Chapter 11

Question 1

A registered pension plan (RPP) is a ______ registered with the Canadian Revenue Agency (CRA) and established by an employer to provide pension benefits for its employees when they retire.

Answer 1

trust

Question 2

There are two main types of registered pension plans

Answer 2

defined benefit pension plan (DBPP) and defined
contribution pension plan (DCPP) also known as a money purchase plan.

Question 3

If the business that issues the RPP is under federal jurisdiction, it must be registered under the…

Answer 3

Pension Benefits Standards Act, 1985 (PBSA).

Question 4

Pension plans must be registered federally with CRA under the ________ _____ Act.

Answer 4

Income Tax Act

Question 5

There are three types of DBPPs:

Answer 5

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

Question 6

In this type of defined benefits pension plan, the monthly pension is a fixed dollar amount for each year of service

Answer 6

Flat Benefits Plan

Question 7

In this type of defined benefits pension plan, the pension is calculated as a percentage of an employee’s earnings over the entire period of service under the plan.

Answer 7

career average plan

Question 8

This type of defined benefits pension plan is based on the employee’s length of service and average earnings. However, benefits are based on the employee’s average earnings over a much shorter period. Typically, the plan uses either the final few years of service or the employee’s three to five highest-earning years.

Answer 8

a final average plan and a best average plan

Best Average- using the 3-5 highest paying years

Final Average- Uses the final few years

Question 9

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

Answer 9

2%

Question 10

Combined employer/employee contributions are set at a level recommended by a ________ _________ to ensure that the plan is adequately funded. Their recommendation must be approved by………

Answer 10

qualified actuary

the CRA

Question 11

The pension adjustment for a DBPP participant is determined by a certain formula called….

Answer 11

Factor of 9 formula

(Pension Benefit Entitlement × 9) – $600

Question 12

Non-taxable transfers to other _________ plans are permitted.

Answer 12

registered plans

Question 13

There is no maximum pension under a

Answer 13

defined contribution plan (DCPP)

Question 14

In many plans, benefits are determined by reference to two or more benefit formulas. In addition to the regular benefit formula, most plans contain a limitation that prevents benefits from exceeding the lesser of two amounts:
• 2% of final average earnings × pensionable service (to a maximum of 35 years)
• $2,000 × pensionable service (to a maximum of 35 years)

Answer 14

Combination of Benefit Formulas

Question 15

In this type of pension plan, the employee’s contributions to the plan are known, but the final benefit is not predetermined.

Answer 15

Defined Contribution Pension Plan

Question 16

In this type of pension plan, the pension benefit at retirement is known, but the contributions required to fund the benefit are not known.

Answer 16

Defined Benefit Pension Plan

Question 17

The pension adjustment for a DCPP is the total of the

Answer 17

employee’s contributions plus the employer’s contributions to the DCPP each year.

Question 18

This type of pension plan involves elements of both DBPPs and DCPPs

Answer 18

Hybrid Pension Plans

Question 19

This type of pension plan is designed for people who are employed or self-employed and do not have the option of participating in a pension plan at their work. It is especially geared toward employees of small businesses who are unable to participate in an RPP primarily because their employer does not offer one.

Answer 19

Pooled Registered Pension Plan

Question 20

Pooled Registered Pension Plans are called what in Quebec?

Answer 20

Voluntary Retirement Savings Plan

Question 21

These pension plans are offered by financial institutions instead of the employer

Answer 21

Pooled Registered Pension Plan or (Voluntary Retirement Savings Plan) in Quebec

Question 22

Do you include contributions an employer made to your Pooled Registered Pension Plan in your taxable income?

Answer 22

No, Any contributions an employer makes to a member’s PRPP are not included in the member’s income and are deductible by the employer.

Question 23

Do you include contributions an employer made to your GRSP in your taxable income?

(Group Registered Retirement Savings Plan)

Answer 23

Yes, however, both employee and employer contributions are deductible in the calculation of net income on the employee’s tax return

Question 24

These plans provide the greatest benefit allowable under a DBPP.

Answer 24

individual pension plan (IPP)

Question 25

This type of pension plan is a registered DBPP usually established by a company for one employee, who is often the owner-manager

Answer 25

individual pension plan (IPP)

Question 26

This type of pension plan may provide greater benefits and higher contribution limits than RRSPs, they are complex and costly to set up and administer

Answer 26

individual pension plan (IPP)

Question 27

This type of individual pension plan (IPP) is for owner-managers who own more than 10% of any class of shares

Answer 27

Connected Persons Plan

Question 28

This type of individual pension plan (IPP) is designed for persons who are not shareholders or who own less than 10% of the company shares. They are often used to attract or retain senior management personnel.

Answer 28

Non-connected persons plan

Question 29

In this type of plan, allowable contributions increase with the plan holder’s age.

Answer 29

individual pension plan (IPP)

Question 30

This type of arrangement allows employers to pre-fund retirement benefits without using an RPP.

Answer 30

retirement compensation arrangement (RCA)

Question 31

Through a __________, employers can provide members of an RPP with an additional benefit that increases their overall retirement benefit beyond the maximum RPP limits

Answer 31

supplemental executive retirement plan (SERP)

Question 32

How do you calculate RRIF AMP?

Answer 32

You take the value of the RRIF at the beginning of the year and divide it by (90- current age of client)

EX: $1,000,000 / (90-65) = $40,000 AMP

Question 33

The RRIF minimum withdrawal can be based on the age of the plan holder or

Answer 33

the age of the spouse

Question 34

A plan that allows employers to provide members of an RPP, usually key employees, with an additional benefit that increases their overall retirement benefit beyond the maximum RPP limits.

Answer 34

supplemental executive retirement plan (SERP)

Question 35

The ability to transfer years of pension credit and money from one plan to another. The employee then becomes a member of the second plan and will receive retirement benefits from that plan alone.

Answer 35

portability

Question 36

A relatively new kind of defined contribution pension plan designed for people who are employed or self-employed and who do not have the option of participating in a pension plan at their work.

Answer 36

pooled registered pension plan (PRPP)

Question 37

Refers to the employees’ right to employer contributions made on their behalf while they are enrolled in a pension plan.

Answer 37

Vesting

Question 38

These pension plans cannot be set up by partnerships or sole proprietors.

Answer 38

individual pension plan (IPP)

Question 39

Which funds have a minimum and maximum yearly withdrawal limit?

Answer 39

(LIFs) Life Income Funds