Actuarial Science 2427A/B Lecture Notes - Life Annuity

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Published on 11 Nov 2011
School
Western University
Department
Actuarial Science
Course
Actuarial Science 2427A/B
Professor
Terminology
1. Vesting
This means the right of a plan member, who terminates employment, to the portion of the pension benefit provided by er
contributions, with interest
ee contributions are always refundable
In Ontario, the maximum vesting rules are:
Plans after Jan 1/65
Age 45 and 10 years of continuous service
Plans after Jan 1/87
24 months of plan membership
Notes
-Employers are allowed to have more generous vesting rules if they wish
-In the USA, most pension plans typically have full vesting occurring after 5 years of plan membership
-In Quebec, as of 2001, all RPP’s must have full vesting as soon as an employee joins the plan
2. Locking-in
“Locked-in” means the ee cannot withdraw any contributions or portion of the pension benefit in cash prior to retirement
the benefit upon termination can only be received in the form of retirement income
in Ontario, the locking-in rules are the same as the vesting rules
This means if you terminate after being fully vested, then you cannot get your hands on the RPP money until you retire
and have reached the NRA (i.e. money is “locked in”)
Note: After 2 years of plan membership, any money received at termination of employment is locked in and cannot be
accessed until retirement
but if you terminate employment before the end of 2 years, you can receive your ee contributions in cash, although it
would be taxable
3. Portability
Means the commuted value of a terminating ee’s pension may be transferred, on a locked-in basis, to another RPP or to
some other retirement savings arrangement (without a tax consequence)
In Ontario, you can take the commuted value of your pension and transfer the money, with no taxes having to be paid,
to:
Another RPP
RRSP (locked-in)
LIRA – locked in retirement account
LIF – life income fund
LRIF – locked in RRIF
Life Annuity
What Happens Upon Retirement
All pension plans must define what the “normal” form of pension benefit is
note: all pensions are payable for the life of the retiree
1. If the employee is married
pension must be a joint-and-survivor life annuity
this means 100% benefit to the retired ee, dropping to 60% to the spouse if ee died before the spouse
this “normal” pension option can only be waived by a waiver form signed by the spouse
2. If employee is not married
must purchase a life annuity; either
owithout a guarantee period OR
owith a guarantee period of no more than 15 years
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Document Summary

This means the right of a plan member, who terminates employment, to the portion of the pension benefit provided by er contributions, with interest ee contributions are always refundable. Age 45 and 10 years of continuous service. Employers are allowed to have more generous vesting rules if they wish. In the usa, most pension plans typically have full vesting occurring after 5 years of plan membership. In quebec, as of 2001, all rpp"s must have full vesting as soon as an employee joins the plan. Locked-in means the ee cannot withdraw any contributions or portion of the pension benefit in cash prior to retirement. Means the commuted value of a terminating ee"s pension may be transferred, on a locked-in basis, to another rpp or to some other retirement savings arrangement (without a tax consequence) In ontario, you can take the commuted value of your pension and transfer the money, with no taxes having to be paid, to: rrsp (locked-in)

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