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SEGREGATED FUNDS & ANNUITIES (OFFICIAL LLQP) > GROUP RETIREMENT AND INVESTMENT PLANS (Chapter 8) > Flashcards

GROUP RETIREMENT AND INVESTMENT PLANS (Chapter 8) Flashcards

1
Q

Group Retirement & Investment Plans

A group plan is established and registered by ……

A

A group plan is established and registered by its sponsor, usually an employer, with Canada Revenue Agency (CRA) and the provincial authorities concerned when it is a registered pension plan (RPP)

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2
Q

The sponsor’s role in providing the plan to its group members is to…

A
  • Design the pension plan according to its needs, yet within the sponsor’s financial limitations;
  • Set the benefit structure for members;
  • Establish, amend, or terminate the plan;
  • Ensure compliance with regulatory requirements for reporting;
  • Address funding shortfalls or surpluses.
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3
Q

FILL IN THE BLANK!

Final decisions about a group plan will be guided by the _____________ and the _______________ but are, in the end, the responsibility of the sponsor.

A

Final decisions about a group plan will be guided by the administrator and the life insurance agent but are, in the end, the responsibility of the sponsor.

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4
Q

TRUE OR FALSE?

A sponsor takes on the financial commitment to fund the group plan as a joint contributor with the group members, or alone on behalf of the group members

A

TRUE

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5
Q

TRUE OR FALSE?

In regards to group investments, when the sponsor and the group member both contribute to a plan, it is said to avoid having a contributory funding due to withholding tax.

A

FALSE

When the sponsor and the group member both contribute to a plan, it is said to have contributory funding.

[Ref. 8.1.1.2]

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6
Q

TRUE OR FALSE?

Defined benefit pension plans (DBPPs), defined contribution pension plans (DCPPs), group registered retirement savings plans (GRRSPs) and pooled registered pension plans (PRPPs) may ALL be contributory.

A

TRUE

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7
Q

TRUE OR FALSE?

When the sponsor alone contributes to a plan, the plan is contributory.

A

FALSE

When the sponsor alone contributes to a plan, the plan is non-contributory.

[Ref. 8.1.1.2]

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8
Q

TRUE OR FALSE?

A deferred profit sharing plan (DPSP) is non-contributory.

A

TRUE

Other plans may also be non-contributory if the sponsor makes the decision to forego employee contributions.

[Ref. 8.1.1.2]

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9
Q

TRUE OR FALSE?

When a plan has contributory funding, group member contributions are made through payroll deduction.

A

TRUE

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10
Q

TRUE OR FALSE?

Contributory plans may see the sponsor offer a matching formula in which the sponsor bases its contribution on the one made by the group member. The sponsor can match 100% of the member’s contribution.

The matching formula can be structured to increase over time

A

TRUE

They are also structured to;

  • Reward employees based on their value to the sponsor
  • Create loyalty

[Ref. 8.1.1.2]

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11
Q

FILL IN THE BLANK!

During a period of time called the ______________, an employee who changes jobs does not retain the sponsor contributions to his group plan; the employee retains only the contributions he made.

A

Vesting Period

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12
Q

TRUE OR FALSE?

In regards to group plans, at the end of the vesting period, the sponsor contributions become the property of the employee.

A

TRUE

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13
Q

A shorter vesting period is more expensive for the plan sponsor because …..

A

….. contributions could leave with the departing employee after the briefer period of time.

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14
Q

FILL IN THE BLANK!

In regards to group plans, the agent works closely with __________ throughout the entire process of proposal, recommendation, implementation, and follow-up.

A

The administrator

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15
Q

TRUE OR FALSE?

For a DCPP, the role of administrator may be assumed by the plan sponsor.

A

TRUE

  • Also by a board of trustees, a financial institution (for a simplified pension plan) or a pension committee as defined by pension benefits standards legislation.
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16
Q

In regards to group investments, the administrator of the group plan is responsible for overall administration of the pension plan. Name at least three of those responsibilities

A
  • Management of the pension plan;
  • Establishing a written statement of investment policy;
  • Investing the fund assets in accordance with that policy;
  • Creating and distributing other plan documents;
  • Acting in accordance with applicable legislation.
  • Measuring employee satisfaction with the plan;
  • Monitoring industry trends, governance guidelines, and legislative changes to keep the sponsor
    apprised of new developments;
  • Suggesting potential plan and investment recommendations;
  • Assisting with plan sponsor governance activities;
  • Reporting to the sponsor.
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17
Q

When a group plan member leaves the group, due to a change in employment or retirement, the administrator must provide him with a written statement of his rights within a specified period of time.

