulation of periodic contributions. An employee pension plan requires you to contribute regularly. The small amounts paid periodically accumulate and provide you with an income in retirement. And by investing a fixed amount, you can buy more when prices go down.
Fewer emotional decisions. It is generally impossible to withdraw money from the plan before you retire*. But it encourages you to keep your investments for the long term to make the most of them later.
*With exceptions provided for in the plan.
Four questions to ask yourself about your retirement plan
Need help understanding your retirement savings options?
Right now, most advisors are meeting with their clients virtually. Find an advisor.
This article is intended to provide general information only. SunLife Assurance Company of Canada does not provide legal, accounting, tax or other professional advice. If necessary, please consult a specialized professional who will conduct an in-depth examination of your legal, accounting and tax situation.
