Helping clients recover forgotten pensions can boost their retirement security significantly.cosmaa/iStockPhoto / Getty Images
This article is part of a new Globe Advisor series, Pensions Unpacked, exploring how workplace pensions fit into retirement strategies, and the technical details and decisions that come with the plans.
While it might seem unthinkable that someone could forget about their pension plan, it happens a lot. Frequent job changes, relocations and a lack of financial guidance can easily lead to misplaced retirement savings.
In Ontario alone, an estimated 200,000 pension plan members have left a staggering $3.6-billion on the table, according to a December report from the National Institute on Ageing.
Helping clients recover these forgotten pensions can boost their retirement security significantly. But how do pensions get lost in the first place, and what can advisors do to help reclaim them?
Job changes, small balances are common culprits
“People who change jobs frequently often accumulate participation in multiple pension plans,” says Léo Deblois, a pension analyst and business development advisor at SFL Wealth Management in Quebec City.
“The problem arises when those plans take different forms – group RRSPs, defined-contribution plans, defined-benefit plans – and are held by various institutions.”
When employees move on, they often don’t update their contact information with pension plan administrators. Over time, when pension statements stop arriving, the funds simply fall off their radar.
“I’ve had clients who didn’t even realize they had a pension with their current employer,” Mr. Deblois says. “Fast forward 20 or 30 years and it’s no surprise they’ve forgotten about plans from previous jobs.”
A modest account balance can also exacerbate the problem. If an individual has only spent two or three years in a role with a modest salary, they might assume the pension isn’t worth claiming. But compounded growth can turn a seemingly insignificant balance into a substantial asset – if it’s recovered, Mr. Deblois says.
Certain industries pose a higher risk of lost pensions, particularly those with transient workforces.
Multi-employer pension plans – common in construction, entertainment and unionized gig work – create another layer of complexity, says Doug Chandler, Canadian retirement research actuary at the Society of Actuaries in Calgary, and associate fellow at the National Institute on Ageing, for which he co-authored the report on missing pension plan members.
“In industries in which workers switch employers frequently but remain part of the same pension plan, it’s easy for them to forget what they’ve accumulated,” Mr. Chandler says. “Years later, when pension plan administrators try to make contact, the member has often moved and forgotten the pension plan exists.”
This issue becomes even trickier when pension plans are wound up due to company closures, mergers or acquisitions.
“If a pension plan is terminated, the administrator is legally required to locate all members,” Mr. Chandler says. “But if the contact information is outdated, the money can sit untouched for years.”
Jean-Pierre Laporte, a pension lawyer and chief executive officer of Integris Pension Management Corp., a pension consulting firm in Toronto, says if those accounts are small, there’s usually “very little appetite on spending money on creative approaches to try to reach these folks, especially if the economic cost of contacting their owners exceeds the value they bring to the administrator of the plan.”
Mr. Laporte, whose clients range from individual pensions with one member to larger organizations with hundreds of plan members across Canada, says he has leveraged the Canada Revenue Agency’s (CRA) letter-forwarding service to find missing people in the past.
This tool allows pension administrators to request the CRA forward a letter to a former pension plan member’s last known address. “If they’re still filing taxes, the CRA should have their most current address,” he says.
However, there’s a fee per letter and no guarantee the member will respond. In fact, Mr. Chandler says, recipients often think it’s a scam when they get a notice they’re owed money.
Steps for pension-trackers
So, where should financial advisors start when helping clients track down lost pensions? A surprisingly effective first step is simply reviewing a client’s employment history and cross-referencing it with their CRA online account.
“Many clients don’t realize their CRA account holds records of past pension contributions,” Mr. Deblois says.
A client’s annual Notice of Assessment will reflect any registered pension plan (RPP) contributions under a section called the pension adjustment – a clear indicator that a pension exists.
(The CRA also tracks RRSP contribution room and deduction limits, which can flag previously unknown group RRSP contributions.)
Once a pension contribution is identified, the next step is contacting the former employer or pension administrator. That can be straightforward – or extremely cumbersome if the company has merged, rebranded or ceased operations.
If a former employer or pension plan no longer exists, clients may need to contact the provincial pension regulator to trace their funds. The process varies by province, Mr. Chandler says.
In Quebec, the regulator also acts as the plan administrator and ensures unclaimed pensions are transferred and protected. Elsewhere, funds may sit dormant for years, either with an insurance company offering deferred annuities or in an unclaimed property fund – although the latter typically earns no interest.
To track down these pensions, advisors must understand which regulator oversees the plan and where the money may have been transferred after a plan’s windup.
Found, and never lost again
Once a pension has been located successfully, advisors should guide clients through their transfer options.
In most cases, consolidating old pensions into a locked-in retirement account or a personal RRSP is beneficial to simplify tracking, Mr. Deblois says.
“Leaving small pension balances scattered across multiple institutions increases the risk of losing track again,” he cautions.
“Consolidating minimizes that risk, but advisors should flag potential tax implications or restrictions, especially around early withdrawals.”
The impact of reclaiming a forgotten pension can be life-changing. Mr. Deblois recalls clients who didn’t think twice about a small pension from a short-term job, only to discover it had grown into a significant retirement asset.
“It’s always worth checking,” he says. “Your client worked hard for that money – the least we can do is help them get it back.”