Personal Finance

DCPP withdrawing small amount at severance

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  • May 26th, 2019 6:59 pm
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[OP]
Member
Jun 18, 2005
495 posts
21 upvotes
Courtice

DCPP withdrawing small amount at severance

I have a DCPP at a company that is closing. We were told we would be allowed to withdraw the funds if we were under $11,400, which I am. Yesterday there was a meeting with Greatwest Life where they stated we would not be allowed to withdraw. People who have quit have been able to withdraw though.

What is this $11,400 number in law and why would we be restricted from it? Why would employees who have quit recently be allowed to take it but not those who will be their until closure?

Secondly, I wanted to put these funds towards a house down payment. From my understanding we can only put it in a LIRA or LI-RRSP. Is there anyway I can put these funds towards a house down payment?
12 replies
Deal Addict
Jun 10, 2008
1127 posts
339 upvotes
Trix77 wrote: I have a DCPP at a company that is closing. We were told we would be allowed to withdraw the funds if we were under $11,400, which I am. Yesterday there was a meeting with Greatwest Life where they stated we would not be allowed to withdraw. People who have quit have been able to withdraw though.

What is this $11,400 number in law and why would we be restricted from it? Why would employees who have quit recently be allowed to take it but not those who will be their until closure?

Secondly, I wanted to put these funds towards a house down payment. From my understanding we can only put it in a LIRA or LI-RRSP. Is there anyway I can put these funds towards a house down payment?
Are you talking about withdrawing it using HBP for your downpayment? Or withdraw it by paying the 20% tax penalty? I don't think you can do it for either of them since it is a locked-in fund. There are extenuating circumstances (financial hardships) where you can withdraw from locked-in funds but I doubt home downpayment is one of them.

People who quit are probably just transferring their money to a locked-in RRSP and not actually withdrawing.

Not sure what the significance of 11,400 is. Could be just a negotiated amount between GWL and the employer. 11,809 was the basic personal amount for 2018 taxes though :)
[OP]
Member
Jun 18, 2005
495 posts
21 upvotes
Courtice
barricuda wrote: Are you talking about withdrawing it using HBP for your downpayment? Or withdraw it by paying the 20% tax penalty? I don't think you can do it for either of them since it is a locked-in fund. There are extenuating circumstances (financial hardships) where you can withdraw from locked-in funds but I doubt home downpayment is one of them.

People who quit are probably just transferring their money to a locked-in RRSP and not actually withdrawing.

Not sure what the significance of 11,400 is. Could be just a negotiated amount between GWL and the employer. 11,809 was the basic personal amount for 2018 taxes though :)
I was talking of either getting it in cash or putting into a regular RRSP to put towards a DP.

People who quit have gotten it in cash. This is possible as it falls under the "Small Amount" section of the PBA.

Section 501(1) of the PBA states that and employee is entitled to a lump sum cash payment of their benefit if the total amount is under 20 percent of the YMPE at the time of termination/severing. The $11,400 is approx. the 20 percent of 2019 YMPE.

I received this info from the FSCO. So according to law it states I should have the ability to unlock these funds at severance due to it being considered a small amount. So that is why I am confused when the FSCO states I should be allowed to unlock it but Great West is saying otherwise.
Deal Addict
Jun 10, 2008
1127 posts
339 upvotes
Trix77 wrote: I was talking of either getting it in cash or putting into a regular RRSP to put towards a DP.

People who quit have gotten it in cash. This is possible as it falls under the "Small Amount" section of the PBA.

Section 501(1) of the PBA states that and employee is entitled to a lump sum cash payment of their benefit if the total amount is under 20 percent of the YMPE at the time of termination/severing. The $11,400 is approx. the 20 percent of 2019 YMPE.

I received this info from the FSCO. So according to law it states I should have the ability to unlock these funds at severance due to it being considered a small amount. So that is why I am confused when the FSCO states I should be allowed to unlock it but Great West is saying otherwise.
I think you need to be 55 to withdraw using the small balance reason.

http://www.osfi-bsif.gc.ca/eng/pp-rr/fa ... -lrsp.aspx - Click #2 and see the very last box in that section.
Member
May 2, 2019
429 posts
489 upvotes
Vancouver
Trix77 wrote: The third last box is the one that would apply and is what I am discussing.
"If .. value of their pension benefit is less than 20% of the YMPE ... then the plan administrator can choose to pay out this amount in a lump sum."

It sounds like they don't have to do it if they don't want to.

FWIW, a link on a long-term strategy of unlocking LIRA funds: https://www.nbc.ca/personal/advice/reti ... re-65.html
The rules may be province-specific, and be weary of any fees that may eat into your money while transferring accounts.

In your case, all it may take is one transfer to a different provider (LIRA / LI-RRSP), who are willing to unlock it using the small balance provision.
[OP]
Member
Jun 18, 2005
495 posts
21 upvotes
Courtice
yvrbanker wrote: "If .. value of their pension benefit is less than 20% of the YMPE ... then the plan administrator can choose to pay out this amount in a lump sum."

