(Part 2) INVESTOR PROFILE (Chapter 4) Flashcards
The Guaranteed Income Supplement (GIS) and the Allowance are monthly benefits paid to OAS recipients with a low income. What are the contributions and elegibility? (name at least two)
- To receive the GIS benefit it is necessary to be living in Canada
- An applicant must be a legal
Canadian resident and meet the annual income test based on net income reported on the federal income tax return. - The GIS benefit is available beginning at age 65
- The amount received depends on marital status and income.
FILL IN THE BLANK!
The GIS Allowance is available to those
____ to ____ years old and whose married or common-law spouse receives the OAS and is eligible for GIS.
The Allowance is available to those 60 to 64 years old and whose married or common-law spouse receives the OAS and is eligible for GIS.
FILL IN THE BLANK!
A GIS Allowance for the Survivor is available to those with a _________, (money) who are living in Canada and whose married or common-law spouse is ________.
An Allowance for the Survivor is available to those with a low income, who are living in Canada and whose married or common-law spouse is deceased.
Name some Employer-provided retirement pensions
- Defined benefit pension plans (DBPPs);
- Defined contribution pension plans (DCPPs);
- Pooled registered pension plans (PRPPs)
Pension plan contributions, whether made by the employee or the employer, and growth of those contributions due to investment returns are locked-in.
Locked-in means…
An employee cannot access the value of his RPP until he reaches the retirement age specified in the plan of which he is a member or satisfies the terms of the locked-in account to which he transfers his savings as a result of having changed employers.
[Ref. 4.5]
TRUE OR FALSE?
Locked-in funds cannot be created in defined benefit pension plans (DBPPs), defined contribution pension plans (DCPPs) and pooled registered pension plans (PRPPs)
FALSE
Locked-in funds are created in defined benefit pension plans (DBPPs), defined contribution pension plans (DCPPs) and pooled registered pension plans (PRPPs)
[Ref. 4.5]
An employee who is leaving a firm with vested funds, but is not retiring, has several choices for his pension savings. Name at least three.
- He may continue in a company pension plan;
- He may be able to leave the value of the pension in his former employer’s plan;
- He may be able to transfer the pension value to the RPP of the new employer;
- He may transfer the pension value to a locked-in account at a financial institution;
- He may use the pension value to buy a deferred life annuity
TRUE OR FALSE?
An employee with a DBPP or DCPP whose new employer also offers a pension plan may be able to transfer the value of his pension to the new employer.
TRUE
TRUE OR FALSE?
An employee who is a member of a DBPP or DCPP may choose to transfer pension savings into a locked-in account when he changes employers.
TRUE
FILL IN THE BLANK!
The savings phase transitions into the income phase when the Locked-in RRSP or LIRA is converted to structured to issue payments. This must occur no later than the end of the year in which the plan owner turns _____ (years old)
71 years old
These are the following accounts;
- Life income fund (LIF);
- Locked-in retirement income fund (LRIF);
- Prescribed registered retirement income fund (PRRIF) for those whose plans are registered in Saskatchewan or Manitoba;
- Restricted life income fund (RLIF) for those with a federally regulated pension.
TRUE OR FALSE?
You cannot unlock the value of the RPP or lock-in funds under any circumstances.
FALSE
- It is possible to unlock the value of the RPP under certain circumstances.
- They include cases of financial hardship, shortened life expectancy (usually defined as two years or less) and a very low account balance.
[Ref. 4.5]
TRUE OR FALSE?
An employee with a defined contribution pension plan (DCPP) has no option but to transfer his savings to a locked-in account when he retires
TRUE
Contributions to an RPP reduce the registered retirement savings plan (RRSP) deduction limit for the following year. This is called a….
Pension adjustment (PA)
For example;
Heather receives a T4 from her employer showing a pension adjustment of $4,366 for the previous calendar year. Her RRSP deduction limit for this year is $7,880. However, the pension adjustment reduces her deduction limit to $3,514 ($7,880 – $4,366).
Seg-Funds Terminology
Defined benefit pension plan (DBPP)
A registered plan that pays an income on retirement that is known in advance, lasts for life, has a provision for the
spouse when the employee dies, and is often indexed to increases in the cost of living.
A DBPP is provided on a group basis to employees. It can be set up on an individual basis for business owners and directors and is then called….
