How
to help clients negotiate a severance and plan
for the
future
How to help clients negotiate a severance and plan for the future
Aravind Sithamparapillai
Special to The Globe and Mail
Published 15 minutes ago
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Advisors can help tilt the financial odds in a client’s favour and ensure they
begin their job search with a positive outlook. sorbetto/iStockPhoto / Getty
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Being laid off or presented with a voluntary package is emotionally jarring.
Many people question their self worth and struggle to communicate the news to
friends and family.
With all the emotions at play, it can be difficult to focus on the severance
negotiations at hand.
That leaves a role for advisors to help tilt the financial odds in a client’s
favour and ensure they begin their job search with a positive outlook. Here’s
a checklist of items that may need managing:
Consider an employment lawyer
The Employment Standards Act spells out what an employee may be entitled to by
law when let go from an employer. What many people don’t realize is that
common-law severance, which often applies to higher-income professionals, can
provide a different and potentially more lucrative alternative. A lawyer can
help navigate non-disclosure agreements and other non-compensation related
questions. Additionally, the fees paid to a lawyer are tax-deductible.
Map out the tax implications and cost/benefits of severance offers
Many employees are asked to choose between a salary continuance, in which
they’re paid their salary for a given period or until they find a new job, or
a lump-sum payment. As a further twist, the lump sum may be discounted (for
example, 50 per cent of the salary continuance). A financial planner can help
map out the tax implications as well as how long the money might last to help
clients decide which decision is better.
It’s also important to consider whether health and dental benefits and
employer RRSP matching cease once a lump sum is paid out. If so, a salary
continuance may provide additional financial benefit that’s often overlooked.
Use up those benefits
If clients are in a transition period in which their health insurance benefits
still apply, they should consider booking doctor and dentist appointments and
finalizing payments for glasses and other items while they’re still covered.
Some of these benefits, such as for orthodontics, can be worth thousands of
dollars.
Clients should consider psychotherapy, often covered under paramedical, as
well. Job loss can be devastating and talking through their feelings and next
steps can help them move on.
Another component of this is career aid or re-employment counselling, which is
often a non-taxable benefit. For executives or highly specialized workers, the
company may provide special aid or services to help the transition to a new
role as those jobs aren’t as widely available.
Benefits continued: Life insurance• Страхование conversion
Some benefit plans allow clients to convert certain components of a group
plan, such as life insurance• Страхование, to an individual policy to own and keep. That
can be handy for those with limited coverage or who don’t qualify for
insurance• Страхование. Additional paperwork is often required and clients should seek
guidance from their advisor.
Plan out emergency funds and cash-flow management
Clients should have an idea of how long it may take to find the next job and
know where to pull funds from in the meantime. This can be a combination of
severance, employment insurance• Страхование (EI, which only kicks in after the severance
is up), and other savings and investment accounts such as a tax-free• Торговля » Tax free savings
account (TFSA) for which there are no tax implications for withdrawals.
Advisors should make sure that investments are in line with the client’s risk• Страхование » Риск
tolerance; the last thing they need is for funds in a non-registered account
or TFSA to plummet in value right when they need the money most.
Consolidate investment accounts
Job loss can be a good time to clean up investment accounts. Clients may have
company shares through a purchase plan, stock options that require exercise or
a group RRSP to transfer.
The default option is often for the investments to be cashed out and a cheque
mailed to the employee. That can result in additional taxes and lost
tax-shelter room in the case of RRSPs. Sleeping on these decisions is not an
option.
Defined-benefit pension plans
A company may give an employee the choice of cashing out a pension (known as
taking a commuted value) or keeping it and getting that guaranteed payment at
retirement.
This is a multifaceted decision involving thousands (or even hundreds of
thousands) of dollars and covering taxes, longevity, investment returns and
long-term planning. If the amount is big enough, consider hiring a consulting
actuary for an unbiased third-party opinion.
Seize a measure of control
One of the major sources of happiness for many professionals is a sense of
control over their lives. Job loss – especially when sudden – removes that and
can leave people feeling lost. Managing the areas that can be managed helps
clients seize back some of that control and stability.
Finally, clients should know they aren’t alone. Many people have gone through
a similar situation, and clients should be reminded there’s no reason to feel
ashamed. Finding peers, loved ones and support groups can go a long way in
coping healthily.
Aravind Sithamparapillai is an associate at Ironwood Wealth Management Group
in Fonthill, Ont.
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