Module 1 Flashcards
What are the key characteristics of a registered pension plan (RPP)?
An RPP is an employer-sponsored retirement plan registered under the Income Tax Act (ITA) and regulated by pension standards legislation. Contributions grow tax-deferred, and employer contributions are not considered taxable income for the employee until withdrawal. There are two main types: defined benefit (DB) and defined contribution (DC) plans.
How does pension standards legislation impact RPPs?
Pension standards legislation governs the terms and conditions of RPPs, including minimum funding requirements, investment of plan assets, and vesting rules. It aims to protect the interests of plan members and ensure the plan is sufficiently funded.
What are the pros and cons for employers in offering an RPP?
Pros: Attracts skilled employees, provides tax advantages, facilitates workforce planning. Cons: High administrative costs, regulatory compliance burden, potential financial liability.
Why might an employee prefer an RPP over a nonregistered plan?
RPPs offer tax-deferred growth, employer contributions, regulatory protections, and higher retirement security compared to nonregistered arrangements.
What are the three main categories of RPPs?
Defined Benefit (DB) plans – Guaranteed pension based on a formula.
Defined Contribution (DC) plans – Pension depends on accumulated contributions and investment returns.
Hybrid or Combination plans – Incorporate aspects of both DB and DC plans.
What are the four main types of DB pension plans?
Flat benefit, Career average, Final average earnings, and Flexible benefit plans.
What are the key features of a DC pension plan?
Contributions are predefined, investment risk is borne by employees, and final retirement income depends on account balance and market performance.
What types of RPPs combine DB and DC characteristics?
Hybrid pension plans, Combination plans, Multi-employer plans (MEPPs), and Target benefit plans.
What is retirement income adequacy?
It measures whether retirement income is sufficient to maintain pre-retirement living standards, usually targeting 60-70% replacement of pre-retirement income.
How do DB and DC pension plans handle equity differently?
DB plans offer predictable benefits but favor longer-service employees. DC plans provide equal contributions for all but result in varied retirement outcomes.
What is the purpose of a pension plan text/document?
It legally defines the plan’s terms, conditions, contributions, benefits, and funding rules.
What are the principal provisions included in an RPP?
Eligibility, pension formula, pensionable service, contribution requirements, retirement age, death benefits, termination benefits, disability benefits, and inflation protection.
What is the most common requirement for pension plan eligibility?
Employees must complete two years of employment, regardless of age.
How are pension benefits calculated in DB plans?
Final average earnings formula: 1.5% of last five years’ earnings × years of service.
Career average formula: 1.5% of yearly earnings × years of service.
What is a bridge benefit in a DB plan?
A temporary pension supplement provided until CPP or OAS benefits begin.
What is pensionable service?
The period of employment counted towards pension benefits.
What factors affect employer pension contributions?
Funding status, actuarial valuations, and legal requirements.
What are contributory and non-contributory plans?
Contributory plans require employee contributions; Non-contributory plans are fully funded by employers.
What is the 50% rule?
Employers must fund at least 50% of the pension benefits accrued.
How does plan equity differ in DB vs. DC pensions?
DB plans favor long-term employees, while DC plans provide equal contributions but varying outcomes.
What is Normal Retirement Age (NRA)?
The age at which a plan member qualifies for full retirement benefits, usually 65.
What is the ITA minimum unreduced pension age for DB plans?
Age 60 with 80 points (age + service) or 30 years of service regardless of age.
What are the features of a phased retirement plan?
A gradual reduction in work hours while receiving a partial pension.
How do pension plans handle postponed retirement?
Options include continuing contributions, deferring benefits, or actuarial adjustments.
