Handling Termination Requests
Teachers are not eligible to withdraw their pension funds while they are employed and actively participating in the plans. Accessing their termination benefit from the plans would not normally be the deciding factor or the trigger behind terminating their employment contract.
If you do receive this kind of request, there are a few things that you should be aware of before taking any action.
What Does it Mean to Terminate a Contract?
Teachers may be employed on contract with a known end date or with an unknown end date. In the latter case, that end date would be defined by the school board and the teacher at a relevant point in the future. This relevant point is often when the teacher decides they wish to stop teaching. Regardless of the reason, when a contract has ended the teacher becomes eligible to receive their termination benefit (if under 55 or any age and not vested) or their pension (if 55 or older and vested). In the event the teacher resumes teaching on a contract again, this eligibility is removed (more on this below).
The ending of a contract indicates the end of the employee-employer relationship, meaning that we would often expect that teacher would no longer be eligible for health, disability, or other benefits as of the contract end date. In some cases, it is possible for a teacher to move immediately from one contract to another (such as when they move from a temporary contract to a permanent contract), however, we would normally see them continuing their participation in the pension plans in these cases.
Timing of Termination
If you officially terminate an employee but they don’t apply for their termination benefit through ATRF until after they resume teaching, they will no longer be eligible to access their pension or termination benefit.
They must contact ATRF prior to resuming teaching on a contract in Alberta if they wish to access their benefit entitlement.
Timing of Benefits
Withdrawing their pension is not a quick fix for short-term financial trouble. If a member is vested for a pension, a substantial portion of their termination benefit will be required to be transferred to a locked-in retirement account (LIRA). Once they contact ATRF to get the process started, it can be up to four months from the later of their date of termination or application before the cash portion of their termination benefit is transferred to them. This timeline is dependent on their ability to provide ATRF with other required forms and documents associated with the payment of termination benefits.
Furthermore, any amount that is not transferred to a LIRA will be paid as a taxable cash benefit and may be further reduced the following year when they file their income taxes.
Loss of Pensionable Service
Once a teacher has taken their termination benefit, not only have they withdrawn their entire benefit, but it also means they have lost their pensionable service. This is especially important if they plan to continue teaching in Alberta. It takes five years to become vested with Alberta Teachers’ Pension Plans. If they withdraw their termination benefit and forfeit their pensionable service, a new contract will mean that they re-join a pension plan with no prior service. There is the option to buy back previously refunded service, but there are some restrictions and it can be quite expensive to do so.
Please Contact Us
If you are receiving requests from an employee to terminate their contract to access their termination benefit and you’re concerned, please call us. We strongly encourage your employee to contact us to discuss their situation and explore in more detail what options they have available to them. We understand this is a major decision for many people and we want to ensure your employees are receiving the support and information they need to make decisions in their best interests.
For most people, especially those with significant pensionable service in the plans, this decision can have a significant impact on their finances and retirement planning for years to come. For more information, you can invite them to read this article on terminating their contract and this one about removing their funds from the plan.