That statement tells the member….
(name at least two)

A

That statement tells the member:

  • The total funds in the member’s account as a result of his contributions, contributions by the employer, transfers, and additional voluntary contributions;
  • Details about the pension benefits payable to the member;
  • Options for transfer or withdrawal;
  • Deadline for choosing an option.
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18
Q

FILL IN THE BLANK!

All members of a group plan enjoy creditor protection of their savings, except when the account is a ______________ .

A

Tax-free savings account (TFSA)

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19
Q

TRUE OR FALSE?

When a group member receives pension income at age 65 or older and receives the pension income tax credit, he can split the pension income with his spouse.

A

TRUE

  • Splitting income is an important strategy to reduce income tax
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20
Q

Pension plans are one of two basic types, what are they?

A

a single employer plan or a multi-employer pension plan
(MEPP)

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21
Q

What is a single employer plan ?

A

A pension plan for a person who works for one employer.

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22
Q

Define Multi-employer pension plan
(MEPP)

A

A pension plan that covers employees who work for two or more employers that are not affiliated with each other.

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23
Q

TRUE OR FALSE?

Group savings and investing plans, such as DBPPs, are only available through individual pension plans, and sponsors.

A

FALSE

Some group savings and investing plans, such as DBPPs, are only available through a sponsor.

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24
Q

TRUE OR FALSE?

Other plans, such as TFSAs, are available both through sponsors and to individuals who are not enrolled in group plans.

A

TRUE

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25
Q

FILL IN THE BLANK!

When a member of a group plan is offered a choice of two or more investment options within the plan, he is enrolled in a form of plan known by its umbrella term, a ______________ .

A

Capital accumulation plan
(CAP).

Therefore, DBPPs are not CAPs because the member has no investment decisions to make. However, DCPPs, PRPPs, GRRSPs, TFSAs and DPSPs are all capital accumulation plans.

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26
Q

CAP guidelines supplement legal requirements for pension plans. They reflect the expectations of all Canadian pension, insurance and securities regulators.

What are the plans that must be considered from the sponsor’s point-of-view? (name at least three)

A
  • Defined benefit pension plan (DBPP);
  • Defined contribution pension plan (DCPP);
  • Group registered retirement savings plan (GRRSP);
  • Deferred profit sharing plan (DPSP);
  • Group tax-free savings account (TFSA);
  • Pooled registered pension plan (PRPP).

[Ref. 8.2.2]

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27
Q

TRUE OR FALSE?

Groups plans may also be offered a non-registered investment account

A

TRUE

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28
Q

What group plans convert registered savings into a pension income stream for group
members?

A
  • Group life income fund (LIF) for savings created in a DCPP;
  • Group registered retirement income fund (RRIF) for savings created in a GRRSP.
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29
Q

FILL IN THE BLANK!

To receive a pension and continue tax deferral, those funds are transferred to a __________ or __________; both make payments and in this way, a personal pension is created.

A

LIF or an annuity

30
Q

FILL IN THE BLANK!

If the retiree does not wish to start his pension, he can transfer the lump sum to a _______.

A

LIRA

31
Q

FILL IN THE BLANK!

There are other pension plans that an agent may encounter such as an ____________ or _______________ .

A

Individual Pension Plan (IPP) or a Supplemental Executive Retirement Plan (SERP)

32
Q

Seg-Fund Terminology

Defined benefit pension plan (DBPP)

A
  • Pension that pays a known sum to its members at retirement.
  • The pension income is generally determined by employment income and years of service.

[Ref. 8.2.2.1]

33
Q

FILL IN THE BLANK!

A DBPP may be terminated by its sponsor or converted to________ .

A

DCPP

34
Q

TRUE OR FALSE?

The group plan member has no investment choices to make when he is enrolled in a DBPP.

A

TRUE

  • All investment decisions are made by the sponsor and/or administrator.
35
Q

TRUE OR FALSE?

In regards to DBPP, the sponsor’s contributions are a tax-deductible expense and a taxable benefit to the plan member.

A

FALSE

The sponsor’s contributions are a tax-deductible expense and are not a taxable benefit to the plan member.

