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employer pension plan




Hi Fellow CDs

I am asking about the Company contributions to a Registered pension plan. Normally the company contributes 4% but if I contribute 3%, the company matches my contribution and it contributes 7% to the plan.

The above pension plan is different from the Quebec Pension Plan for which a separate deduction is made.

Assuming that I live and Work in Canada between 3 to 5 years, what is the best way for the following ?

1) Should I opt for the voluntary contribution of 3%? what benefits do I get?

2) Will I ever get back my contribution to the employer pension plan? if yes, will it be taxed heavily (say 50%) or as per the eligible rates ?

3) will I be eligible to apply for Quebec pension plan when I reach 65 years of age? (assuming that I will be a PR when I leave Canada)


 
montrealEEE

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Post ID: 222620 06-06-15 19:03:10
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tamilkuravan
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It is not employer pension plan but RRSP which is a deferred tax saving plan.
You are eligible to contribute upto 18% of your annual income (subject to a upper limit) where you will save tax free.

So if you put 14 % company will put 4% and total is 18 % which is tax free.

Suppose you are leaving Canada, you will have to take it out (best thing to do, if you are uncertain of your future). You will be taxed 10 % withholding tax subject to Max. 5K in one day. So if you have $ 10,000 in it (tax free), then take it out in 2 day of $ 5 K each day. They will take 10% which will be adjusted in the last tax return that you file.

You should contribute and take advantage of this.

I am not sure about QPP but I am aware of CPP. Any contribution that you make (even 1 month) will give you retirement benefit. Your employer will contribute 100 % of what you contribute. This is mandatory. However you need to have stayed in Canada for 10 years, if it is to be sent by the Govt. to a country outside of Canada.

Murali

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Post ID: 222630 07-06-15 14:38:36
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Full House
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Quote:
Originally posted by montrealEEE

Hi Fellow CDs

I am asking about the Company contributions to a Registered pension plan. Normally the company contributes 4% but if I contribute 3%, the company matches my contribution and it contributes 7% to the plan.

The above pension plan is different from the Quebec Pension Plan for which a separate deduction is made.

Assuming that I live and Work in Canada between 3 to 5 years, what is the best way for the following ?

1) Should I opt for the voluntary contribution of 3%? what benefits do I get?

2) Will I ever get back my contribution to the employer pension plan? if yes, will it be taxed heavily (say 50%) or as per the eligible rates ?

3) will I be eligible to apply for Quebec pension plan when I reach 65 years of age? (assuming that I will be a PR when I leave Canada)



-----
The Company by contributing a 4% of your wage, encourages you to get into the RPP system. This grows in a manner that is invested by the experts who they hire to manage it for them. (Of course for a fee!)

When you join such an RPP, you will be issued a small booklet that will give the plan details, which you should read and tell us what it is that you got into. To the best of my knowledge, they will control it after you subscribing into it.

It will be worthwhile noting, when it is that it gets VESTED. Some will tell you that it is after a period of 7 Years. Which means that for the first SEVEN YEARS, they own their 4% contributions. Only in the Eighth Year, you start to OWN the total of 7% PLUS the gains made during the seven years. It is all semantics that you will get to know if you ask before you get in OR from the booklet that they will issue to you after joining.

Nevertheless, the 3% of your pay will always be yours no matter what takes place from now to the start of the eighth year.

There is one more thing to bear in mind. These plans were run as Defined Contribution Plans or as a Defined Benefit plans. The defined benefits plans as I know have been totally discontinued by all or most of the big corporations. So, the former has taken root all over the continent.

QPP. You will need a FULL YEAR's Contributions to derive the benefits. Please Read...
http://www.rrq.gouv.qc.ca/en/programmes/regime_rentes/rente_retraite/Pages/admissibilite_rr.aspx

Planning guide.
http://en.planiguide.ca/tax-planning-guide/section-9-retirement-assistance-programs/employer-pension-plans/

ALSO, if you take the maximum advantage of the plans, your tax rate will drop down considerably and you can pull it out when there is NO Income. Decide upon the amount to withdraw, to lessen the taxes at a later date.

