Assignment 3

Question 1

3 Pillars of Canadian Pensions

Answer 1

1. Government Pension Programs
2. Employer-Sponsored Programs
3. Personal Savings Programs

Question 2

List Government Pension Programs

Answer 2

• CPP
• OAS
• GIS

Question 3

List Employer-Sponsored Programs

Answer 3

• RSP
• Defined Benefit
• Defined Contributions
• Hybrid

Question 4

List Personal Savings Programs

Answer 4

• RRSP
• TFSA
• Non-Registered

Question 5

2 Formal Pension Features

Answer 5

1. States how the pension and other benefits are determined, together with terms and conditions under which benefit is payable
2. Financial arrangements are made to provide funds needed when benefits are due. Usually built up through a trust or insurance contract

Question 6

CRA Registration Benefits

Answer 6

• Allows employers and employees to deduct contributions from income for tax purposes
• Exempts the plan’s investment income from taxation

Question 7

Employer Reason’s for Pension Plan

Answer 7

• RPP allows a company to expense its pension cost in years which the pensions were earned and credited to employees
• Easier to retire employee’s in an orderly way
• Can be used to increase employee’s interest in the company

Question 8

Employer Reason’s for NOT having Pension Plan

Answer 8

• Employers prefer to invest funds in their own enterprises, where the potential return is higher
• May cause clawback of government-sponsored programs such as OAS
• Employers may feel the pay is high enough for employees to build their retirement savings themselves

Question 9

Describe Defined Benefit Plans

Answer 9

• Plan specifies the formula for the determination of benefit entitlements
• Cost of plan determined on an actuarial basis
• FLAT or UNIT Benefit Plans

Question 10

What is Flat Benefit Plan

Answer 10

Provide fixed benefit under formula that disregards level of income
Ex.) ($20/month)(Years of work) = Annual Retirement Income

Question 11

Career Average Earnings Pension Plan

Answer 11

(Percentage Provided)(Average Salary)(Years of Work)

Question 12

Describe Defined Contributions Plan

Answer 12

• Specifies level of contributions of employer & employee
• Contributions invested and accumulated to retirement
• Investment & Longevity risk is on the employee

Question 13

Define Old Age Security (OAS)

Answer 13

Provides monthly benefits to those who reach 65 and meet residency requirements (subject to clawback)

Question 14

Define Guaranteed Income Supplement (GIS)

Answer 14

Provides monthly benefits to OAS recipients and is subject to income test and residency requirements

Question 15

Define Allowance and Survivor’s Allowance

Answer 15

Provide monthly benefits to the living or deceased pensioner’s spouse/common-law. Paid to those between ages 60-64. Subject to income test and residency requirements

Question 16

Financing of OAS

Answer 16

• Paid by Government Tax Revenue

- Total of OAS expenditures to GDP was 2.25% (as of 2012)

Question 17

What is “clawback”

Answer 17

A tax implemented to lower OAS benefits to those with high pension income.

Question 18

Clawback Calculation

Answer 18

0. 15*(Income-Given Excess Income)

- Income includes OAS for the given year

Question 19

Describe CPP/QPP

Answer 19

• Funded through contributions from employers/employees/investment earnings on contributions

Question 20

Employee CPP Contribution Formula

Answer 20

ContributionRate*[Min(YMPE,Earnings)-YBE]

Question 21

Actuarial Liability (AL)

Answer 21

Portion of PVFB that is attributed to past service

Question 22

Normal Cost (NC)

Answer 22

Portion of PVFB that is attributed to current year of service

Question 23

Present Value of Future Normal Cost (PVFNC)

Answer 23

Portion of PVFB that is attributed to future years of service