Chap4

Question 1

Difference between RPP and RRSP

Answer 1

1) RPP are managed by professionals while RRSP are managed by the contributor
2) RPP are locked in while RRSP are not

Question 2

What are the 2 types of RPP

Answer 2

1) Defined Contribution Pension Plan (DCPP) - Money Purchase Plan (MPP)
2) Defined Benefit Pension Plan (DBPP)

Question 3

Defined Benefit Pension Plan (DBPP)

Answer 3

Specifies the amount of pension benefit using a definite formula typical based on the #of years of service. The investment risk is taken by the employer. it is prevalent in the public sector. it it then paid out as a life annuity

Question 4

Who can set up an RPP

Answer 4

It can be set up by an employer, a group of employer or a union

Question 5

Non contributory RPP

Answer 5

Only employers make contribution.

Question 6

Surplus in en RPP

Answer 6

It is generated when the investment income grows so much than assets needed to pay the future liability to retirees is over-funded

Question 7

Taxation of RPP

Answer 7

Employee pension contribution are deducted from net income

Question 8

tax credit

Answer 8

Part of the non refundable tax credit

Question 9

Tax deductions

Answer 9

Reduce the amount of income on which tax are calculated

Question 10

Additional Voluntary Contribution (AVC)

Answer 10

they are permitted in most DCPP but not in DBPP. If they are transferred to a second plan, they will continue to be AVCs unless the member chooses to use them to make contributions

Question 11

Eligible earnings

Answer 11

Includes salary, wage, bonuses, vacation pay, honorariums, commissions, taxable allowance, taxable benefit, director and officers’ fees

Question 12

Prescribed compensation

Answer 12

Defines the level of contributions that can be made during periods of reduced service without violating PA limits. It is a notional amount of remuneration that can be included in an individual’s compensation when their pay is less than usual

Question 13

RPP and loans

Answer 13

RPP may not be used as collateral for a loan

Question 14

Use of RPP surplus

Answer 14

Surplus can only be generated in an Defined Benefit Plan. It can be used to refund the employer and employee as taxable income; Used to pay employee and employer contributions (contribution holiday); Used to improve pension benefit.

Question 15

5 cases when a person might receive a commutation payment from an RPP

Answer 15

1) the plan member only has a short time to live
2) annuity would be less than 4% YMPE
3) Lump sum from additional voluntary contribution (in DNPP)
4) on death
5) termination of employment before the employee retires
6) transferred to a spouse on divorce settlement

Question 16

Amount of death benefit from an RPP

Answer 16

It is the greater of (before retirement)
1) accrued entitlement 
2) total contribution + income earned 
(after retirement) 
60% of pension paid to spouse or financially dependent

Question 17

What is the min employer contribution for a DCPP

Answer 17

employer are required to contribute at least 1% of employee remuneration for the year

Question 18

Retirement payments of a DCPP

Answer 18

Paid as a life annuity guaranteed for the lesser of:

• 15years
• date of retirement to 86

Question 19

Normal Retirement Age (NRA)

Answer 19

by regulation, between 60 and 71

can be less than 50 if:30 years of service or combination of years of service and age > 80