[Ref. 8.2.2.1]

36
Q

Seg-Fund Terminology

Defined contribution pension plan (DCPP)

A
  • An employer pension as result of the amount of contributions made, how long contributions are made, the choice of investments, and the performance of the selected investments with a reduced financial obligation on the sponsor.
  • Sponsors can make participation optional, require members to increase contributions over time, or restrict the number of investment options available.

[Ref. 8.2.2.2]

37
Q

A DCPP is also known as ….

A

a money purchase plan (MPP)

38
Q

TRUE OR FALSE?

A DCPP sponsor contributions are a tax-deductible expense and are not a taxable benefit to the plan member.

A

TRUE

39
Q

Seg-Fund Terminology

Group life income fund (LIF)

A
  • A plan sponsor account for group members with a DCPP when they decide to receive retirement income
  • The LIF can be set up by a person who transfers their pension savings, or it can be provided by the sponsor on a group basis
  • LIFs also require annual minimum withdrawals and restrict the maximum that can be withdraw
  • The group LIF allows continuity for the plan member and lower administration fees than the non-group alternative

[Ref. 8.2.2.2]

40
Q

Seg-Fund Terminology

Group registered retirement savings plan (GRRSP)

A

A type of savings plan that permit contributions by both sponsors and members.

[Ref. 8.2.2.4]

41
Q

TRUE OR FALSE?

Total annual contributions to a group RRSP and an individual RRSP are limited to the individual’s RRSP deduction limit for the year (as provided by Canada Revenue Agency (CRA) in the latest Notice of Assessment).

A

TRUE

[Ref. 8.2.2.4]

42
Q

What are the differences between an individual RRSP and a GRRSP?

A

The GRRSP does not generally permit purchase of individual securities, i.e. stocks. However, fees for a GRRSP are usually lower than an individual RRSP.

[Ref. 8.2.2.4]

43
Q

TRUE OR FALSE?

Contributions for GRRSP are made by void cheque from the plan member.

A

FALSE

contributions are made through payroll deduction

[Ref. 8.2.2.4]

44
Q

FILL IN THE BLANK!

Savings accumulated in a GRRSP must be transferred into a group or an individual registered retirement income fund (RRIF) or an annuity, the end of the year in which the account owner turns ______ years old at the latest, to continue tax deferral.

A

71

45
Q

Seg-Fund Terminology

Deferred profit sharing plan (DPSP)

A
  • A group plan funded by employer contributions only
  • appropriate for those organizations with stable profitability to ensure that contributions to the group
    plan can be made annually and continually
  • employees who own 10% or more of the shares of the company cannot be members of the DPSP

[Ref. 8.2.2.5]

46
Q

TRUE OR FALSE?

In regards to a DPSP, members are allowed to surrender their plan resulting in a full withdrawals at any time.

A

FALSE

In regards to a DPSP, members are allowed to make partial withdrawals at any time. However, a plan sponsor can choose to restrict withdrawals while the member is employed.

[Ref. 8.2.2.5]

47
Q

FILL IN THE BLANK!

A DPSP is often used in coordination with a ___________ to which only members contribute.

A

GRRSP

48
Q

TRUE OR FALSE?

Employee contributions to the GRRSP are matched by employer contributions to the DPSP.

A

TRUE

49
Q

TRUE OR FALSE?

DPSP contributions create a pension adjustment for members and therefore reduce RRSP contribution room. This arrangement is also possible with a DCPP

A

TRUE

50
Q

TRUE OR FALSE?

The money saved in a DPSP cannot be transferred to a group or an individual RRIF, or an annuity.

A

FALSE

The money saved in a DPSP can be transferred to a group or an individual RRIF, or an annuity, to continue tax deferral.

[Ref. 8.2.2.5]

51
Q

TRUE OR FALSE?

DCPP, GRRSP and DPSP members accumulate savings in their accounts. While the DCPP member’s funds are locked-in, savings in GRRSPs and DPSPs are not.

A

TRUE

52
Q

Seg-Fund Terminology

Group registered retirement income fund (RRIF)

A

A plan that can be set up by the sponsor on the members’ behalf in order to transition registered savings into pension income.

[Ref. 8.2.2.5]

53
Q

What is a unique feature and benefit of group TFSA?

A

Contribution room is independent of other plans. Therefore, the maximum contribution can be made to a TFSA and an RRSP. (Same thing for individual TFSA)

The ability of plan members to make tax-free withdrawals at any time, since contributions are not locked in.

54
Q

Seg-Fund Terminology

Pooled registered pension plan (PRPP)

A

A group pension savings plan Intended for individuals who do not have pension plans available through their employer or for those who are self-employed.

