Financial hardship grounds for pension withdrawal

New Ontario regulations could undermine employees’ retirement savings planning.
By Sheryl Smolkin
|CHRR, Guide to Pensions & Benefits|Last Updated: 04/12/2001

The Ontario government has released long-awaited regulations which establish procedures for withdrawing pension funds in times of financial hardship. The new regulations, which came into effect last month, make it easier for employees to gain access to locked-in pension funds.

The good news for plan sponsors from an administration standpoint is that the only funds from which the money can be withdrawn are life-income funds (LIFs), locked-in retirement accounts (LIRAs) and locked-in retirement income funds (LRIFs) held by approved financial institutions. This means that only financial institutions are required to process approved withdrawals.

The bad news is that this could be the “thin edge of the wedge.” Currently, in Ontario, terminating members get only one opportunity to transfer out of pension assets, when they retire or leave the company. Terminated members who left their money in the pension plan may think they got a bad deal and pressure the government to permit transfers to financial institutions at later dates (as in Quebec). Also, in the future, more people may elect to transfer their assets into a RIF, LIRA or LRIF so they have the option of making an application for withdrawal should financial hardship arise.