FH.

I beg the posters who respond to questions that they do not understand, asked by the O.P. here or do not have substantial knowledge on this subject matter which is in discussion, to refrain from posting. Some of the questions asked are extremely serious in nature and might mean making his/her life worthwhile or lose a life time of savings. Thanks. fh.

http://www.rcgt.com/en/ It is Raymond Chabot/ Grant Thornton Tax Auditors.


 
Last edited by: Full House on 09-06-15 17:28:33
Post ID: 222741 09-06-15 15:58:22
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Full House
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A few links do not open, even in my own browser. Hence the total content for your benefit.


inShare
Print

Employer Pension Plans
Registered Pension Plan

An RPP is a pension plan under which employers and employees (or employers only) make contributions to a retirement fund. There are two types of RPPs: money purchase and defined benefit plans.
Deferred Profit Sharing Plan

A DPSP is a contract between an employer and its employees or former employees to share in the profits of a business.
Characteristics of RPPs and DPSPs

Each of these plans has its own specific tax characteristics, which are summarized in the following table:
Characteristics of RPPs and DPSPs
Defined benefit RPP Money purchase RPP DPSP
Payment of contributions

Employer and employee; or
Employer only

Employer only4

Maximum annual contributions

Based on actuarial needs
No annual limit5

Lesser of:

18% of income
Annual limit

Lesser of:

18% of income
Annual limit

Retirement benefits

Predetermined amount
Maximum benefits limit applicable per years of service

Determined based on amounts invested in name of employee and pension funds returns during life of plan

Based on amounts invested
Lump-sum withdrawal allowed (unlike RPP)

Deductibility of contributions Fully deductible for payer5 Deductible in accordance with annual contribution limits Fully deductible for employer

4 Amount of contribution is based on companys earnings.
5 If contributions are required to finance benefits not exceeding maximum limits permitted.
Deductible Contributions

The amount that can be deducted as an annual contribution to a money purchase RPP and a DPSP is subject to a limit. There is no limit for contributions to a defined benefit RPP for which the maximum benefits are limited. From 2013 to 2015, the limits are:
Year Benefits limit defined benefits RPP6 Contribution limits7
Money purchase RPP DPSP8
2013 $2,697 $24,270 $12,135
2014 $2,770 $24,930 $12,465
2015 Indexed9 Indexed10 Indexed10

6 Per year of service.
7 Contribution is limited to the lesser of 18% of the compensation for the year or the annual limit.
8 Limit equals one-half of the money purchase RPP limit.
9 1/9 of the RPP specified contribution limit.
10 Indexed based on average industries salary increase.
Transfer of RPP Funds

An employee who leaves his/her office or employment before retirement age may choose to:

Leave the accumulated funds in the RPP and take a deferred annuity when he/she reaches retirement age;
Transfer the accumulated funds to another retirement savings vehicle. The choices may differ depending on the pension acts applicable to the annuitant. Possible transfers include transfers to:
An RPP of another employer;
LIFs or LIRIFs. These vehicles are similar to RRIFs except that they include certain conditions, including a maximum annual withdrawal;
A LIRA or a locked-in RRSP. These vehicles are similar to RRSPs except that the money is generally locked-in and, subject to a few exceptions, frozen until an annuity is purchased or the funds are transferred to a LIF. As is the case with RRSPs, these vehicles mature at the end of the year taxpayers reach 71. Funds have to be converted into a life annuity, a LIF or a LIRIF.

LIFs can be unlocked gradually by transferring each year a portion of the funds accessible to an RRSP. There are a number of tax, financial and other consequences that have to be taken into consideration before adopting such a strategy.

Purchase of Past Service by RPP

RPPs generally allow participants to buy periods during which they did not participate in the plan. The periods vary according to the plans and a purchase of past service has tax consequences that vary based on the date the services were rendered and the method of payment.11 Moreover, a taxpayers participation in an RPP during calendar years covered by the purchase has an impact on the applicable rules.

