Terminating a Contract
Teachers are not eligible to access their pension funds while they are employed and actively participating in the pension plans. Accessing a termination benefit from the pension plans would not normally be a deciding factor for a teacher to terminate their employment contract.
However, if you do receive this kind of request, there are a few things you should know before taking any action. Please note that this article focuses on vested members under the age of 55 looking to access a termination benefit. A vested member is a teacher who has accumulated sufficient pensionable service to be eligible to receive a pension. If they are not vested when they terminate their participation in the plans, they are only eligible to receive a refund of their own contributions to the plans with interest.
What it Means to Terminate a Contract
When a vested teacher’s contract ends and they are not yet 55 years old, they become eligible to access a termination benefit from the plans. Any application must be received by ATRF while the member is considered ‘terminated’ from the plan (more on this below). It’s important to note that they also have the option of receiving a deferred pension by keeping the funds in the plan.
However, if they do decide to take a termination benefit, this means that along with the contract ending, it’s also the end of the employee-employer relationship, which typically means that the 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.
From ATRF’s perspective, we do not take a position on how employers manage their employment contracts. We do ask, however, that any termination be a bona fide employment termination, meaning that it is a genuine termination for actual employment reasons, not just to become eligible for a termination benefit under the pension plans. Employers normally set policy parameters around what is a bona fide termination. If a teacher is re-hired immediately after their termination by the same employer into the same position, and the termination was only to create eligibility to apply for a termination benefit, then that would not appear to be a bona fide employment termination; this would be especially true if there has been no termination of other employment benefits coverage as a result in their change in employment status.
Timing of Application
Assuming that an employee’s contract is genuinely terminated, the teacher must apply for a termination benefit from ATRF prior to the start of any new teaching contract if they wish to access their entitlement. If the teacher does not apply for their benefit until after they start a new teaching contract, they will be an active member again and will no longer be eligible to apply for or access their termination benefit.
Timing and Impact on Benefits
Withdrawing a termination benefit is not a quick fix for financial hardship and can have long-term financial consequences. Once a member applies to ATRF to get the process started, it can take up to four months from the later of their date of termination or application before their termination benefit is paid.
A vested member’s termination benefit must be transferred to a locked-in retirement account (LIRA), up to the maximum transfer value prescribed by the Canada Revenue Agency. It is important for members to realize that they will not be getting the entire termination benefit amount as a cash payment. If there is a portion of the termination benefit that exceeds the maximum transfer value, this will be paid as a taxable cash benefit with tax deducted at source at the prescribed rates and potentially more taxes needing to be paid when the member files their tax return, depending on whether there are other sources of income that year.
When a member decides to withdraw their funds from the plans, the service that those contributions represent is no longer to their credit and they will not be entitled to a lifetime pension from the plans. In this case, they are in essence converting a lifetime pension from a defined benefit plan into an individual retirement savings plan. This is inconsistent with the purpose and value of a defined benefit pension, which is to provide retirement security through a lifetime pension, adjusted each year for changes to cost-of-living, no matter how many years an individual lives.
A reminder – payouts must be reported to ATRF in the month of the member’s termination. Where the payout will result in a member having more than one year of pensionable service in a calendar year, the service in excess of 1.0 will be refunded to the member as excess contributions.
Please Contact Us
If you are receiving requests from employees to terminate their contract to access their termination benefit, please encourage your teachers to contact us first to discuss their situation and explore in more detail the options they have available. We understand this is a major decision for many people and we want to ensure your teachers are receiving the support and information they need to make decisions in their best interests, considering their own circumstances. For most people, especially those with significant pensionable service in the plans, this decision can have a significant impact on their finances, retirement planning, and retirement security 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 plans, to help them understand the various elements to consider in their decision.