3718/24, 8:19 PM VirualUniversiy CIFP.ca Assessment >> Formal Assessment ‘Assessment: Retirement Planning Web - Academic Partners Unit 3 Post-Assessment (C114V20U3L0A25Q20) Date Submitted 01/28/2024 08:40:00 PM Total Correct Answers: 19 Total Incorrect Answers: 1 Your Mark (total correct percentage): 95% 1 Romeo does not know the amount that his employer will contribute to his pension plan each year. He does know that his pension will be based on 2% of his earnings for each year of employment, based on the average of his best five years of income, From the following types of pension plans, to which one does Romeo belong? Correct ‘The correct answer: best-earnings plan Your answer: best-earnings plan Solution: A best-earnings pension plan is a defined-benefit plan based on the unit percentage applied to the average of the best years of pensionable service. 2 his a member of a career-average, defined-benefit pension plan with a 2% unit. ed the plan ive years before retiring. At the time he joined the plan, his salary was $55,000 and his income wi Increase by $2,000 at the beginning of each year. What will be Dietrich’s annual pension upon retirement? Correct ‘The correct answer: $5,900 ‘Your answer: $5,900 Solution: When Dietrich retires, he will have benefited from four pay increases since he joined the plan. He will receive an annual pension of $5,900, calculated as (((the average of his earnings for the years he was in the plan) x % unit) x years of service) or (((($55,000 + $57,000 + $59,000 + $61,000 + $63,000) + 5) x 2%) x 5), 3. Don has participated in a 1.5% per year of service, career-average, defined-benefit pension plan for the last four years. During those four years, his annual salary each year was $25,000, $25,000, $30,000 and $30,000. What annual pension entitlement has Don earned to date? Correct ‘The correct answer: $1,650.00 Your answer: $1,650.00 Solution: Don's accrued pension entitlement is $1,650.00, calculated as (((the average of his earnings for the years he was in the plan) x % unit) x years of service) or (( ($25,000 + $25,000 + $30,000 + $30,000) = 4) x 1.5%) x 4) 4 John and Frank started working for Green Acres Burial Services on the same day. During the entire period of their service to the company, John earned a substantially higher salary than Frank. John retired after 24 years of service and Frank retired after 25 years of service. Frank now receives a higher pension than John. To which of the following forms of pension plans did John and Frank belong? Incorrect ‘The correct answer: flat-beneft plan ‘Your answer: best-earnings plan Solution: Retiring members of a flat-benefit pension plan receive a flat rate benefit, regardless of their earnings. However, the full benefit may only be available to those who have achieved a minimum level of service, such as 25 years, with a nips: vitualuniversiycfp.calTestScorefEngish/AssossmentiAssessmentFormalAsResul.asp 183718/24, 8:19 PM VirualUniversiy CIFP.ca proportionally reduced pension available to those with lesser service, Under any of the other plans, John would have received a higher pension 5 Wendel is a member of a defined-benefit pension plan. When he joined the company and the pension plan 15 years ago, his starting salary was low. After five years, he received a promotion that doubled his salary. He enjoyed regular salary increases over the next five years until he suffered ill health that forced him to leave his position. The company provided him with a low-stress clerical position at a reduced salary where he expects to remain until his retirement in two years time. Which of the following types of pension plans is best for Wendel? Correct ‘The correct answer: Best earnings ‘Your answer: Best earings Solution: A best-earnings pension plan is the most favourable form of pension plan for Wendel because benefit calculations would be based on his best three or five years of pensionable service. ‘A flat-benefit alan is not the best form of pension plan for Wendel because such plans pay a flat rate benefit regardless of earnings and the full benefit is usually available ta those with a minimum length of service, such as 25 years, Nor is a career-average pension plan suitable for Wendel because the benefit calculations would include the low starting salary, which would reduce his average earings. A final-earnings plan would result in a pension based on the lower earings at the end of, his career and would not include the higher earnings at the middle of his career, 6 For the past 25 years, Corrina has belonged to a defined-benefit pension plan where the pension entitlement is based on a 2% unit and best earnings over 3 consecutive years, Corrina plans to retire at the end of this year. During the past 10 years, her earnings initially rose consistently for 8 years, before declining slightly as she opted for a reduced work week in the last 2 years, as follows: $28,000 9 years ago $30,000 8 years ago $32,000 7 years ago $35,000 6 years ago $39,000 5 years ag0 $39,000 4 years ago '$40,000 3 years ago $43,000 2 years ago $538,000 last year $37,000 this year ‘what will Corrina’s annual pension entitlement be at retirement? Correct ‘The correct answer: $20,333.33 Your answer: $20,333.33 Solution: Corrina's pension entitlement will be $20,333.33, calculated as (((the average of her best earnings over three consecutive years) x % unit) x years of service) or (((($39,000 + $40,000 + $43,000) + 3) x 2%) x 25). 