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Defined Benefit Pension Plan Characteristics

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Financial Planning   ->   Pensions   ->   Registered Pension Plans (RPPs) -> Defined Benefit Pension Plan Characteristics

Characteristics of Defined Benefit Pension Plans

bullet Pensionable age is specified by the pension plan and can vary from plan to plan.
bullet Pension payments cannot be split between spouses, except in the case of a court ordered split, due to separation or divorce.  Due to pension income splitting, this is less important.
bullet The pension adjustment (PA, reported on the T4) reduces the amount that the employee can contribute to an RRSP.
bullet Employer contributions are not taxable to employees.
bullet Pension benefits will be paid out (usually in monthly payments) over the lifetime of the employee after retirement. 
bullet If there is a spouse, then the plan must be set up to continue payments to the spouse upon death of the member, unless the spouse has signed a waiver.
bullet The employee knows in advance approximately the amount of retirement income that will be paid.
bullet The maximum amount of pension payable is restricted by the Income Tax Act (Regulations S. 8504).
bullet Contributions to the plan by the employer are determined by actuarial evaluations.
bullet The plan may or may not be set up for employees to make contributions.
bullet Employee contributions are tax deductible.
bullet Employees have no control over how the pension funds are invested.
bullet Retirement benefits can be reduced in contract negotiations.
bullet Defined benefit plans are rarely 100% funded, so if the company becomes insolvent, the employees can lose a portion of their pension.

Revised: September 20, 2017

 

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