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WME > 11 - Employer Sponsored Pension Plans > Flashcards

11 - Employer Sponsored Pension Plans Flashcards

1
Q

How are group RRSP contributions taxed

A

They are a taxable benefit, included as income

Both employee and employer contributions are deductible on tax return

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2
Q

How does vesting work in group RRSP

A

No vesting on employee portion, can be withdrawn anytime
Employer portion can be locked in

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3
Q

Are group RRSP under pension legislation

A

No, tax legislation

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4
Q

Settlement options for group RRSP when employ leaves. 3

A

Lump sum
Purchase annuity
Transfer to RRSP/ RIF

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5
Q

How are contributions taxed on contributory DBPP/DCPP

A

Contributions are deductible to employer same way salary is

Employee contribution is deductible if made by Dec 31

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6
Q

DBPP flat benefit plan

A

A plan of $x per month per year of service

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7
Q

Advantage of flat benefit DBPP

A

Easy
Usually funded all by employer

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8
Q

Disadvantage of flat benefit DBPP

A

Not based on income
Amount paid is based on today dollars

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9
Q

Career average DBPP

A

Average over full employment, employee may contribute fixed percentage. Ie 5%

Percentage x average monthly earning x years of service

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10
Q

Advantages of career average DBPP

A

Most employers update base year

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11
Q

Disadvantages of career average DBPP

A

May be eroded by inflation if base year not updated enough

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12
Q

Advantages of best average DBPP

A

Better inflation protection

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13
Q

Disadvantage of best years DBPP

A

Problem if earnings decline towards retirement

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14
Q

What is maximum earned income

A

$170kl

Maximum amount that one can earn without being limited by the money purchase limit for RRSP withdrawals

$151,278 x 18%

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15
Q

Money purchase limit

A

Maximum contribution amount

Maximum earned income x 18%

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16
Q

Maximum pension benefit formula

A

Maximum earned income x 18% / 9

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17
Q

The maximum pension benefit for employees who earn more than the maximum earned income is limited to

A

The maximum pension benefit

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18
Q

How are employee contributions regulated in DBPP

Lesser of 2

A

Actuary determined

Restricted to lesser of 2
- 9% of employee annual compensation
- $1000, plus 70% of employees pension adjustment

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19
Q

Formula for pension adjustment for DBPP

A

(Pension benefit entitlement x 9) - 600

Pension benefit entitlement. Ie $151,278 x 2%

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20
Q

What is the money purchase plan amount

A

Ie. 151,278 x 18%

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21
Q

Limitations that prevent benefits from exceeding the lesser or 2 amounts

A

2% x service max 35 years

$2000 x service max 35 years

22
Q

Pension adjustment for DCPP

A

Total employee and employer contribution

23
Q

Contribution limit for DCPP

A

Lesser of:

18% of annual compensation

Money purchase plan contribution limit

24
Q

Past service pension adjustment

A

Difference between the pension adjustment under the old plan and that under the updated plan

25
Q

Pension adjustment reversal PAR

A

Restore RRSP contribution room when a plan member terminates his membership in a RPP or a DPSP

26
Q

When is an employee eligible for PAR

A

When membership is terminated not employment

27
Q

DBPP PAR is the difference between

A

Cumulative PAs and PSPAs earned to termination of membership

Commuted value of benefits

*reversal must be reported by 60 days

28
Q

Problem with transferring pension to a LIRA

A

Only portion of commuted value can be transferred,remaining has to be contributed to an RRSP if they have contribution room

29
Q

What is a PRPP

A

Pooled registered pension plan

Like DCPP, but for self employed or employed with no pension plan available

30
Q

Who administers PRPP

A

Banks and insurance companies

31
Q

6 advantages of PRPP

A

Pooled so lower administrative costs

Investment options

No need for employee employer relationship ie self employed

Portable

Deductible contributions

Grow tax free like RRSP

32
Q

3 disadvantage of PRPP

A

To be affective need harmonized between provincial and federal

Employer not required to offer them

Employers not compelled to contribute

33
Q

Criteria to participate in PRPP 4

A

SIN

Employed/ self employed in North

Work in federally regulated industry for employer who participates

Live in province with required provincial legislation

34
Q

Employer contribution to PRPP

A

Not included as employee income
Deductible by employer

*must fit in employee contribution room

35
Q

How are withdrawals from PRPP treated

A

As locked in.
*provinces need to come up with their own rules

36
Q

What is an IPP

A

Individual pension plan

Registered DBPP for usually one main person

37
Q

2 types of IPP

A

Connected - owner / manager who owned more than 10%

Non-connected

** not available if not incorporate **

38
Q

RRSP contributions for IPP

A

Can accumulate an annual pension equal to 2% of average earnings each year

Higher than RRSP contribution

Contribution amount increases with age

Can go back to when person was hired

39
Q

How are contributions treated for IPP

A

Contributions and costs are deducted by the company and are not subject to payroll tax

40
Q

Transfer of ipp assets in death

A

Can be transferred to person other than spouse tax free if they are plan members of IPP

41
Q

Pension adjustment calculations

A

Multiply value of pension benefit earned from ipp in calendar year by9

Then,subtract pension adjustment offset of $600 (I.e. 9 x the benefit - $600

42
Q

What is RCA and who is it for

A

Retirement compensation arrangement

Fund benefits over DCPP/ DBPP, a taxable trust set up by employer, does not take contribution room

For owners of private corporations making over $151k

43
Q

What can be invested in RCA

A

Wide variety, not managed by income tax act.
Including tax exempt life insurance products, deferred annuity

44
Q

How does CRA account structure work

A

2 parts investment and refundable tax account
Half of all earnings go to tax account, no preference for dividends etc
Every year with tax return 50% gets paid to CRA, MUST FILE ANNUAL TAXES

45
Q

How are benefits paid out of RCA

A

50 cents for every dollar paid out goes to custodian
Tax is paid at beneficiaries marginal tax rate

46
Q

Best benefit of RCA

A

Executives who plan to leave Canada after retirement, subject to non resident tax of 25%

47
Q

What is a supplemental executive retirement plan. SERP

A

Can be DBPP or DCPP
Not registered, so no deduction for employer until employee receives benefit

48
Q

Problem with SERP

A

CRA can start taxing ahead if they feel it is salary deferral

49
Q

LIF maximum is the greater of

A

Withdrawal percentage factor

Previous years return on LIF investment

50
Q

What is an LRIF

A

LIF from Newfoundland and Labrador

Saskatchewan and Manitoba have PRIFs. They have no max

WME (11 decks)

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