7 Samantha has belonged to a final earnings over three years, 2% unit, defined-benefit pension plan for the past 12 years. In her 10th, 11th and 12th year, she earned $45,000, $50,000 and $55,000, respectively. ‘Samantha plans to retire after another 8 years. What pension entitlement has Samantha earned to date? Correct ‘The correct answer: $12,000 Your answer: $12,000 nips: vitualuniversiycfp.calTestScorefEngish/AssossmentiAssessmentFormalAsResul.asp 2163718/24, 8:19 PM VirualUniversiy CIFP.ca Solution: For the purpose of calculating her pension entitlement, Samantha's earnings in her final three years are averaged to $50,000, calculated as (($45,000 + $50,000 + $55,000) + 3), Her accrued pension entitlement is $12,000, calculated as (12 (29% x $50,000)) 8 James is retiring after working for Grand Designs Inc. for 15 years. James belongs to a defined benefit pension plan that provides a benefit of 1.3% of final average earnings up to the final YMPE and 2% on final average earnings above the final YMPE for each year of service. The maximum pension benefit for the year Is $2,646.67. If James has projected his final average earnings to be $140,000 and the final average YMPE to be $48,533, what will his annual pension benefit be? Correct ‘The correct answei Your answer: $36,904 Solution: ‘The benefit will be $36,904, calculated as the lesser of: + (year's maximum pension benefit x # of years of service) or ($2,646.67 x 15) and + [((earnings up to YMPE x 1.3%) + (earnings - YMPE x 2%6)) x. # of years of service] or [(($48,533 x 1.3%) + ($140,000 - $48,533) x 2%) x 15]. 9 Klare is the owner/operator of a successful metal shop. Klare is 32 years old, and draws a regular annual salary of $185,000. What response represents the MOST SIGNIFICANT deterrent to Klare establishing an individual pension plan for himself? Correct ‘The correct answer: He is only 32 years old. ‘Your answer: He is only 32 years old Solution: Individuals who are under 40-45 years of age generally will not receive maximum tax deferral benefits through an IPP, 10 Nancy is the sole owner-operator of a modestly successful surveying company. She is 52 years old and draws a regular salary of $40,000 per year. Why would an individual pension plan in all likelihood NOT be beneficial to Nancy? Correct ‘The correct answer: Her income is too low. Your answer: Her income is £00 low. Solution: 1PPs are most advantageous for owner-operators or executives of incorporated businesses with a steady income and who are at least 40 - 45 years of age. To maximize the benefits of an IPP, itis generally recommended that 18% of the incividual's earnings should, at 2 minimum, equal the maximum RRSP contribution limit for the year. Based on a salary of $40,000, Nancy falls well short of this amount. 11 Jack, Fred, Mark and Emil are among the shareholders of the same corporation, where they are also ‘employed. Jack holds 25% of the total shares, Fred holds 15%, Mark holds 10% and Emil holds 8%. Which of the shareholders are considered to be “connected individuals” for purposes of pension planning? Correct ‘The correct answer: only Jack, Fred, and Mark Your answer: only Jack, Fred, and Mark Solution: Connected incividuals include any shareholders owning at least 10% of the issued shares. nips: vitualuniversiycfp.calTestScorefEngish/AssossmentiAssessmentFormalAsResul.asp a63718/24, 8:19 PM VirualUniversiy CIFP.ca 12 The New Age Furniture Company is considering setting up an IPP and they have come to you for advice. After reading about IPPs, the owner of New Age Furniture asks you for clarification of his understanding of IPPs. All of the following statements are true, EXCEPT: Correct ‘The correct answer: connected persons may only make past service contributions for service after 1991, Your answer: connected persons may only make past service contributions for service after 1991. Solutior Connected persons may make past service contributions for service prior to 1991 if the employer has provided, or is willing to provide, past service benefits to non-connected employees that amount to at least 50% ofall accrued benefits in all of the RPPs operated by the employer. 13 Tanya belongs to a non-contributory profit sharing plan, along with 10 other employees. The allocation of Pension entitlements is based on a points system that is directly linked to salary only. The total salaries of all staff amount to $480,000. Tanya herself earns $34,000. According to the terms of the plan, the employer contributes 10% of gross profits, less 50% of capital and operating expenses, to the plan. However, the company has realized a large loss this year. What is the MINIMUM amount of the pension contribution that accrues to Tanya? Correct ‘The correct answer: $340 Your answer: $340 Solution: ‘The Income Tax Act requires that the employer make a minimum contribution of 19% of the salary of plan members even in years of no profit. Tanya's share of any contributions would be 7.08%, calculated as ($34,000 + $480,000). The employer's total contribution would be $4,800, calculated as 1% of $480,000. Thus Tanya's share would be $340, calculated as (7.08% of $4,800). 14 Melissa, Christopher and June are the only three members of the profit sharing pension plan offered by smployer's contributions are allocated according to a points system - one point for ice, and one point for each $1,000 in annual salary. Information for each member is $52,000 5 years of service Christopher $63,000 8 years of service June $47,000 4 years of service If thelr employer contributes 10% of net profits, and net profits are $59,000, how much of the contribution accrues to June? Correct ‘The correct answer: $1,681 Your answer: $1,681 Solution: First, the distribution of points is calculated as follows Melissa = (52 + 5) = 57 Christopher = (63 + 8) = 71 June 1 a7 44) ‘Total Points = (57 + 71 + 51) = 179 The employer would make a total contribution of $5,900, calculated as 10% of $59,000. June's share would be 28.49%, calculated as (51 + 379) and amounting to $1,681 in this case, calculated as (28.49% x $5,900). 