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Actuarial Science
Actuarial Science 2427A/B
Kopp/ Davies

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 th
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