DD is trying to make a financial decision and we're wondering what everyone on the board thinks.
DD is currently working for the government as a term worker, which means she currently has benefits. Her term runs out in December and she'll have 20 months of service at that time. With the massive budget cuts that are going on, it's likely she will not be renewed at the end of the year.
If an employee leaves the public service with less than 2 years of service, they are refunded the money they contributed to the pension plan dollar for dollar as taxable income. If they have over 2 years of service, the rules change : they can either leave their years of service with the government employee pension plan (to be paid at 60 years of age) or they can cash out the value, which would include not only their contribution but the employer contributions. This would almost double her money.
DD has been cashed out in the past, during her student positions with the government. These months can be counted as years of service if she reimburses the money that was cashed-out of the pension plan. This means she has the option of buying-back the time. She thinks it's about 1 year of service at $3,000. If she buys back the year, that would put her over the 2 year mark should her employment cease at the end of the year.
Here's the problem: DD is broke because she's been making double payments to her massive student loans. She has about $2,500 in savings right now, but she was actually saving money so that she could continue to pay rent and her student loan if she loses her job. She went through almost 2 years of unemployment before landing this position, so she's leary to let go of the cash she currently has.
If she were to buy back the service, she could either leave it with the government (in hopes of landing another government job) or transfer it to an RRSP so that it wouldn't be taxed. She does not view it as cash that would be available to her if she lost her job.
She's very concerned about blowing all of her savings to buy back this time. I can understand her trepidation but at the same time I would have to see her lose the employer's contribution should she become unemployed in December. She's not sure she can make much headway with her savings during the next 6 months of the year.
What do you think she should do?