Benefits Of A Registered Pension Plan

Canada Pension Plan (CPP) - CPP is a government sponsored pension plan available to all working Canadians. Everyone pays into it and receives retirement benefits based on how much and how long each person pays into it. The CPP provides pensions and benefits when contributors retire, become disabled, or die. The amount you contribute is based on your employment income.

As you may know there are two types of pension plans that are most commonly used: a defined contribution plan and a defined benefit plan. “A defined contribution plan sets forth a certain amount that the employer is to contribute to the plan each period (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). “A defined benefit plan specifies the amount of pension benefits to be paid out to plan recipients in the future. Companies that use this plan must make sufficient contributions to the funding agency in order to meet benefit requirements

a. i. An employer with a defined-contribution plan pays into the plan either an annual lump-sum per employee or calculates payments based on the employees‟ current wages and or time of service with the firm. Under such a plan, the employer does not guarantee the future amounts employees will receive when they retire. The employees covered by a defined-contribution plan assume the risk for the pension plan‟s financial performance. Under a defined-benefit plan, the employer specifies the size and timing of the payments that the employees will receive when they retire. Typically, these retirement benefits are commensurate with the wages earned by the employee in his or her last few years of employment

On August 17, 2006 the Pension Protection Act of 2006 (the Act) was signed into law. The Pension Protection Act ("PPA") [P.L. 109-280] originated as a single-employer defined benefit pension funding reform bill to strengthen the DB pension system. However, it is best known for the number of provisions to enhance 401(k) and 403(k) plans, especially the auto enrollment feature. Among other noteworthy provisions are those intended to remove legal obstacles to, and create new incentives for, automatic enrollment 401(k) and 403(b) plans. It represents one of the most comprehensive pension reform legislation since ERISA was enacted in 1974. The Act has lead to many companies changing the way their plans are designed and administered, amend plan documents, increase plan funding, and make additional plan disclosures in regulatory filings and to plan participants. The Act made many sweeping changes but for the sake of brevity, only the automatic enrollment plan made by employers on the behalf of its employees is addressed in this report as to the rationale behind the passage of the PPA. Even though the provisions generally apply both to 401(k) and 403(b) plans, for explanatory purposes all references will refer only to 401(k) plans.

GAASB is proposing some major improvements to the reporting of pension plans. (GASB Proposes Major Improvements for Pension Reporting, 2011). Immediate recognition of more components of pension expense will be required, including the effect on the pension liability of changes in benefit terms, rather than deferred and amortization over as many as 30 years. Use of a discount rate will be required that applies the expected long term rate of return on pension plan investments where pension assets are expected to be available to make projected benefit payments and the interest rate on a tax exempt 30 year AA or higher rated municipal bond index to projected benefit payments where plan assets are not expected to be available for long term investment in a qualified trust. A single actuarial cost allocation method, the entry age normal, will be required. Governments participating in cost sharing multiple employer plans will be required to record a liability equal to their proportionate share of any net pension liability for the cost sharing plan as a whole. Governments in all types of covered pension plans will be required to present more extensive note disclosures and required supplementary information.

Between 1965 and 1969, the age of eligibility went down gradually from 70 to 65. In the 1970s, the government started to index the pension payments to the consumer price index, and to provide supplemental benefits such as the Guaranteed Income Supplement, the Allowance, and the Allowance for the Survivor to low-income pensioners.

You are eligible to apply for a retirement pension when you are age 60 or over if you have made at least one contribution to the plan, regardless of whether you have stopped working or not. The standard age to begin receiving the pension is 65. However, you can take a permanently reduced pension as early as age 60 or take a permanently increased pension after age 65.

Legislators argue that employees are losing out, even though the government requires businesses that terminate pension funds to help pay out benefits employees. According to the collective bargaining agreements labor unions will create employee pension plans and other benefits. Due to the increase in pension and benefit plans per employee, businesses compare rates to the open market. After the retirement of employees, businesses are required to fund pensions because of pension plan agreements. Also, unions can increase pension and benefit plans when negotiating new collective bargaining agreements, continually raising this business cost.

