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Ch 4.docx

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Ryerson University
FIN 612
Coleen Clark

Chapter 4: Registered Pension Plans (RPPs) 1. What are the 3 sources of retirement income programs?  2. Why is a pension plan considered to be deferred compensation? (pg 149)  Pension plan = deferred compensation? o employment income not re/ until retirement o deferring taxation on employment income until funds are w/d 3. What is a defined contribution plan? A defined benefit plan? A money purchase plan? A deferred profit sharing plan? (pg 149)  Defined contribution pension plan - pension based on contributions made to the plan & growth of these contributions while money is in the pension plan (=income earned) o employees take investment risk o amount of employees pension depends on balance in fund at date of retirement o money purchase plan - contribution rates defined o deferred profit sharing plan - contribution based on profits  Defined profit sharing plan - formula based on # yrs of service related to earnings during last few yrs of employment o employers take investment risk o employer ensure plan funded well enough to pay for benefits in plan 4. What percentage of RPPs are in the private sector and the public sector? What percentage of members of RPPs are in the public sector and the private sector? (Tables 4.1 and 4.2) (pg 153)  % of RPP o in private sector: 93.1% o in public sector: 6.9%  % members of RPP o in private sector: 52.7% o in public sector: 47.3% 5. What type of plan is: (pg 152) a) the Saskatchewan Public Employees Superannuation Plan - defined benefit or defined contribution? Chapter 4: Registered Pension Plans (RPPs) o contribution based on salary you were earning before you went on leave b) The Hudson's Bay plan? o defined contribution plan = $1545 6. Can a trade union set up a pension plan for its members? (pg 152)  Registered pension plans can be set up by employer, group employers or union  multiemployer pension plan - no more than 95% of active plan members will work for one participating employer 7. Are the following allowed? (pg 152) a) only the employer makes contributions - the employee does not contribute o non-contributory plan - only employer make contributions to fund b) only the employee makes contributions - the employer does not contribute o not allowed o can have: contributory plan - both employee & employer make contribution 8. Can a trade union set up a pension plan for its members whereby only the members make contributions? (pg 152)  trade union (employer) has to set up & contribute not have only members make contributions 9. What percentage of RPP are contributory, and what percentage are non-contributory? What percentage of members of RPP are in contributory and non-contributory plans? (Table 4.4)  % RPP are contributory = 42.6%  % RPP non-contributory = 57.4%  % members of RPP are in contributory = 80.7%  % members of RPP are in non-contributory = 19.3% 10.Is it possible for a Registered Pension Plan (RPP) to work like an RRSP whereby the employee can make contributions, and also can make withdrawals before retirement as needed? (pg 149 & 150)  funds in RPP are locked in → can't be accessed until retirement → can be withdrawn only to provide retiree with retirement income 11.Is it possible for an employee to take a contribution holiday if he or she has just bought a new house and money is tight? (pg 161) Chapter 4: Registered Pension Plans (RPPs)  contribution holiday - excess surplus used to pay employer and/or employees contribution for current & future eligible service → therefore no 12.Which of the following financial institutions can be the funding medium for a pension plan? (pg 154) a) a life insurance company o Yes (#1) b) a trust company; e.g, Canada Trust or Royal Trust o Yes (#2a) c) a pension corporation; e.g, Ontario Municipal Employees Retirement System o Yes (#3) 13.Magnum Inc. has a total payroll of $5 million a yr, and a defined contribution pension plan. What is the minimum required contribution to the pension plan that Magnum must make? (pg 156)  min req employer contribution = 1%  min req contribution = (1%)(total payroll) = (0.01)(5 m) = $50,000 14.Claudia, age 55, now regrets that , many yrs ago, she did not leave her pension contributions with her former employer. Taking advantage of the rules in place at the time, she withdrew her contributions and paid off her credit card and went on a small but very pleasant vacation - she never dreamt that one day she would prefer a pension to faded memories of a great long weekend. (pg 156) a) She now works for a company that has a defined contribution pension plan. If the plan permits, can she make additional voluntary contributions to increase her pension in a belated attempt to offset her foolish decision many years ago to take her money and play? o Permitted in DCPP - to increase pension benefit → contribute to one pension plan for 10 yrs, transfer pension or pension rights to 2nd employer & contribute to 2nd plan for 25 yrs b) Can she make AVC if the plan is a defined benefit plan? o DBPP can't make AVC 15.Arthur was paid a bonus at the end of 2004. Is this bonus part of his RPP eligible earnings? (pg 157) Chapter 4: Registered Pension Plans (RPPs)  eligible earnings - salary, wages, bonus, vacation pay, commissions, taxable allowances, taxable benefits, D&O fees 16. Does "eligible earnings" include the value of taxable benefits?  eligible earnings - include taxable benefits 17. Christian does work for ABC Company. He sends in an invoice each month for the hours he worked and receives the gross amount of the invoice. Can Christian be a member of ABC Company's pension plan? (pg 157)  must be regular employee not temporary assignment/contracted 18. Can an owner-manager make contributions to his company's pension plan for his wife who does not work for the company? (pg 157)  must be employee → therefore no 19. Which of the following might count as eligible service: (pg 158) a) sabbatical or maternity leave o Yes (#3) b) taking a leave from work to fight in the Canadian army during war o Yes (#3) c) a 2 yr appointment to a Royal Commission on Children and Poverty o Yes (#4) 20. Arthur was seconded to an affiliated company for 18 months to help sort out their management reporting. The affiliate does not have a pension plan. Can Arthur's company make pension contributions based on his salary while he is at the affiliate? (pg 158)  Prescribed compensation - defines level of contribution made during periods of decreasing service without violating pension adj limit o notional amount of remuneration include in individual compensation during period when person's pay less than usual (disability, decrease service, temporary absence, parenting) → allowed to continue make contribution, benefits continue accrue without exceeding PA restriction 21. What is the book value of assets held in retirement programs as at January 1, 2007? (Table 4.7) (pg 160)  $542921 = BV of assets 22. Referring to Table 4.7: Chapter 4: Registered Pension Plans (RPPs) a) What is the total market value and book value of pension fund assets at January 1, 2007? o TMV = $543776 o BV = $542921 b) Which sector invests a larger proportion of its pension fund assets in: i. Bonds • public sector ii. Stocks • public iii. Real Estate • public c) Which sector has the larger investment in: i. Bonds • public sector ii. Stocks • public iii. Real Estate • public 23. Can a plan member borrow from his or her pension plan to buy a house or to go back to school? (pg 160)  RPP - purpose = provide pension to retired employees, pension benefits → not include collateral on loan, loan $, borrow $ 24. Can a pension be paid to a bank because the pension was used as collateral for a loan and the person in question died before the loan was paid back? (pg 160)  RPP - not use as collateral 25. Many years ago, Claudia worked for a large primary manufacturer as a financial analyst. After 5 yrs, she moved on to bigger and better things and received her contributions plus income in cash refund. At that time, she could either take the refund or leave her pension with the manufacturer. The rule have changed since then. What effect do current portability and vesting rules have on her options now? (pg 160) Chapter 4: Registered Pension Plans (RPPs)  Vesting - employers contribution belong to employee o benefits vested - employee met age or service req  Portability - employees quits job to go to another job, pension benefits earned at 1st job are portable
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