Ch 11 - Employer-Sponsored Pension Plans

Question 1

Group RRSP SETTLEMENT OPTIONS

Answer 1

withdraw the funds in a lump sum
purchase an annuity
transfer to RRSP or RRIF

Question 2

what is a REGISTERED PENSION PLAN

Answer 2

An RPP is a trust registered with CRA and established by an employer to provide pension benefits for its employees
when they retire.

Question 3

what is the Pension Benefits Standards Act, (PBSA)

Answer 3

Under this Act, the federal government

supervises private pension plans covering federally regulated areas of employment.

Question 4

what areas of work does the PBSA cover?

Answer 4

banks, airlines, interprovincial and international transportation, and telecommunications

Question 5

three types of DBPPs:

Answer 5

• Flat benefit plans
• Career average plans
• Final and best average plans

Question 6

what is a FLAT BENEFIT PLAN?

Answer 6

The flat benefit plan is the simplest type of DBPP. The monthly pension is a fixed dollar amount for each year
of service.

Question 7

advantage of Flat benefit plan

Answer 7

• easy to understand.
• Plan is funded entirely by the employer.
• Can negotiate and increase benefits
• The pension paid is completely separate from, and in addition to, OAS and CPP or
QPP benefits.

Question 8

Disadvantages of Flat Benefit Plan

Answer 8

• high-income employees get same amount as low-income employees.
• The amount paid is established in terms of today’s dollar values. the pension payable
at retirement is eroded by inflation.

Question 9

CAREER AVERAGE PLANS

Answer 9

With a career average plan, the pension is calculated as a percentage of an employee’s earnings over the entire period of service under the plan.

Can change the base year from which average starts to combat inflation

Question 10

FINAL AND BEST AVERAGE PLANS

Answer 10

plan uses either the final few years of service or the employee’s three to five highest-earning years.

Question 11

MAXIMUM PENSION BENEFIT

Answer 11

The maximum pension benefit (MPB) allowed is 2% of the recipient’s annual earnings, up to a maximum for each
year of service.

Question 12

Maximum Pension Benefit for 2020 (example)

Answer 12

$154,611 x 18% = $27,830 / 9 = MPB = $3,092.22

1/9 = money purchase limit

Question 13

PENSION ADJUSTMENT and its purpose

Answer 13

the amount of contributions made by, or the value of benefits accrued to, a plan member for a calendar year.

The pension adjustment allows plan members to determine the amount they can contribute to an RRSP without exceeding their annual contribution limit for all registered plans combined.

Question 14

The pension adjustment for a DBPP participant (formula)

Answer 14

(Pension Benefit Entitlement x 9) – $600.

Same formula for IPP*

Question 15

HYBRID PENSION PLANS

Answer 15

Hybrid pension plans involve elements of both DBPPs and DCPPs.

Question 16

past service pension adjustment (PSPA).

Answer 16

The difference between the pension adjustment under the old plan
and that under the revised plan

Employers who offer defined benefit plans may upgrade them at times by making additional contributions to an
employee’s plan to provide increased benefits.

Question 17

GUARANTEE PERIOD - Pension Plan

Answer 17

Pension payments can be guaranteed for the life of the contributor or for a minimum payment period, such as
10 years

Question 18

options when members of a pension plan leave their employer before retirement

Answer 18

• Keep their pension entitlement within the pension plan
• Transfer out of the plan to another pension plan
• Transfer funds (up to legislated limits) to a LIRA

Question 19

pooled registered pension plan

Answer 19

DCPP designed for people do not have the option of participating in a pension plan

Usually for small business

Question 20

Disadvantages of pooled registered pension plan

Answer 20

• require harmonization of regulations
across federal, provincial, and territorial jurisdictions.
• Employers Not required by law to offer them.
• Employers are also not compelled to contribute to a PRPP.

Question 21

INDIVIDUAL PENSION PLANS

Answer 21

registered DBPP usually established by a company for one employee, who is
often the owner-manager.

This type of plan is designed to maximize the amount of contributions that are permitted by the Income Tax Act.

Question 22

For who is an individual pension plan suitable?

Answer 22

generally attractive to people between the ages of 40 and 71, who have a T4
income of more than $154,611, which is the maximum pensionable amount for DBPP

Question 23

two types of IPPs and description

Answer 23

Connected persons plan - designed for owner-managers who own more than 10%
of any class of shares of the company

Non-connected persons plan - for persons who are not shareholders or who own less than 10% of the company shares. used
to attract or retain senior management personnel.

Question 24

RETIREMENT COMPENSATION ARRANGEMENT (RCA)

Answer 24

A retirement compensation arrangement (RCA) allows employers to pre-fund
retirement benefits without using an RPP.

An RCA is a savings arrangement occasionally used by private companies
for their employees’ pension funding.

It is used to fund the portion of an employee’s pension benefit that exceeds
the benefits permitted under a DBPP or DCPP.

Question 25

What is a supplemental executive retirement plan (SERP)

Answer 25

employers provide members of an RPP with an additional benefit

Question 26

Advantages of SERP (employee and employer)

Answer 26

employer: use in attracting and retaining
top executives and key employees.

employees: can help fund a retirement plan
that reflects their high salary and accompanying lifestyle.

Question 27

RRIF withdrawal formula

Answer 27

amount / (90-age)

Question 28

LOCKED-IN RETIREMENT ACCOUNTS AND LOCKED-IN RRSPs

Answer 28

Transferring the funds to a LIRA or locked-in RRSP allows contributors to manage the assets themselves, rather
than entrusting them to the ex-employer’s pension plan manager.