You probably keep a close eye on your regular income, RRSP and other personal investments, but what about the investment and health benefits plans sponsored by your employer?
They provide valuable insurance coverage and an important source of retirement income — but do you really know enough about them — what you are and are not covered for; if there are gaps in your coverage that need to be filled; or even if you are paying for coverage you may not need?
All your work-related plans
You were given explanatory booklets when you signed up for your employer-sponsored plans and you’ve probably received updates. Read everything carefully so you’ll know exactly what benefits you are entitled to receive under each plan.
Pay particular attention to periodic notices — and look carefully for changes. Employers often revise plans and may even terminate them but must give plenty of notice. (Some employers provide this information on an Internet site).
Keep track of your benefits information slips — especially pension plan statements — for each organization you’ve worked for during your career.
Retirement savings plans
• Know the type of pension plan provided by your employer.
• A Defined Benefit (DB) plan provides a pre-set pension for life from the time you retire. The amount of your pension benefit is set according to your length of service and salary, and may or may not be indexed for inflation.
• A Defined Contribution (DC) plan does not guarantee the amount of your future benefits. Your retirement income depends on the accumulated contributions and the investment returns earned by those contributions.
• Your employer may offer a Group RRSP instead of, or in addition to a formal pension plan. You may be required to make full contributions or your employer may subsidize them. Either way, the total contributions to a Group RRSP and any personal RRSPs can’t exceed your personal annual maximum contribution limit set by the Canada Revenue Agency.
• Deferred Profit Sharing Plans (DPSPs) are paid for by an employer and are often restricted to investment solely in the employer’s stock. The retirement benefit depends on investment performance over time.
Health benefits plans
• Know plan limitations and gaps.
• Group plans may not provide all the coverage you need. Most plans provide only partial coverage and/or a percentage of your salary that ignores any pre-disability income from overtime or bonuses.
• Know who should pay for coverage.
• If you and your spouse both have work-related plans, you may be doubling up on coverage and costs. Compare plans and eliminate double-covered items.
Your professional adviser can help you understand your employment benefits plans and how to most cost effectively merge them with your overall financial, insurance and health plans.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc.. His column appears every Wednesday.