Why exactly would managers need to be concerned with pension plans? The answer is much more difficult than the question itself. Managers are more than just people who are directing tasks to employees. They also have to think about the future as well as what is good for their company. Pension plans have come under attack lately, especially in the federal government. This issue is forcing managers to be more concerned with what their people are thinking about than the normal day to day business.

The old private pension system was created in the 1920’s and expanded throughout the 30’s and 40’s (McDonnell). Private pensions were considered one of the three income sources for retired elderly. Originally, private pensions had defined benefits. The employer and employee would agree to a percentage of salary that the employee would receive from the company annually during retirement. Contractually obligated, this placed the liability onto the employer. Estimates say that employees could receive around 40% of their last year’s salary as annual income with defined benefits. In the 1990’s, the pension plans gradually changed from defined benefits to defined contribution. The employees, rather than negotiating retirement salary now determine the amount of their salary that will be saved in a retirement fund. Retirement income is a burden on the employee rather than employer (Ghilarducci 8). In order to equal the income of the old plans, employees give their retirement savings to mutual funds that invest in the stock market. While a key aspect of retirement, the system has evolved like most economic institutions, favoring the wealthy and established. Furthermore, the private pension system contributes to a market bubble, putting money into the stock market regardless of market strength. These two problems cause the modern pension system to be flawed and unstable. The program must undergo drastic reform in order to save private pensions.

Vested benefits refer to benefits and money you have the right to have even if you leave or are terminated. Vesting is an important term in the Employment Retirement Income Security Act. The Employee Retirement Income Security Act defends the entitlements of workers to obtain certain assured settlements, containing pension benefits and revenue from plans, after they have labored at a company for a period of time. No matter what happens, once the employee has vested and the money has been guaranteed by ERISA, then the worker is ensured the benefits. Regardless of the status between the worker and their employer, the employee can be fired or quit and they will still be qualified for the vested benefits. The only thing is that the payments that you make into the plan must be big enough to meet the future requirements. Also, the Employment Retirement Income Security Act launched an insurance plan that will defend workers if they firm goes out of

The defined benefit plans and defined contribution plans pay a pension to retired worker, usually until his death or the death of the surviving spouse.

Employers assume responsibility for providing retirement funds in a defined benefits plan. In the plan, a specified amount is set aside for future payments to employees, for life, during retirement. The amount is determine in advance is based on factors such as age, salary, and length of employment. In 2009, the maximum amount to be allotted under the plan was $195,000.

The NPS- New Pension System introduced by Government of India is extremely concerned with protection of unorganized sector workers and to promote voluntarily save for their retirement. As per NSSO survey 2011-12, 88% of total workforces in India are come under the umbrella of unorganized sector who are inadequately covered under pension. The new scheme introduce will be administered by Pension Fund Regulatory and Development Authority (PFRDA), Atal Pension Yojana applicable to age bracket between 18 to 40 years which gives subscribers the fixed pension of Rs. 1000, Rs. 2000, Rs. 3000, Rs. 4000 and Rs. 5000 per month after attainment of age of 60, subjected to contribution and age at the time of entering into pension scheme. APY provides exit option only at the age of attaining 60 years only and in case of death the pension will be available to the spouse. The above benefit needs to be analyzed using the value of money, which gives the subscriber to lead retirement with proper corpus or monthly income which meets the requirements.

It is possible for an individual who dies or becomes totally disabled at an early age to be classified as fully insured with less than 40 quarters. To receive old age insurance benefits, covered individuals must also meet the test of retirement. To meet this test, persons under 70 cannot be earning more than an established amount through gainful employment. This limitation of earnings does not include income from sources other than gainful employment such as investments or pensions. Social security retirement benefits consist of those benefits which individuals are entitled to receive in their own behalf, called the primary insurance amount, plus supplemental benefits for eligible dependents. These benefits can be determined from a prepared table. There are also both minimum and maximum limits to the amount that individuals and their dependents can receive.