Q1- What is the government proposing?
The government will introduce legislation that would, if passed, provide Nortel pensioners with the choice to opt out of conventional life annuity purchases and transfer the commuted value (CV) of their pensions to any Life Income Fund (LIF) account. If they do not choose, annuities will be purchased on their behalf.
This new option would parallel the option already available to plan members who are not yet receiving a pension.
It parallels a recently-introduced provision in Quebec for pensioners in plans that are being wound up as a result of a sponsor’s insolvency.
Q2 - Why is a life annuity considered the default option?
The purchase of an annuity is the normal outcome for pensioners following a pension plan wind up. The annuity is purchased by the plan administrator on behalf of the pensioner and provides a retirement income for the life of the pensioner, and survivor, if any.
Q3 - What happens if a pensioner does not want to transfer their commuted value to a LIF?
If a pensioner does not wish to opt out of the conventional annuity purchase, then the Plan Administrator will purchase an annuity. This annuity will be based on the pension to which the pensioner is entitled upon the wind up of the plan. If the pension had joint and survivor benefits, then the annuity will provide a lifetime payment with joint and survivor benefits.
Pensioners who do not expressly choose to opt out will have an annuity purchased for them.
Q4 - What happens if a pensioner wants to transfer their commuted value to a LIF?
If the legislation is passed, pensioners who wish to transfer the commuted value of their pensions to a Life Income Fund account will be able to do so.
If a pensioner has selected this transfer option in writing, the plan administrator will transfer the commuted value of their pension to a LIF account established by them at the financial institution of their choice.
LIFs pay an annual income, but that amount can vary from year to year. There is a minimum percentage that must be withdrawn from the LIF each year and a maximum amount that may be withdrawn in any year. However there is no guarantee that there will be enough money in the LIF to pay the owner an income for his or her lifetime. The LIF owner can also name a beneficiary to receive the funds from the LIF after they die.
Q5 - What is the government’s position on the NRPC’s Financial Sponsorship Model (FSM)?
The proposed legislation would allow a pensioner to choose to transfer his or her commuted value into any LIF instead of receiving a life annuity. The Nortel pensioners will have to consider their own individual options.
Q6 - Will the FSM be the only choice for Nortel pensioners if they choose to transfer their commuted value?
No. If the legislation passes, pensioners who choose to transfer the commuted value of their pension to a LIF will have the choice of a registered LIF offered by any financial institution.