Individual pension plan (IPP).
What are the DBPP eligibility?
- A full-time employee is eligible to join a plan after two years of continuous employment
- A part-time employee is eligible to join after Two Years of employment. He must meet one of two criteria (whichever is less): 700 hours of work or 35% of the year’s maximum pensionable earnings (YMPE) in the preceding two years.
What are the DBPP contributions?
The plan sponsor chooses a plan that is contributory or non-contributory:
- Employees and the employer contribute to a contributory plan.
- Only the employer contributes to a non-contributory plan
The maximum contribution limit per year is set at 1/9th (11%) of the sum available to contribute to a defined contribution pension plan
What are the DBPP benefits? (what earnings are they based on) ?
The amount received by the former employee is typically calculated in one of three ways:
-
By final average earnings:
Based on average earnings in the years leading up to retirement. -
By career average earnings:
Based on average earnings during the entire period of plan membership. -
Through a flat benefit:
Based on a fixed-dollar amount for each year of plan membership.
The rate at which benefits accrue cannot be more than 2% of a plan member’s remuneration for the year to a maximum annual dollar amount.
FILL IN THE BLANK!
On death of a DBPP member, his spouse is entitled to receive at least _______ of the pension.
- On death of a DBPP member, his spouse is entitled to receive at least 60% of the pension.
- If there is no spouse, a beneficiary may receive a lump-sum payment representing a commuted value of
the pension
Seg-Funds Terminology
Defined contribution pension plan (DCPP)
- Also called a money purchase plan (MPP)
- Retirement income based on contributions, and investment, and accumulation.
- A member of a DCPP decides how to invest contributions
Explain the DCPP eligibility.
- For full time & Part time employees
- There is no required waiting period for full-time employees
- Part-time employees may be required
to meet the same eligibility requirements as for a DBPP.
Explain the contributions for DCPP.
- Made by the employee and the employer
- Employers are required to make a minimum contribution to their plan
- Employee contributions are not mandatory and additional voluntary contributions may not be allowed
- The employer provides the employee with investment information and the employee chooses the investment or is assigned the default option
Explain the DCPP benefits.
- The retirement pension from a DCPP is a result of amount of the contributions, when contributions are made and investment performance
- If the retiree has not reached the age at which he must begin receiving income, he can leave his savings in a locked-in savings account (LIRA, PRRIF)
- If he must begin receiving income, he transfers his pension account value to an income-paying locked-in account or life annuity (LIF, RRIF)
Seg-Funds Terminology
Pooled registered pension plan (PRPP)
- A registered plan for employers and self-employed
- A type of pension plan that is similar to a defined contribution plan, except that employer contributions are not mandatory.
- Based on the concept of pooled contributions, which is a means of lowering member costs on fees
FILL IN THE BLANK!
In regards to Pooled registered pension plan (PRPP) eligibility, full-time employees are immediately ________ to participate in a PRPP.
Part-time employees can join the PRPP after completing _____ months of continuous employment.
When employees are eligible, they are automatically _______ in the plan chosen by a participating employer.
An employee who does not wish to join the PRPP must opt out within _____ days of notification of enrollment.
In regards to Pooled registered pension plan (PRPP) Full-time employees are immediately eligible to participate in a PRPP.
Part-time employees can join the PRPP after completing 24 months (Two years) of continuous employment.
When they are eligible, employees are automatically enrolled in the plan chosen by a participating employer.
An employee who does not wish to join the PRPP must opt out within 60 days of notification of enrollment.
TRUE OR FALSE?
In regards to Pooled registered pension plan (PRPP), employee and employer contributions are NOT mandatory
TRUE
- They are made as a deduction from
payroll earnings; this contribution at source helps encourage savings
[Ref. 4.5]
TRUE OR FALSE?
In regards to Pooled registered pension plan (PRPP), the maximum limit for an annual contribution is less than the RRSP contribution limit.
FALSE
The maximum limit for an annual contribution is equal to the RRSP contribution limit.
[Ref. 4.5]
A RRIF account owner, who is called the annuitant, is required to make a minimum annual withdrawal from his account.
What is the minimum yearly withdrawal from RRIF?
The minimum withdrawal amount is a percentage of the account that increases with age.
