What to Expect From Your Employer When You Quit or Retire

Navigating Insurance and Investments When Leaving a Job or Retiring

Leaving a job or retiring is a significant life event that brings about a host of changes, particularly regarding your insurance and investments through the company. Being well-prepared for these changes can ensure a smooth transition into your next chapter. Here are some potential things you can expect.

Receiving a Package of Details

When you leave your job or retire, you’ll receive a comprehensive package containing important information about your benefits, including your insurance and investment accounts. This package is important, as it outlines the specifics of your current coverage, accounts, and any actions you have available. Ensure that you keep track of any documents or statements included in this package. They may be needed for the following reasons:

·       Future Reference: Account numbers and values, and insurance specifics may be needed to facilitate a transfer or to accurately compare against alternatives.

·       Forms to Fill Out: The package you receive may contain forms you and/or your advisor need to complete.   

·       Accuracy: Verify that all information is correct to avoid potential discrepancies.

·       Time Limits: Some options are only available for a certain amount of time. Commonly insurance coverages are allowed to be converted but often must be completed within 60 days of retirement.

Investment Accounts

Company-sponsored investment accounts, such as a Group RRSP or pension plan, need special attention. Upon leaving your job, you’ll typically have options for what to do with these funds.

1)       You can do nothing, and your account will be moved out of the group and continue to hold the same investment with no advisor associated with it for advice or monitoring.

2)       You can take control of it yourself, either with the same company the account would currently be with or, through one you create yourself with a different brokerage or firm.

3)       You can have your advisor transfer the funds to an account you open or already have open with them.

It is generally optimal to avoid option 1 and do either of options 2 or 3. The following points outline why this is generally the case.

·       Control: Having direct control over your investment decisions can align your portfolio with your retirement goals.

·       Advisor Access: Engaging a financial advisor allows for personalized guidance tailored to your financial situation and objectives.

·       Simplicity: Transferring to a personal account or your advisor’s firm eliminates the need to keep track of another account with another company.

·       Fee Management: Often, personal investment accounts can offer lower fees and there are sometimes fees associated with doing nothing in your group plan.

·       Investment Options: more investment choices compared to employer-sponsored plans.

Group Insurance Coverage

Group insurance coverage, including health benefits like dental, chiropractic or prescription coverage, life, and disability insurance, usually end when you leave your job. However, you have options to ensure you remain covered. You can generally elect to convert your coverage or apply for new coverage.

Conversion

Some policies allow you to convert your group coverage to an individual policy, often without the need for a medical exam. As mentioned earlier this generally comes with a time restriction requiring you do so within up to 60 days after retirement.

The benefits of converting first include no medical underwriting required, so guaranteed approval. Second, all existing conditions will generally be covered. Think things like prescriptions or existing health conditions.

The cons of converting are first, the monthly premium required is often higher because there is no underwriting completed. Second, coverage limits across all categories are generally lower compared to applying for a new plan.

New Applications

Applying for new insurance coverage through individual plans or spousal benefits can provide continued protection. In contrast with converting this will require underwriting, so you must be in good health to qualify. You can apply for this plan at any time however any pre-existing condition, prescription etc. is not likely to be covered.

When someone is in good health and does not require any existing conditions or treatment be covered, they can generally receive higher coverage for less money by applying for new insurance opposed to converting.

Either way ensure that you are calculating how much and what type (if any) insurance you should have. A broker (like MC Wealth Management) can help with this step and compare multiple companies whether converting or applying for new coverages.

Other Intricacies to Note

Sometimes leaving an employer is more complex than discussed to this point. Areas such as owning company stock, stock options, pensions rules, vesting periods, commuted values and tax considerations all can arise and create complexity.

It’s important to understand how various accounts and holdings are treated or consult with a financial planner and accountant to ensure nothing is overlooked. For instance, pension accounts have various options like 50% unlocking provision, small amounts unlocking provision, or maximum transferable amounts among others and dependent on the pension jurisdiction.

Selling company stock or transferring investments in cash could create taxable gains depending on the account they are held within. Ensuring the correct paperwork is completed and submitted to the appropriate parties is also important to ensure an effective transition.

Conclusion

Leaving a job or retiring involves significant decisions regarding your insurance and investments. By understanding your options and taking proactive steps, you can create a secure and financially stable transition. Keep track of all documents, move investments to personally managed or advisor managed accounts, discuss your need for insurance and converting versus applying for new, and be mindful of the complexities around areas like company stock and pensions. With careful planning, you can confidently navigate this new phase of life.

If you have questions or are looking for advice, please reach out via phone call, email or the contact page on mcwealth.ca.