It sounds like they don't have to do it if they don't want to.

FWIW, a link on a long-term strategy of unlocking LIRA funds: https://www.nbc.ca/personal/advice/reti ... re-65.html
The rules may be province-specific, and be weary of any fees that may eat into your money while transferring accounts.

In your case, all it may take is one transfer to a different provider (LIRA / LI-RRSP), who are willing to unlock it using the small-amount provision.
Really? So its as easy as the pension issuer saying "Nope, we are going to force you to keep it locked."

That sucks.
Member
May 2, 2019
429 posts
489 upvotes
Vancouver
Trix77 wrote: Really? So its as easy as the pension issuer saying "Nope, we are going to force you to keep it locked."

That sucks.
That's what the link you mentioned also says: "Please note that not all unlocking options are available from a pension plan or from every locked-in retirement savings plan."

Frankly, they are interested in keeping your money. Providers often charge ridiculously high commissions on DCPP investments.
But you are free to transfer you plan to another provider who gives you more flexibility, and free to utilize other unlocking provisions.

Depending on your tax situation, it may be better to keep the money locked. If your 2019 income gets unusually high (e.g. due to a severance), you'd get taxed on the cash you get from the plan at a high rate. Then it's a blessing in disguise to have the amount locked, so you can unlock it in a year with a lower tax rate.
[OP]
Member
Jun 18, 2005
495 posts
21 upvotes
Courtice
yvrbanker wrote: That's what the link you mentioned also says: "Please note that not all unlocking options are available from a pension plan or from every locked-in retirement savings plan."

Frankly, they are interested in keeping your money. Providers often charge ridiculously high commissions on DCPP investments.
But you are free to transfer you plan to another provider who gives you more flexibility, and free to utilize other unlocking provisions.

Depending on your tax situation, it may be better to keep the money locked. If your 2019 income gets unusually high (e.g. due to a severance), you'd get taxed on the cash you get from the plan at a high rate. Then it's a blessing in disguise to have the amount locked, so you can unlock it in a year with a lower tax rate.
I preferably would want it in an RRSP to use it for the HBP.
Member
May 2, 2019
429 posts
489 upvotes
Vancouver
Trix77 wrote: I preferably would want it in an RRSP to use it for the HBP.
That was never a direct possibility. Either the plan is paid out in taxable cash (as it appears for your ex-colleagues who quit), or it is kept/transferred in a locked-in form which is not eligible for HBP.

If you ever unlock as a small balance in the cash form, you can put the proceeds to RRSP but that would require your RRSP contribution space.

Alternatively, a more roundabout way is mentioned in the link I posted. HBP is listed as a possible goal, possibly justifying jumping through the hoops. The method is based on the fact LIF can be partially converted to RRSP without using RRSP contribution space. Age- and province-specific, complicated, thread carefully.
Newbie
Jan 15, 2017
74 posts
65 upvotes
Wrong. If the funds are unlockable under small commutation (20% of YMPE) then all options are on the table including a direct transfer to RRSP.

Furthermore, plan administrator refers to the employer and/or pension committee (or union if it's sponsored by a union). If the option to unlock exists in the plan text, which it must if colleagues were able to, then it is possible for him.

I would suggest either calling back or waiting until you receive the settlement option form following your departure from the company. GWL should sent it to you within 10 business days.
Member
May 2, 2019
429 posts
489 upvotes
Vancouver
I stand corrected. Employers routinely offer to contribute lump-sum payments (pensions / severance) into RRSP on employee's behalf to skip the immediate taxation, if that's what you mean. I believe they don't have to offer this convenience, as taxable money leaves the plan and RRSP contribution is a separate operation that uses the employee's RRSP contribution space.

Indeed, the plan text is what's important here. If it declares lump-sum payment of small amounts, it is supposed to be honoured. We cannot be sure. The plan might have different rules for voluntarily vs. company-initiated termination.
Deal Addict
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Mar 25, 2012
1858 posts
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Kelowna
$12,000 is probably not 20% of his YMPE, though, unless he's making at least, what, $60,000 pre-tax?

I didn't know that specific requirement as I'd assumed you couldn't unlock unless it was a really small balance (say $2,000), before age 55 of course. The idea behind these vehicles is they're to provide you with retirement income, hopefully for life.

The good news is most discount brokerages will waive annual admin fees with the combined balance of between $15,000-25,000, or where you contribute regularly through a pre-authorized contribution plan (i.e., to a related RRSP). The only downside is the small balance may not get you the transfer out fee reimbursed, but you could ask either (a) the transferring out administrator to waive fee or (b) for a one-time exception by the transferring in administrator to reimburse you up to $150 in transfer fees for that account when you transfer in to a LIRA or RRSP.

Cheers,
Doug

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