HomeRegistered Pension plan is a form of a trust that provides pension benefits for an employee of a company upon retirement. RPPs are registered with the government. The employee and employer, or just the employer make contributions to this retirement plan until the employee leaves the company or retires. Contributions to an RPP are tax deductible for both the employee and the employer. Contributions to the plan and gains on underlying assets are tax deferred, so the funds are taxed when they are withdrawn from the plan. In this article, we will discuss regulation and maximum pension benefits registered pension plans.
I. Regulations and the law
Pension Plans are subject to both federal and state law. The purpose of this types of legislation to ensure
1) Employees are fully informed concerning their rights under their plan.
2) Benefits vest after two year of services and age cannot be disposed of except as payments or as death benefits.
3) The plan meets solvency standards in case of employer bankruptcy.
4) plan enrolment must be open after two years of service for full-time employees. Part-time employees are eligible to join if they earn a minimum of 35% of full time employee salary in two consecutive years with their employer.
5) Early retirement optional age,usually 55 years.
6) Improved spousal options, including
a) No remarriage clause.
b) Entitlement to a minimum of 60% of spouses pension if spouse was currently retired.
c) Non-gender specific in pension benefits of equal proportions.
II. Maximum pension benefits
a) Retirement income is not paid by the plan until the recipient is at least 60 years old.
b) Maximum defined benefit allowed by current service formula and it is the lesser of
3% x average of best 3 years of earnings x number of years of pensionable service
Other such as past service pension benefits and upgrades must be valued and integrated with other retirement savings contributions.
Under defined contribution pension plan, contribution of employee are restricted to the amount that can be contributed. Other benefits such as spouse benefits, may reduce the pension benefit accordingly Defined Benefit plans are not affected by these additions.
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