Voluntary Separation Programs

What’s in it for you?

As is currently the case with Toronto Star employees, it is likely that an increasing number of workers in various organizations across Canada will be encouraged to leave their employment under a Voluntary Separation Program(VSP). Essentially, it is a payment incentive to quit your job.
In most cases, individuals who take the VSP then need to choose if they want to take salary continuance (up to a maximum of 90 weeks), or take it as a lump sum.

We can help employees facing this situation with their finances (mortgages, debt consolidations, investments options, one-on-one financial plans, investment and retirement planning, etc). The dollar amount of the severance is different for each person and is based on their years of service. Which one is best? That depends on the individual – and this is where Luminus Financial can help.

We’ve served working people for more than 60 years, through many different stages of their lives. We have been involved with VSP consultation for employees from different organizations. In our seminars and individual consultations, we’ve highlighted the main differences between salary continuance and lump-sum payment. Here are the key points to keep in mind:

Benefits of Salary Continuance vs Lump Sum

1.)  Remain as an employee and still on payroll
2.)  Continue to contribute every pay to Pension Plan & Benefits Plan (both employee and employer)
3.)  Maintain existing medical/dental plans (this is very important for some families who have high medical bills)
4.)  Income tax due on the VSP is spread over the term of the continuance.

Disadvantages of Salary Continuance vs Lump Sum

1.)  Cannot begin to receive Pension Funds (if elected to take pension payment) until employee termination (must wait until continuance is over – could be up to 90 weeks of missed pension payments).
2.)  Time value of money - funds could have been invested earning a rate of return (if there is no interest paid by the employer on VSP funds).
3.)  Cannot take advantage of income splitting (which can be achieved through a spousal RRSP).
4.)  Cannot take advantage of unused RRSP carry-forward room (which could result in a very large tax deduction).
5.)  Funds are not tax sheltered (if funds are deposited into an RRSP, taxes are not due until they are withdrawn).

If you’ve been offered the VSP option, we would be pleased to provide you with consultation and a professional second opinion – free of charge. To arrange a meeting – including evenings around your kitchen table – contact your branch at 416.366.5534 or email us at inquiries@luminusfinancial.com

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