Posted by lbourgeois
on Wednesday, December 08, 2010.
Categories: LIRA, LIRSP, LIF, RLIF, MB RRIF
In June 2009 the Ontario Pension Benefits Regulations were updated in order to harmonize the Old LIF, New LIF and Locked-in RIF (LRIF) products effective January 1, 2011. This will make administrating the LIFs within your credit union’s RRIF portfolio a lot easier in the future.
Let’s clarify the Ontario products:
Locked-in RIF – LRIF: not offered by many credit unions as prior to 2011 the maximum payment was based on the income earned under the plan in the prior year and as of Jan 1, 2009, new LRIFs could not be purchased. Existing LRIFs do remain on the books of some financial institutions and you may have members transferring existing LRIFs to your credit union’s LIF product. Effective Jan 1, 2011 LRIF CANNOT be transferred to a LIRA.
Old LIF – LIFs purchased prior to Jan 1, 2009. No new funds may be transferred into an existing Old LIF after Dec 31st, 2008. There is no requirement for an Old LIF to be closed and transferred to a New LIF. Effective Jan 1, 2011 Old LIFs CANNOT be transferred to a LIRA.
NEW LIF – LIFs purchased Jan 1, 2009 and beyond. The only option available through credit unions for Ontario LIRAs and pension funds. New LIFs never have been able to transferred funds back to a LIRA. (NOTE: LIRAs may also be transferred to a life annuity offered through life insurance companies. Pension plans may provide a payment directly from the pension plan or purchase a life annuity.)
Maximum Payment Calculation
As of 2011 the maximum payment calculation for all three products is the same; the greater of the investment earnings from the prior year and the calculated based on the CANSIM table.
The CANSIM table is based on a minimum 6% rate which has been used for the last couple of years. The table can be found on Financial Services Commission of Ontario’s (FSCO) web-site at www.fsco.gov.on.ca. Here is the 2011 table link .
In today’s low interest rate environment, members who are only investing in fixed terms will have their maximum payment based on the CANSIM factor table. Members investing in mutual funds and/or self-directed plans may have the investment income that is earned during 2010 provide them with a higher LIF payment in 2011 than what the CANSIM table would provide. RP Success’ Ontario LIF excel calculator available under Tools for Credit Unions will be updated effective January 1, 2011 to assist with your 2011 LIF maximum payments calculations.
50% Release of Fund to RRIF, RRSP or cash
Effective Jan 1, 2010, funds transferred to a LIF from a LIRA or pension plan may have the annuitant request a 50% release of the LIF value within 60 days of the date funds are received. The funds may be withdrawn in cash or transferred, tax sheltered, to a RRSP or RRIF. It is the credit union’s responsibility to inform the member of this option. If the request for the 50% release is not made within the 60 days, there is NO opportunity for the release of those funds in the future. The FSCO provides an application form that the annuitant must complete to request this release. Form 5.2
Each time new LIRA or pension plan funds are transferred to an existing LIF, the amount transferred will be eligible for the 50% release within the 60-day period.
e.g. Thomas transferred $45,000 of LIRA funds to a LIF Aug 3, 2010 and requested the 50% release on Aug 10th. He retired from his company in Dec 2010 and requested his pension plan of $125,000 be transferred to his existing LIF in Jan 2011. He will have 60 days from the date the funds are received by the credit union to request the 50% release on the $125,000 new funds received in the LIF.
Effective Jan 1, 2011 and until April 30, 2012, annuitants of existing Old LIFs and LRIFs may request a one-time 50% release of funds from these plans. The FSCO will be providing the form required for an annuitant to request this release. I will provide a link once the form is available. If Old LIF or LRIF plans are transferred to a New LIF contract, the funds transferred are NOT eligible for the 50% release.
The FSCO web-site has a great Q and A on all the changes – click this link to access.