There’s nothing like leaving your job for an exciting new opportunity to make you feel like you’re the master of your own destiny. But what happens now to those generous payments your employer made to your retirement savings?
Almost forgot about those, didn’t you?
Well, that was foolhardy because they have to be one of the best benefits a company can offer, says Edmonton’s Jim Yih, a financial planner who specializes in retirement planning.
“You can talk about tax benefits and other things but the fact is the best deal going is the company match,” says Yih, who helps businesses administer group RRSPs and pension plans. “You can put in a dollar and the employer puts in a dollar and you’ve just doubled your money. Nowhere else can you do that. If you have one of these you’re very lucky. Not all employers offer this.”
In fact, only about 40 per cent of employers in Canada offer some form of group retirement plan, according to Yih. Generally, contributions are based on a percentage of your wages with the most common contribution coming in at around four to five per cent of your annual income. Though much more rare, Yih has seen companies pay as much as 18 per cent toward an employee’s retirement fund.
In the finance industry, the company match is known as free money, says Yih, who adds that workers often lose sight of the significant value of this benefit and nitpick over trivial things.
What you can do with that money
If you’re participating in a group RRSP plan at work, you have different options when you leave your employer than if you’re involved in a straight-up pension plan, which generally has to be locked in until you’re 55.
RRSPs can be cashed in, but that would be ill-advised to do before retirement as it will leave you with less money for your golden years. You’ll also get slapped with a sizable tax hit.
Other options include leaving the money with the financial institution your company is using or transferring it to another.
Can I keep it?
Whether you get to keep your employer’s contributions to your RRSP group plan depends on something called a vesting period. In most cases, employees get to keep what the company put in, but sometimes employers can enforce a vesting period to a maximum of two years, which means workers who either leave the company or get fired before two years is up don’t get the employer contribution.
Tyler Fleming, who oversees investor education, outreach and research with the Ontario Securities Commission, cautions people to be informed before making decisions about their finances.
“Understanding the rules of employee plans regardless of the situation they’re in is critical,” says Fleming. “People need to understand before they invest.”
In an effort to make financial decisions with confidence and skill, he recommends the OSC’s website, www.Getsmartaboutmoney.ca, which offers a variety of unbiased tools such as calculators, work sheets, quizzes and videos designed to help people invest their money wisely.