The following table summarizes the rules for the purchase of past service:
Purchase of past service
Before 1990 After 1989
No RPP contribution With RPP contribution
Maximum annual deduction

Federal: $3,500
Quebec: $5,500



Federal: $3,500 less contributions to RPP
Quebec: $5,500 less contributions to RPP



No limit

Carryover of undeducted balance Yes Yes Contributions only deductible in the year
Overall limit (per calendar year eligible for purchase)

Federal: $3,500
Quebec: $5,500

No limit No limit
Impact

Possibility of delay in deducting contributions due to limits
No impact on RRSP

Past service pension adjustment

11 Payment by transfer from an RRSP will have different tax consequences than a cash payment to an RPP.
Pooled Registered Pension Plans and Voluntary Retirement Savings Plans

The federal government implemented PRPPs in December 201212 while in Quebec, VRSPs came into effect July 1, 2014. These plans aim to offer defined-contribution pension plans adapted to the needs of self-employed workers and small businesses.

Quebec employers are subject to one of these plans, according to their area of activity. For businesses doing business under federal jurisdiction, the PRPP rules apply, while the VRSP rules will apply to businesses under provincial jurisdiction. An employer subject to one of these laws may not apply the other plan.

In Quebec, employers under Quebec jurisdiction that employ five employees aged 18 or over with at least one year of continuous service will have to offer a VRSP by the following dates if they do not already offer a wage-deduction based retirement savings plan to their employees:

December 31, 2016, if they have 20 or more employees at their service on June 30, 2016;
December 31, 2017, if they have 10 to 19 employees at their service on June 30, 2017;
The date that will be determined by the Government,13 if they have 5 to 9 employees at their service.

Past this date, any employer who is required to offer VRSPs as at December 31 of a given year, will have one year to comply.

Conversely, the federal law establishing PRPPs does not oblige employers to offer this plan to their employees. In both cases eligible employers who wish to do so can offer such a plan to their employees as of now.

Participants contributions to these plans are deductible from their taxable income and are added to those made to an RRSP for the purposes of the annual deduction limit.

12 In its May 1, 2014 budget, the Ontario government proposed to introduce the Ontario Retirement Pension Plan, a new mandatory plan that would be effective as of 2017.
13 This date cannot be prior to January 1, 2018.
Individual Pension Plan

An IPP is a defined benefit RPP generally designed and structured for one or more individual members, normally the owner of a business or key executives. Employer contributions are deductible and the employee is only taxed when the amount is withdrawn.

One of the benefits of an IPP is that larger annual deductible contributions can be made compared to an ordinary RRSP. Under certain circumstances, the company may make additional deductible contributions in recognition for past years of service.

Participants in an IPP are required to withdraw annual minimum amounts from the plan starting in the year they reach the age of 72, as for RIFFs (see point 3 of this section).
Simplified Pension Plan

A simplified pension plan is a defined-contribution RPP for which the administrative rules applicable to the employer are not as onerous in order to make it easier for SMEs to use.14

14 For additional information, go to the Internet site of the Rgie des rentes du Qubec at: http://www.rrq.gouv.qc.ca/en.
Retirement Compensation Arrangement

A retirement compensation arrangement is a mechanism which results in an agreement between an employer and an employee whereby the employer makes contributions to a custodian who receives the funds, generates a return thereon and makes payments to the employee when he/she retires or loses his/her job, or when there is a significant change in the services rendered by the employee.

Contributions paid as well as the plan income are subject to a 50% tax that is refundable when amounts are paid to the employee. Contributions are deductible by the employer when paid. However, they are only taxable in the hands of the employee when attributed to him/her by the trust.

Such plans are subject to prohibited investments rules similar to these applicable to RRSPs (see point 1 of this section).

xxxxxxxxxxxx

http://www.rcgt.com/en/

Hit.: Tax Planning Guide in their search engine box. fh.


