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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No vesting on employee portion, can be withdrawn anytime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
Pension adjustment reversal PAR
Restore RRSP contribution room when a plan member terminates his membership in a RPP or a DPSP
26
When is an employee eligible for PAR
When membership is terminated not employment
27
DBPP PAR is the difference between
Cumulative PAs and PSPAs earned to termination of membership Commuted value of benefits *reversal must be reported by 60 days
28
Problem with transferring pension to a LIRA
Only portion of commuted value can be transferred,remaining has to be contributed to an RRSP if they have contribution room
29
What is a PRPP
Pooled registered pension plan Like DCPP, but for self employed or employed with no pension plan available
30
Who administers PRPP
Banks and insurance companies
31
6 advantages of PRPP
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
3 disadvantage of PRPP
To be affective need harmonized between provincial and federal Employer not required to offer them Employers not compelled to contribute
33
Criteria to participate in PRPP 4
SIN Employed/ self employed in North Work in federally regulated industry for employer who participates Live in province with required provincial legislation
34
Employer contribution to PRPP
Not included as employee income Deductible by employer *must fit in employee contribution room
35
How are withdrawals from PRPP treated
As locked in. *provinces need to come up with their own rules
36
What is an IPP
Individual pension plan Registered DBPP for usually one main person
37
2 types of IPP
Connected - owner / manager who owned more than 10% Non-connected *** not available if not incorporate ***
38
RRSP contributions for IPP
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
How are contributions treated for IPP
Contributions and costs are deducted by the company and are not subject to payroll tax
40
Transfer of ipp assets in death
Can be transferred to person other than spouse tax free if they are plan members of IPP
41
Pension adjustment calculations
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
What is RCA and who is it for
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
What can be invested in RCA
Wide variety, not managed by income tax act. Including tax exempt life insurance products, deferred annuity
44
How does CRA account structure work
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
How are benefits paid out of RCA
50 cents for every dollar paid out goes to custodian Tax is paid at beneficiaries marginal tax rate
46
Best benefit of RCA
Executives who plan to leave Canada after retirement, subject to non resident tax of 25%
47
What is a supplemental executive retirement plan. SERP
Can be DBPP or DCPP Not registered, so no deduction for employer until employee receives benefit
48
Problem with SERP
CRA can start taxing ahead if they feel it is salary deferral
49
LIF maximum is the greater of
Withdrawal percentage factor Previous years return on LIF investment
50
What is an LRIF
LIF from Newfoundland and Labrador Saskatchewan and Manitoba have PRIFs. They have no max

WME (11 decks)

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