Module 4 Flashcards
1.1 Compare the focus of pension standards legislation with that of income tax regulations.
Pension plans are regulated from two perspectives:
PSL Regulator: Improving benefit security by the terms and operations is the primary focus of pension standards legislation
ITA: the control of the terms and operations of the plan and maximum limits on the tax deferral available
1.2 Explain the function of the Agreement Respecting Multi-Jurisdictional Pension Plans (MJPP Agreement)
Determines in which juridiction the plan will be registered in (the major authority). Additional functions:
- It identifies provisions that are subject to the jurisdiction where the plan is registered
-It provides a mechanism for transferring jurisdiction from one province to another.
- Finally, it provides rules for the enforcement of rules by the “major authority” and transition provisions as well as for asset allocation between jurisdictions on the wind-up of a multi-jurisdictional pension plan.
1.3 Describe how pension standards legislation applies to a pension plan that operates in more than one jurisdiction
Pension plans are generally registered in, and supervised by, the jurisdiction in which the plurality of active members is employed.
A plan operating in more than one jurisdiction must comply with the funding standards of the jurisdiction of plan registration and must apply to each individual member the particular benefit standards rules of that member’s jurisdiction.
The regulator of the jurisdiction in which the pension plan is registered is expected to enforce all applicable benefit standards, including those of other jurisdictions. The rules for determining where a plan is registered are set out in the MJPP Agreement.
1.4 Describe the progress made by the Canadian governments and the Canadian Association of Pension Supervisory Authorities (CAPSA) in moving toward uniform pension legislation
Various attempts were made by CAPSA to harmonize Canadian pension legislation
CAPSA’s mandate has since shifted to facilitate an efficient and effective pension regulatory system in Canada.
A degree of harmonization appears to be emerging as pension regulators and government officials share information and agree on best practices in pension regulation
2.1 Identify minimum eligibility and membership requirements for membership in a pension plan generally required by pension standards legislation. FT VS PT
Generally requires that every full-time employee who belongs to the class of employees for whom the plan was established must be allowed to join the plan after two years of employment.
In General, part-time employees who are in the same class as eligible full- time employees and who have earned at least 35% of the year’s maximum pensionable earnings (YMPE) for two consecutive years must be allowed to join the pension plan
2.2 Describe the criteria within pension standards legislation used to establish the general minimum vesting and locking-in requirements in a pension plan.
The completion of a specified period of employment or plan membership is the criteria used to establish the general minimum vesting requirement in a pension plan. These are also the criteria for the locking-in of a member’s pension.
2.3 Outline the general requirements of pension standards legislation about normal retirement date or normal retirement age.
All jurisdictions require that a pension plan contain rules concerning the earliest age, or normal retirement date, at which a pension is paid without reduction, or the normal retirement age for the plan.
2.3 Provide three examples of established rules of PSL of normal retirement age:
In Ontario, Nova Scotia and New Brunswick, normal retirement age cannot be later than one year after age 65
In Quebec, this age cannot be later than the first of the month following the month in which age 65 is reached
Some jurisdictions leave the normal retirement age to the discretion of the employer.
2.4 Identify employers’ options generally allowed by pension standards legislation regarding plan rules for pension plan members who remain employed beyond normal retirement age (NRA)
Generally, the plan can provide that such a plan member can either:
(a) Delay receipt of pension and continue to earn benefits (additional pensionable service or late actuarial retirement factor)
or
(b) Commence receiving the pension at NRA even though employment continues.
2.5 Identify the most common minimum requirement of pension standards legislation concerning death benefits before pension commencement from a pension plan. (DB and DC)
Most common in DB: 100% of the commuted value of the vested pension earned by the member
Most common in DC: 100% of the member’s defined contribution account.
2.6 Identify the most common minimum requirement concerning death benefits after pension commencement from a pension plan under pension standards legislation
for a plan member who has an eligible spouse, pension that must be paid is a joint and survivor pension
pension payable to the spouse after a plan member’s death cannot be less than 60% of the pension the plan member was receiving. Unless a waiver is signed by the spouse
2.7 Explain how the requirement for nondiscrimination by gender affects pension plans regulated by pension standards legislation.
PSL in all jurisdictions, with the exception of Newfoundland and Labrador and Quebec, prohibit the use of different eligibility rules based on the sex of an employee. Generally, this restriction applies only to benefits earned after the effective date of pension reform. Quebec mandates the use of a sex-distinct mortality table for benefit calculations.
3.1 Describe the locked-in vehicles generally available to terminating pension plan members who wish to exercise the portability rights provided under pension standards legislation
The locked-in retirement savings arrangements to which a terminating member is entitled to transfer their benefits include:
(a) Another pension plan if that other plan permits or a Pooled Registered Pension Plan (PRPP) or Voluntary Retirement Savings Plan (VRSP), depending on the jurisdiction
(b) A locked-in RRSP or Locked-In Retirement Account (LIRA), depending on the jurisdiction
(c) A Life Income Fund (LIF) or Locked-In Retirement Income Fund (LRIF), depending upon the jurisdiction
(d) A Registered Retirement Income Fund (RRIF)
(e) An insurance company for the purchase of an immediate or deferred life annuity
3.2 Identify the general exceptions to the locking-in rule under pension standards legislation that permit a pension plan to pay a cash sum to terminating employees.