 
Last edited by: Full House on 09-06-15 16:34:27
Post ID: 222746 09-06-15 16:31:42
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montrealEEE
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Member since: May 15




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Thanks FH
Thanks FH for your info. I think my employer also follows the Defined contribution plan. I went through the whole booklet. It says I will retire in 2049 and if I don't make a choice my default fund will be selected by plan sponsors

I could not find any information about early withdrawal or penalties. In such a case, I think employer contributions are not vested. Am I right?

So if I quit in 5 years, they will pay me the value of the fund minus penalty and taxes.


 
Post ID: 222752 09-06-15 22:16:10
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Full House
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Member since: Oct 12




Posts: 2189
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Quote:
Originally posted by montrealEEE

Thanks FH for your info. I think my employer also follows the Defined contribution plan. I went through the whole booklet. It says I will retire in 2049 and if I don't make a choice my default fund will be selected by plan sponsors

I could not find any information about early withdrawal or penalties. In such a case, I think employer contributions are not vested. Am I right?

So if I quit in 5 years, they will pay me the value of the fund minus penalty and taxes.


------

I have very little to work with, whereas you atleast have the booklet to look into. Also you have the Human Resource Department or a phone number there to get in touch with and ask all of the questions.

First question is when does it get VESTED. Then the name of the group who manage your money. What is the capital appreciation last year. Then over the past ten years. Then the percentile gain/loss for each of the vehicles and the risk factors associated with it. Last But Not the least what is the commission in percentages.

If you withdraw prematurely, you will get most of it MINUS a penalty, which is a percentage or two per year. Also there is a low threshold in years and a retirement age at which there is NO penalty. You can also provide a beneficiary, who will receive the same amount or a 50% or better, depending upon the partners age. (Some marry a chick at a later date and she gets to enjoy a cushy life)

If you quit after 5 years, you will get your contributions and you can shelter it into a retirement fund.

Now read the booklet from cover to cover. I am freewheeling here.

FH.

Once a year they hold a shindig and hash the performance. If you happen to be FREE on that day, go and join them and have a shot or two and loosen up. fh.


 
Post ID: 222754 09-06-15 23:50:14
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montrealEEE
Junior Desi
Member since: May 15




Posts: 26
Location:

That was helpful
The name of the fund is fidelity clear path 2050
Great west life is managing it. Soon they will be moved to sunlife because of some policy of my company

After reading thoroughly the booklet I can't find any information about the vesting period so I assume that there's no vesting period.

I can live with the penalty as long I get my principal amount back.


 
Post ID: 223080 15-06-15 20:57:41
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tamilkuravan
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Member since: Jun 05




Posts: 5727
Location: God's own country


Go ahead.
You will get your principle amount plus interest, minus any withholding charges.
My brother was in this scheme when he was with a software company in Canada. On his return to India (resignation), he was allowed to withdraw the entire amount.
5% withholding tax was held. It was refunded after his tax return for that year (pro rata).

Murali

-----------------------------------------------------------------
I am a Gents and not a Ladies.

 
Post ID: 223085 16-06-15 01:08:53
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Full House
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VESTING
Quote:
Originally posted by montrealEEE

The name of the fund is fidelity clear path 2050
Great west life is managing it. Soon they will be moved to sunlife because of some policy of my company

After reading thoroughly the booklet I can't find any information about the vesting period so I assume that there's no vesting period.

I can live with the penalty as long I get my principal amount back.


----

Here is a subject matter on vesting. It is worth reading to get an idea what I meant by the term VESTING. Some time later, when you get the report from the Pension Society that you belong, you will come to know more and if you can reverse engineer the Statement, you can also get to know the full system. That is for another day.

FH.

https://en.wikipedia.org/wiki/Vesting


 
Post ID: 223086 16-06-15 01:24:26
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montrealEEE
Junior Desi
Member since: May 15




Posts: 26
Location:


Hi FH,

I got a confirmation from the HR that there is no vesting period. When I decide to leave today, I get my contribution as well as the employer contribution in full (ofcourse based on the market value)

The fund is managed by Sunlife.

Gives me some peace of mind now !! :)


 
Post ID: 225002 26-07-15 17:44:14
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Contributors:
Full House(5)  montrealEEE(4)  tamilkuravan(3)  
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