RSP withdrawal, severance and LTD payments


#1

I have a couple of questions relating to 1) RSP withdrawal and 2) severance package upon employment termination:

  1. Can I withdraw my RSP early and does either my LTD provider or CPPD have any claims to it? I’m thinking about withdrawing my RSP for cash needs (I know the tax implications) but I would not take it out if my LTD provider or CPPD will reduce their payments because of it.

  2. If my employer decides to terminate me on the basis on frustration of employment contract, do I receive a severance package and how does that affect my LTD payments from the insurance company and CPPD? Also, I will continue to receive my LTD payments after I’m laid off right?

Thanks!


#2

Hi
I am not a lawyer, but I do know that everything depends on what your insurance policy says which will vary from company to company. I do know that most will claw back what they give you based on any extra income you are getting. For example, when I was approved for CPP-D they clawed back what I got based on that additional income. My policy states that they can also claw back if I get a severance package (that varies depending on your company/insurance policy). For me this would mean they would not have to pay me insurance for months until I used up that severance.


#3

There is some debate over severance and statutory pay. If your policy says severance is deducted then it is–but I recall that stat pay as per Canada Labour Code or Provincial Standards are not.


#4

I know with my policy, they can also take my left over vacation pay which I find to be unfair but that is in the policy - considered income.


#5
  1. Some companies pay severance but some don’t. Some insurance companies deduct it but some don’t. An in progress LTD claim continues if you are fired. That contract is between you and the insurance company.
  2. I don’t know if withdrawing RSP gets deducted. I would ask the insurance company if they will try to take it. It depends on the wording of the policy. RRSP might label you as “retired”.