Exceptions to locking-in rules apply to:
(a) Employees who terminate before meeting the vesting requirement of a contributory pension plan
(b) Terminating employees whose life expectancy is shortened
(c) Additional voluntary contributions
(d) Prereform pensions (amounts differ by jurisdiction)
(e) Excess amounts under cost sharing (50% rule), in most jurisdictions
(f) Pension amounts under the small benefit thresholds set by various jurisdictions.
Note that in nearly all cases, if there is a spouse, spousal consent is a precondition to unlocking pension funds.
3.3 Describe how individuals in some jurisdictions may be able to access funds in locked-in vehicles in the case of financial hardship. Provide some examples of circumstances that may qualify for unlocking.
It is not possible for an active member of a pension plan to access benefits under the plan (that is, to “unlock” the monies)
However, once funds been transferred to LIRA/Locked IN RRSP, unlocking for financial hardship would include: necessity to pay first and last month’s rent, to pay for medical treatment, to renovate property, to accommodate for illness or disability, or low income below a specified threshold, etc.
3.4 Outline the portability rights of plan members who have attained retirement age under pension standards legislation.
In all jurisdictions it is permissible, but not mandatory, for a pension plan to provide portability rights to plan members who have attained early or NRA for a DB plan.
Some jurisdictions require a plan to provide portability rights to DC plan members who have reached early retirement age but not NRA. Alberta, British Columbia, Manitoba, New Brunswick and Quebec give portability rights to a DC plan member upon termination of employment at any age. In practice, plan sponsors typically allow portability out of a DC plan at any age, since in most cases the only alternative for a DC account is the purchase of an annuity.
3.5 Describe the options available to DC plan members when retiring from those types of plans.
life annuity purchase
transfer their benefits to a LIRA , and then to a Life Income Fund (LIF).
variable benefit payments from DC pension plans (less popular - high fees)
4.1 Explain how pension standards legislation imposes minimum cost sharing requirements within contributory DB pension plans
commonly referred to as the “50% rule.” It requires the employer to pay for a minimum percentage equal to 50% of a member’s pension entitlement. All jurisdictions require contributory DB plans to provide employer cost sharing. The 50% rule is applied at the time of an employee’s death or termination of service.
There are a few exceptions to the 50% rule. In New Brunswick, the 50% minimum limit applies unless the pension plan specifies a different percentage.
Plans subject to the federal Pension Benefits Standards Act (PBSA) do not have to apply the 50% rule if the pension plan provides for the annual indexation of deferred pensions (to payment date) at a rate that is at least 75% of the increase in the consumer price index (CPI), less 1%, or an equivalent rate acceptable to the federal authorities.
Plans registered in British Columbia can be exempted from the 50% rule if they provide indexing as described in the federal PBSA.
4.2 Identify the options available to a DB pension plan member who has excess contributions as determined by the minimum employer contribution rule (50% rule) under pension standards legislation.
when the member terminates service (including retirement) or dies, the excess contributions may, depending on the jurisdiction, either be:
(a) Refunded
(b) Used to increase pensions
(c) Used to purchase an annuity
(d) Transferred to another pension plan, if that plan permits
(e) Transferred to an RRSP
(f) Transferred to a prescribed registered income fund (e.g., Life Income Fund)
4.3 Outline the approach to providing inflation protection to DB pension plan members under pension standards legislation
In most jurisdictions, it is not necessary to provide inflation protection. In Quebec, partial indexation is required under certain conditions. In Ontario, pension standards legislation contains provisions that appear to mandate inflation protection. However, the legislation stipulates that the inflation protection be provided according to a prescribed formula. Ontario has not prescribed the formula for such indexation and so the requirement is treated as having no force or effect. A federally regulated pension plan must provide either employer cost sharing or inflation protection for pensions at the rate of 75% of increases in the CPI minus 1%. British Columbia pension standards legislation also uses the federal approach for inflation protection.
5.1 Describe protections provided under pension standards legislation to employee contributions made to a pension plan.
Employee required and voluntary contributions to a pension plan that are received by an employer from the member or deducted directly from an employee’s pay are deemed to be held in trust until deposited to the pension fund. Each jurisdiction requires the employer to remit employee contributions to the pension fund within certain time frames.
5.2 Outline the general minimum requirement concerning interest on employee contributions under pension standards legislation.
All jurisdictions require that a prescribed minimum rate of interest be credited to employee-required and voluntary contributions.
Generally, the annual rate of interest credited to employee contributions made to a DC pension plan is the investment rate of return earned by the pension fund, or if the plan allows members to choose between two or more investment choices, the investment rate of return earned by their DC pension account, less administration expenses if the plan so provides.
For employee-required contributions to a DB pension plan, most jurisdictions permit the pension plan to provide a rate based on five-year, personal fixed-term, chartered bank deposit rates averaged over a period not exceeding 12 months, or the rate of return earned by the pension fund less administration expenses.
6.1 Explain how pension credits are treated on marriage breakdown under pension standards legislation
Pension benefits are matrimonial assets and are subject to division unless the legislation specifically states otherwise. As such, all provinces treat pension benefits as family property.
6.2 Outline the general approach to pension credit splitting within Canadian jurisdictions
pension credits differ considerably among jurisdictions.
The federal jurisdiction adopts pension division rules based generally on the member’s province of residence.
In most cases, the former spouse will be eligible for an immediate transfer of benefits.
The primary exception is for a retired member in receipt of a pension from a DB plan, where often the former spouse is only entitled to a share of the member’s ongoing pension benefits.
All jurisdictions permit separating spouses to offset the value of pension benefits against other matrimonial assets, as opposed to dividing actual pension benefits.