15 One of your clients, Jill, died recently at the age of 59. Her adult son, Robert, has asked you to explain the entitlements of Jill's estate to Jill's company pension plan. ill was a widow and a vested member of the plan that has an NRA of 60. Jill's estate will receive: nips: vitualuniversiycfp.calTestScorefEngish/AssossmentiAssessmentFormalAsResul.asp 463718/24, 8:19 PM VirualUniversiy CIFP.ca Correct ‘The correct answer: at least Jil's contributions plus interest. ‘Your answer: at least Jl's contributions plus interest, Solution: If death occurs within ten years of normal retirement age (NRA), the deceased is deemed to have been eligible for a reduced early retirement pension, payable on a joint and last survivor basis. If there Is no surviving spouse, the Geath benefit to @ designated beneficiary of estate must at least equal the employee's contribution plus interest. 16 Karl's wife, Angela, works as an air traffic controller. At age 40, she has been a member of, and contributed to, her employer's pension plan for 8 years. Her pension falls under the jurisdiction of the federal Pension Benefits Standards Act (PBSA). If Angela dies tomorrow, Karl will be entitled to: Correct ‘The correct answer: transfer the value of her vested termination benefits to a locked-in RRSP Your answer: transfer tne value of her vested termination benefits to a locked-in RRSP. Solution: ‘The PBSA requires that the pre-retirement death benefit be at least equal to the value of the deceased member's vested termination benefits accrued after 1986, including both employer and employee contributions, plus interest. If Angela's death occurs more than ten years prior to normal retirement age, this amount can be transferred to Karl's own ROP (i that plan permits), to a locked-in retirement account (LIRA) or RRIF, or to an appropriate institution for the purpose of purchasing an immediate or deferred annuity. 17 Rhiannan is about to retire, and she was hoping to receive a cash settlement from her pension fund instead of a monthly annuity. Rhiannan may be able to receive a cash settlement for any of the following reasons, EXCEPT: Correct ‘The correct answer: She already has considerable retirement savings, Your answer: She already has considerable retirement savings. Solution: The purpose of a pension plan is to provide a continuous income upon retirement, and it is with this intent that provincial legislation restricts access to pension funds. Even if Rhiannan has a large amount of savings at the time of retirement, this does not mean that she will use it wisely to provide for her continued income for the remainder of her lifetime. Thus, having a significant retirement nest egg is not sufficient to warrant a cash settlement. 18 Sumaki is a member of a pension plan with an NRA of 65. The plan has a qualifying factor of 80 and Sumakl Joined the company when he was 32. At what age could Sumaki take an unreduced early retirement pension? Correct ‘The correct answe! Your answer: 56 Solution: ‘Sumaki can take an unreduced early retirement pension at age $6, calculated as ((age of joining + qualifying factor) + 2) or (2+ 80) = 2) 19 Rickie joined a federally-regulated, defined-contribution pension plan three years ago. He asks you to explain vesting as it applies to his pension plan. Which of the following statements is TRUE? Correct ‘The correct answer: The contributions mace by Rickie's employer are now vested. Your answer: The contributions made by Rickie's employer are now vested. Solution: nips: vitualuniversiycfp.calTestScorefEngish/AssossmentiAssessmentFormalAsResul.asp 563718/24, 8:19 PM VirualUniversiy CIFP.ca That Is correct. Vesting refers to the point in time when the employer's contributions to the pension plan become the property of the employee. Once the employer's contributions have vested with the employee, they legally belong to the employee and must be used to provide him with a retirement income. Since January 1, 1987, all pension credits accruing in federal plans must vest after two years of membership. Therefore, the contributions made by Rickie's employer are now vested and legally belong to Rickie, Prior to 1987, federal legislation provided for vesting of the employer's contributions once the employee had reached age 45 and had attained 10 years of service, 20 Reese had met the vesting and locking-in requirements of his employer's registered pension plan when his ‘employment was terminated. The plan is governed by the federal PBSA. His new employer has an RPP. Reese can do any of the following, EXCEPT: Correct ‘The correct answer: receive a cash refund of his own contributions, plus i Your answer: receive a cash refund of his own contributions, plus interest. Solution: erest, Because Reese is a vested member, he is entitled to benefit from both his own and his employer's contributions to the RPP. However, both contributions are locked-in, meaning that the combined funds must be used to provide a retirement income, Therefore, he cannot receive a cash refund. nips: vitualuniversiycfp.calTestScorefEngish/AssossmentiAssessmentFormalAsResul.asp 66