55
Q

What is a unique feature of PRPP?

A

They are locked-in and can be cashed out only due to disability, loss of Canadian residency, or if the account is less than 20% of the annual year’s maximum pensionable earnings (YMPE).

Otherwise, when employment ends, they must transfer to a LIRA, LIF, another PRPP or used to buy an annuity.

[Ref.8.2.2.8]

56
Q

TRUE OR FALSE?

When the group investment is a segregated fund, the management expense ratio (MER) is usually more than what an individual would pay.

A

FALSE

When the group investment is a segregated fund, the management expense ratio (MER) is less than what an individual would pay.

[Ref.8.2.2.8]

57
Q

TRUE OR FALSE?

Unlike segregated funds offered
to individual investors, segregated funds for group members have no sales charges.

A

TRUE

  • They also do not charge switch fees for
    group members

[Ref. 8.3.1.2]

58
Q

MER on group-provided segregated funds is generally lower than the MER paid by individual investors.

Why is that?

A

This is due to the primary disadvantage of group segregated funds; they do not offer a maturity or death benefit guarantee nor group plan special rates.

59
Q

What type of investment option (annuity) group sponsors may provide to Members of a GRRSP?

A

Accumulation Annuity

  • The annuity pays guaranteed interest for a fixed term or a date specified by the investor.

[Ref. 8.3.2.1]

60
Q

TRUE OR FALSE?

Members of a DBPP have a life annuity option when their contribution terminates at retirement.

A

TRUE

61
Q

TRUE OR FALSE?

Members in a GRRSP and DPSP have the option of a term annuity or a life annuity

A

TRUE

62
Q

TRUE OR FALSE?

Life annuities for sponsors are not available as a joint and last survivor annuity.

A

FALSE

Life annuities may be available as a joint and last survivor annuity and provided with or without a guarantee period.

[Ref. 8.3.2.1]

63
Q

TRUE OR FALSE?

Annuities provided in the group context provide the same reliability of income as those provided to individuals. They provide security, stability, and peace of mind.

A

TRUE

64
Q

TRUE OR FALSE?

Group sponsored annuities have flexibility for withdrawals.

A

FALSE

  • The same as Individual annuity contracts, there is no flexibility for withdrawals and they cannot be terminated once payments begin.
  • Pension payments are linked to the annuity rate at the time of purchase – since payments will not increase if interest rates rise, the annuities therefore carry
    interest rate risk and inflation risk.

[Ref. 8.3.2.2]

65
Q

When making group plan recommendations , The agent must be prepared with executive-level presentations of his recommendations since the sponsor may want to question the agent directly about his suggestions,

This includes…

A
  • Plan specifications;
  • Plan and investment recommendations;
  • Pension credits and adjustments.
66
Q

In regards to group plan recommendations, the DBPP may specify a set age, i.e. 65, or it may specify a required number of years of employment (called service) or it may be a combination of age plus qualifying years of service that must be satisfied before the full pension can be paid.

The generic formula of age plus service is called…..

A

Qualifying factor

67
Q

When it comes to group plan recommendations, how do you calculate the qualifying factor?

A

The employee adds together his age and qualifying years of employment with the sponsor.

For instance, an employee who is 55 and has 30 years of employment meets an 85 (55 + 30) factor.

If his pension required the 85 factor to be satisfied in order to qualify for a full pension, then this employee could retire with a full pension at age 55.

[Ref. 8.4]

68
Q

There are many aspects of group plans that enter into a recommendation and final decision. Key factors and related questions to be taken into consideration are….

A
  • Funding
  • Costs
  • Sponsor characteristics
  • Group members
  • Administration

[Ref. 8.4]

69
Q

TRUE OR FALSE?

In regards to group plan recommendations, when a group is more likely to be motivated by a plan that satisfies more immediate needs, then, for instance, a GRRSP could have much higher appeal since it may be used to assist in accumulating a down payment to purchase a home through the Home Buyers’ Plan.

A

TRUE

The GRRSP may also fund adult education expenses through the Lifelong Learning Plan (LLP).

70
Q

TRUE OR FALSE?

In regards to group plan recommendations A group TFSA may also appeal because withdrawals are permitted; this flexibility for savings and withdrawals can be very attractive to those with short-term cash requirements.

A

TRUE

SEGREGATED FUNDS & ANNUITIES (OFFICIAL LLQP) (20 decks)

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