# Moving Companies - Help with DB action



## SRTOR (Jul 10, 2012)

Recently i moved companies after working for 10 years in my first company.

I had DB pension plan in the first company and have DC option in the new company. The first company is asking me to choose one of the following 4 options,

1. Transfer the value of my deferred DB pension to LIRA, plus the value of my deferred DB pension in excess of Income tax limit to one of below,
- Cash less withholding tax
- Transfer to an RRSP (I have partial limit)

2. Transfer the value of my deferred DB pension to new company DC Plan, plus the value of my deferred DB pension in excess of Income tax limit to one of below,
- Cash less withholding tax
- Transfer to an RRSP (I have partial limit)

3. Transfer the whole DB plan into Defferred Life Annuity

4. Defferred DB pension of X dollars monthly at age 60. 

Now i have questions as below, 
- Does option 3, 4 means my previous employer will hold the funds. 
- I don't want to withdraw portion of funds (but i have to as i don't have RRSP room), and pay taxes what other options do i have?

Appreciate your help in answering my questions.


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## MoneyGal (Apr 24, 2009)

Option 3 means your funds would be transferred to an insurance company to purchase a deferred life annuity. 

Option 4 means your company would retain the funds and pay you a pension at your retirement based on your contributions to date. 

There are A LOT of considerations. One way to look at this is:

- Option 1: you retain all investment risk. No guaranteed lifetime income. 

- Option 2: you retain all investment risk. No guaranteed lifetime income. 

- Option 3: you retain no investment risk. You get guaranteed lifetime income. The guarantee is subject to counterparty risk. The amount you receive is based on multiple factors including your age, gender, years to retirement, and prevailing interest rates. 

- Option 4: you retain no investment risk. You get guaranteed lifetime income. The guarantee is subject to counterparty risk. The amount you receive is based on multiple factors including the number of years you worked for the company and the pension formulas embedded in their pension plan.


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## SRTOR (Jul 10, 2012)

I have no investment knowledge so Option 3 and Optin 4 are appealing to me. 

- Option 4: My company might go bankrupt, not sure if in such case it is guaranteed by govt?
- I feel option 3 is the best in my scenario, do you agree?
- What are the insurance companies that provide such services, please can you assist.

Thanks for your reply!!!


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## Daniel A. (Mar 20, 2011)

You say Transfer to an RRSP (I have partial limit) this I don't understand as you should be able to transfer to a locked in RRSP how much room you have in your open RRSP is not a factor.


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## SRTOR (Jul 10, 2012)

Transfer to locked in RRSP account (LIRA) is only an option for major part of the money. There is another small portion of the money probably interest (I am not too sure), that can only be transferred out as normal RRSP (not locked in and need room) or cash. 

The Major chunk has to be in locked in account and there is no need for RRSP room.


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## MoneyGal (Apr 24, 2009)

The non-locked in moneys are usually non-vested contributions. 

Every life insurance company in Canada will sell you a deferred single premium annuity (which is the technical term for what you are looking for.) 

This is a bigger decision, in my opinion, than can be effectively discussed in a forum. There are issues - and from my point of view, I laid out the main ones - with each of these choices. In my view, you should be clear about the risks of the choice you would make if you take option 3; and how you might mitigate those risks.


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## SRTOR (Jul 10, 2012)

Thanks MoneyGal!

Appreciate your response, will pursue further with the pros then.


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## MoneyGal (Apr 24, 2009)

Ok. I'm not sure who you think the pros are. :love-struck: Be careful about asking for advice from anyone who has a vested interest in the outcome. Many financial advisors will recommend that you manage the money yourself...with their help, of course. 

Here is the main risk with option 3: interest rate risk. When you are buying lifetime income (in the form of an annuity from an insurance company), the amount of income you will receive is dependent on interest rates prevailing at the time of purchase. 

As you age, the impact of interest rates decreases on annuity payout rates. 

In a perfect world (and even in this one, to some extent) you could hedge against this risk by "DCA-ing into an annuity." That is, you could -- instead of purchasing a life annuity in one shot -- buy annuities over time, so that you are in theory exposed to different interest rates at different times of purchase. 

There are analytic tools that financial advisors can use to decompose the annuity purchase decision (break it into the elements that make up the purchase and test how each element would perform if some of the underlying assumptions change). A run-of-the-mill financial advisor will not have these tools. If you want lifetime income, and you are moving from a DB pension to another option, you would be wise to work with a consulting actuary -- because they will understand the annuity options, will be able to model different scenarios, and will not have any interest in you purchasing or NOT purchasing any particular product. 

Good luck in your decision.


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## MoneyGal (Apr 24, 2009)

Wow, I'm back. So, how exactly would you dollar-cost-average into an annuity? Why, by choosing option 1 and self-purchasing an annuity in "tranches" (that is, purchasing a series of annuities) over time. You could leave the non-annuitized money in risk-free (guaranteed) investments, or you could assume a moderate amount of investment risk - entirely your choice. 

You can even model the rate of return you'd need to earn on the invested funds in order to meet/beat the implied return offered by the annuity. And you could model different interest rate scenarios, and different annuity purchase scenarios. Or, a competent financial advisor (likely actuary) could do this (most financial advisors will tell you they can definitely beat the implied return in the annuity, because they have no idea what any of that even means and they just want the sale).


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## Saniokca (Sep 5, 2009)

Daniel A. said:


> You say Transfer to an RRSP (I have partial limit) this I don't understand as you should be able to transfer to a locked in RRSP how much room you have in your open RRSP is not a factor.


There is a limit to how much you can transfer from a defined benefit plan to a locked-in account. That limit depends on your age and the annual pension (Income tax regulation 8517).

Example:
Let's say that your benefit of $50,000/year at the retirement age is worth $600,000 today.

If you are 53, the maximum amount you can transfer is $500,000 (50k*10). You can look up the factors in the ITR. The rest you have to either take in cash (and pay taxes) or, if you have RRSP room, you can transfer it there.

If you remember our last argument (where I missed the fact that it was a death benefit then in which case the limit does not apply), this is what I was referring to.


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## Financial Cents (Jul 22, 2010)

I had 5 years of work in my former company when I left, I took my money (and theirs, vested $$) and put it all in a LIRA. I don't regret the decision 10 years later.


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## heyjude (May 16, 2009)

The OP should be aware that MoneyGal is a pro and knows what she is talking about! 

Annuities definitely have a place, but this low interest rate environment is not a good time to buy them.


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