Retirement Plans Flashcards
What are the main types of retirement income plans?
- individual RRSPs
- group RRSPs
- pensions (defined contribution; defined benefit; CPP; PRPP)
What is the basic structure of financial management of plans?
- contributions plus investment returns= benefit payments plus plan expenses
T/F: Employees like defined contribution pension plans better than defined benefit pension plans.
False: Employers like the defined contribution pension plan because it places all the risk on the employees
T/F: Employees like defined benefit pension plans better than defined contribution pension plans.
True: Employees like the defined benefits pension plans better. Employers have the liability to pay=more risky for the er.
What are the advantages of RRSP?
- not subject to pension legislation
- plan does not require the same level of gov’t supervision and compliance
- “non-locked in” in possible
- more flexibility
- easier to manage/control contributions
- short term tax benefit
What are some disadvantages of group RRSPs?
- person may withdraw funds (if not locked in)
- employer accountable for exercising fiduciary prudence
- money is tax-sheltered, as are investment earnings, until dollars are withdrawn
- if not withdrawn carefully, could be a significant tax consequence to employee
T/F: Mutual Funds are a good idea.
False:
- consistency start to fall behind the market
- admin fee
- giving your money away
What are some issues to consider in insurance?
- org. type/size
- TFSA taxation timing vs. RRSP
- trust issues
- 10% rule
- saving for yourself
- funding
- retirement plan under funding ( market performance; retirees, longer life expectancy; bankruptcy)
- CPP funding
- DB, DC, or RRSP plans from different perspectives
What perspective does a large private sector, publicly traded company have on DB, DC, or RRSP plans?
- shifting away from DB to DC
- future liability (unknown) vs current liability (known)
- grandfathering, buy-outs
What perspective does a private sector, privately held mid-size and small firms have on DB, DC, or RRSP plans?
- DC: known liability
- RRSp easier to set up and manage, less regulation
What perspective does a public sector company have on DB, DC, or RRSP plans?
- wages and salaries may be somewhat lower than private sector
- job security and DB pensions are effective attraction and retention tools
- the gov’t will always have tax payers to (some) fund future liability
Discuss financial and retirement counselling.
- goal is to enable employees to prepare for retirement
- employers provide seminars, workshops, and one-on-one sessions
- may offer specific sessions in relation to reductions in the workforce
What are the advantages for employers in terms of financial and retirement counselling?
- increased awareness and understanding
- more self-reliant workforce
- smoother transition into retirement
- reduced risk in not meeting expectations regarding information on plan specifics
Describe the regulatory environment of financial management of plans.
- investments must comply with legislation
- fiduciary responsibilities vested in= pension committee, trustee, admin, etc.
- “prudent” person rule= exercise of care and due diligence
- “prudent” portfolio rule= investment of assets and reasonable risk
What are some of the responsibilities regarding financial management of plans?
- plan sponsor or pension committee provides written investment policy covering= plan asset mix target, investment constraints, diversification measures
- investment manager makes selection of financial instruments within established guidelines
Describe funding of private pension plans.
- “funded” generally means to have sufficient funds available to pay for all future anticipated payments based on actuarial computations
- vs PAYG
- are expected to be “funded”
- variations on how “funded” is determined
- to conform to legislative requirements, plans must be “funded”
What is role and responsibilities of a plan administrator?
- can be the employer through a pension committee
- can be an insurance company
- can be a board or agency approved through legislation
- is subject to “prudent person rule”
- if administered under a “board”, the board has final responsibility and accountability
What is role and responsibilities of a service provider?
- actuaries and pension plan consultants
- investment manager(s)
- custodian
- administration of plan (if outsourced)
- communication specialists
What is role and responsibilities of actuaries & consultants, custodian and investment manager?
actuaries & consultants
- draft plan and board resolutions; review trust agreements/insurance contracts; prepare communication material for employees; select other suppliers; make regulatory submissions
custodian
- holds the plan assets and is responsible for those assets; needs to have reporting capabilities, be compatible with the investment managers
investment manager
- manages the plan assets
What are two types of plans?
- registered= must meet legislative requirements both federally and provincially
- non-registered= requires fiscal and management prudence
T/F: Tax sheltered contributions don’t need to be registered.
False: to have contributions tax sheltered, must be registered
What are the objectives of fed. gov’t in relation to tax advantages?
- to establish a tax framework to encourage savings for retirement
- to eliminate inequities depending upon type of plan
- to enhance flexibility in timing of retirement savings
- to introduce a system under which dollar limits on contributions and benefits are adjusted for inflation
What are legislative standards?
- min. standards for overall admin of plan
- min. funding, disclosure requirements
- req in case of plan wind-ups
- reporting reqs
- roles and responsibilities for overseeing body and employer
- remedial actions
Describe record keeping.
- keeping detailed membership records (active/inactive members; receiving benefits; info on contributions, length of service, earnings history)
- processing claims (retirements, deaths, terminations)
- providing info to plan members (annual pension statements, report, plan changes, investment options, answering questions)
- filing regulatory reports- fed and prov.
Describe reporting.
- member benefit and options available
- investment/custodial reporting/ reconciliation
- actuarial valuation
- regulatory reporting ( annual info return, plan amendments, tax forms)
Describe communication.
- legally required activity
- goal is to help individuals plan for the future
- challenges to obtaining goal= motivating employees to take ownership for their future (work diversity and diff communication needs; reasonably expect vs realistic assessment)
Discuss communication in regards to compliance to legislation.
- employer must provide written description of plan and any amendments as they occur
- annual statements to plan members within 6 months of plan’s year-end
- active members who terminate or retire receive statement of plan and potential choices
- provide yearly opportunity for members to view plan documents
What are some communication strategies?
- most employers go beyond legal min.
- information regarding plan changes
- educating plan members
- providing financial planning information
- ongoing communication
What are the communication phases?
- awareness building
- education= what plan is and what it means for person
- financial planning= where this fits into person’s overall financial plan
- regular and ongoing information
What are some communication methods?
- website, email
- telephones
- personal contact
- needs to be varied and multiple= cannot rely upon a single method
What does YMPE and YBE stand for?
- Year’s Maximum Pensionable Earnings
- Year’s Basic Exemption
