In 2008 I was trying to decide whether to keep my money in the Nortel Pension Plan or extract it, I luckily made the right decision (and took the money out). Re-reading some of these tales I told helps my confidence that I have made good financial decisions.
One of the options I have as part of my severance is what to do about my pension.
Nortel’s pension was a Defined Benefit (up until January 1 this year), it is now a different plan (and my old pension has been capped).
This was a red herring. The type of Pension had little to do with my final decision.
The options I have are:
- Leave my money in Nortel’s pension scheme and start drawing from it at either age 55 or later.
- Take the money out and put it into a Locked In Retirement Account, or at least the portion that the government allows.
Nortel’s pension plan is underfunded by a large amount. I also have passed a point so that I can draw from the pension when I am 55.
This is the crux of the decision I had to make. The point was that we already knew the Nortel Pension was underfunded. The decision was to remove the money, for two reasons. Worry about the liquidity of the Nortel Pension, which was well-founded. The second reason was spite, I hated Nortel at the time (as did my wife).
I have heard many folks contemplate taking their pensions out so they or their agent can reinvest the money. My decision was done due to a possible failure of the pension plan, if your pension plan is safe, why would you want to remove your money?
Nortel related articles
- On Being Laid Off (a 10 year retrospective) what had I learned the 10 years after getting laid off.
- A Year Ago, written a year after that day I was laid off luckily I was waiting to start a new job
- Sometimes it’s better to be lucky a retrospective about how lucky I was to get laid off when I did. Read on to find out why.
- Pensions and Severance an important topic I took from my layoff from Nortel.
- Twenty Years in One Line is what my severance letter did. My 20 years are summed up in a sentence.
- Financial Issues With Severance what do you do with your severance if you have options? If you get severance as well.
- On Being Laid Off my explanation of being laid off from Nortel, a day or two afterwards.
- Nortel Still Paying Out? Really, well not that much.
The one time I was faced with this decision, I took the money in an LIRA. I then invested in a stock that returned 1000%, so that was lucky.
Anyway, at that time, I only had about 3.5 years in at the company, and was moving on. I was 30 years old, and would have had to wait a long time to start drawing from the pension. The amount would have been small, and I like managing my own money. So, I took the commuted value of the pension.
I would consider the future solvency of the company. If you expect it will be insolvent before retirement, then take the money & run, even though you lose the employer contribution, and the potentially greater benefit.
The LIRA should allow you to choose the investments within it, so you can build your retirement nest egg with products you are satisfied to own.