U3 Flashcards
Ashwar is a member of his employer’s money purchase plan. Last year, Ashwar contributed $3,000 to the plan; his employer contributed $5,000. The income earned on the combined contribution was $470. If the funds remained in the RPP, what statement is true?
- Ashwar must include $5,470 in his taxable income. - Ashwar must include $470 in his taxable income. - Ashwar's employer must include $470 in the company's taxable income. - Neither the contributions nor the interest earned on the contributions are subject to income tax until they are withdrawn as pension income.
Neither the contributions nor the interest earned on the contributions are subject to income tax until they are withdrawn as pension income.
Nick has been a member of a defined contribution pension plan for the past 25 years. Upon his retirement, what option would Nick NOT have with respect to the funds accumulated in the RPP?
- Use the accumulated funds to purchase a life annuity. - Transfer the accumulated funds to a locked-in retirement account. - Transfer some of the accumulated funds arising from his contributions prior to 1986 to a regular RRSP - Transfer the accumulated funds to his regular savings account.
Transfer the accumulated funds to his regular savings account.
Sheila receives her annual statement for her defined benefit pension plan. The statement says that she has $52,937 in contributory earnings. Which of the following statements best describes the meaning of contributory earnings?
- earnings that represent earned income in a given time period - earnings, which must be reported for income tax purposes, including bonuses, over-time pay and any other source of income that the employee has received - earnings that are subject to pension contributions and may not be the same as earned income - the amount of investment earnings on contributions that the employer and employee have made to the fund to date
earnings that are subject to pension contributions and may not be the same as earned income
All of the following members of defined benefit pension plans may be eligible to make past service contributions, except:
- Alice, who was employed by the XYZ Company for two years before becoming eligible to join the company's pension plan - Marsha, who was employed by ABC Inc. for five years before the company set up a pension plan for employees - Jan, who was a member of PQR Ltd's pension plan for three years before the company upgraded its plan from 1% to 2% per year of service - Cindy, who joined RST Corp's pension plan the day she was hired, but who was not a member of an RPP during the 10 previous years when she worked for Newblood Ltd
Cindy, who joined RST Corp’s pension plan the day she was hired, but who was not a member of an RPP during the 10 previous years when she worked for Newblood Ltd
Romeo does not know the amount that his employer will contribute to his pension plan each year. He does know that his pension will be based on 2% of his earnings for each year of employment, based on the average of his best five years of income. From the following types of pension plans, to which one does Romeo belong?
best-earnings plan
John and Frank started working for Green Acres Burial Services on the same day. During the entire period of their service to the company, John earned a substantially higher salary than Frank. John retired after 24 years of service and Frank retired after 25 years of service. Frank now receives a higher pension than John. To which of the following forms of pension plans did John and Frank belong?
flat-benefit plan
Wendel is a member of a defined-benefit pension plan. When he joined the company and the pension plan 15 years ago, his starting salary was low. After five years, he received a promotion that doubled his salary. He enjoyed regular salary increases over the next five years until he suffered ill health that forced him to leave his position. The company provided him with a low-stress clerical position at a reduced salary where he expects to remain until his retirement in two years’ time. Which of the following types of pension plans is best for Wendel?
Best earnings
Klare is the owner/operator of a successful metal shop. Klare is 32 years old and draws a regular annual salary of $185,000. What response represents the MOST SIGNIFICANT deterrent to Klareestablishing an individual pension plan for himself?
He is only 32 years old
Nancy is the sole owner-operator of a modestly successful surveying company. She is 52 years old and draws a regular salary of $40,000 per year. Why would an individual pension plan in all likelihood not be beneficial to Nancy?
Her income is too low
Jack, Fred, Mark, and Emil are among the shareholders of the same corporation, where they are also employed. Jack holds 25% of the total shares, Fred holds 15%, Mark holds 10% and Emil holds 8%. Which of the shareholders are considered to be “connected individuals” for purposes of pension planning?
only Jack, Fred, and Mark
The New Age Furniture Company is considering setting up an IPP and they have come to you for advice. After reading about IPPs, the owner of New Age Furniture asks you for clarification of his understanding of IPPs. All of the following statements are true, EXCEPT:
connected persons may only make past service contributions for service after 1991
One of your clients, Jill, died recently at the age of 59. Her adult son, Robert, has asked you to explain the entitlements of Jill’s estate to Jill’s company pension plan. Jill was a widow and a vested member of the plan that has an NRA of 60. Jill’s estate will receive:
at least Jill’s contributions plus interest
Karl’s wife, Angela, works as an air traffic controller. At age 40, she has been a member of and contributed to, her employer’s pension plan for 8 years. Her pension falls under the jurisdiction of the federal Pension Benefits Standards Act (PBSA). If Angela dies tomorrow, Karl will be entitled to:
transfer the value of her vested termination benefits to a locked-in RRSP
Rhiannan is about to retire, and she was hoping to receive a cash settlement from her pension fund instead of a monthly annuity. Rhiannan may be able to receive a cash settlement for any of the following reasons, EXCEPT:
She already has considerable retirement savings.
Rickie joined a federally-regulated, defined-contribution pension plan three years ago. He asks you to explain vesting as it applies to his pension plan. Which of the following statements is TRUE?
The contributions made by Rickie’s employer are now vested
