RPA1 Exam 2023 Questions and Answers

Registered Pension Plan - Answer- refers to an arrangement offered by an employer or union to provide retirement benefits to plan members in the form of periodic payments during retirement. Defined benefit (DB) pension plan - Answer- refers to a registered pension plan that provides benefits based on the plan member's years of service and earnings. Defined contribution (DC) pension plan - Answer- refers to a registered pension plan that provides benefits based on the amount accumulated in the plan member's account from the contributions made by the employer and the employee, if it is a contributory plan. Career average or final earnings plan - Answer- refers to the formula used to determine the retirement benefits to be provided from a defined benefit pension plan. A formula based on career average earnings will base payments on the average annual earnings spanning the employee's career as a plan member; whereas a final earnings plan will base the payments on the final years of service (typically 3-5 years). Multi-employer pension plan (MEPP) - Answer- refers to a plan to which two or more, usually non-affiliated, employers contribute. Employers who are part of the MEPP, allow employees to benefit from pension entitlement that is based on the aggregate of pension credits earned while employed with various employer members of the plan. Target benefit plan - Answer- refers to a type of pension plan that is designed to provide a defined benefit but is similar to a defined contribution plan in that it has fixed contributions. Adequacy - Answer- refers to the target level of retirement income to be provided through an employer plan, that is intended to supplement government programs and individual savings to provide employees with a reasonable income during retirement. Equity - Answer- refers to pension plans being equitable among members with different employment histories; however, several different concepts of equity exist. Year's maximum pensionable earnings (YMPE) - Answer- refers to the year's maximum pensionable earnings, as defined under the Canada Pension Plan (CPP). Bridge benefits - Answer- refers to special benefits provided to pension plan member's who take a reduced pension, prior to reaching age 65. This payment supplements the pension benefits until the plan member is eligible to start receiving CPP or QPP retirement benefits. Capital accumulation plan (CAP) - Answer- refers to a tax-assisted registered savings plan that offers a level of flexibility to plan members for making investment decisions. Typically, with DC pension plans, Group RRSPs and DPSPs, the employer will offer options to employees with regards to the investment of plan assets. This allows plan members to take increased risk or invest more conservatively, depending on their individual risk tolerance and objectives. Pension credit - Answer- refers to a non-refundable tax credit that is applied to the first $2,000 of eligible pension income that an individual receives each year. The taxpayer can claim a tax credit of the minimum federal tax rate (15%) of the first $2,000 of pension income, for a maximum amount of $300, regardless of the age of the taxpayer, or minimum age of 65 for RRSPs, DPSPs and RRIFs. Past service benefits - Answer- refers to the provision of pension credits to employees for service before the establishment of a new DB pension plan. Pensionable/credited service - Answer- refers to the time that a plan member is calculated as being an active member of the pension plan. Contributory and non-contributory plan - Answer- refers to the requirement to make contributions to the pension plan. In a non-contributory plan, the employer is solely responsible for making all contributions to the plan; whereas a contributory plan allows, or requires, the plan member to make contributions as well as the employer. 50% rule - Answer- refers to the requirement for an employer to provide at least 50% of the pension contributions to a defined benefit pension plan. If the plan member's contributions plus earned interest or investment income equal more than 50% of the commuted value, the excess is refunded to the member. Normal retirement - Answer- refers to the age at which a plan member can collect a full pension from the plan. Early retirement - Answer- refers to the age at which a plan member can begin to collect a reduced pension from the plan. Phased retirement - Answer- refers to an arrangement that allows an employee who is approaching retirement age to continue working with a reduced workload and begin collected a reduced pension until he or she fully retires from the workforce. Postponed retirement - Answer- refers to a deferral of pension benefits when a plan member continues to work beyond the normal retirement age. Normal, optional form of pension - Answer- refers to the options available to a plan member at the time pension payments commence. The plan member may select a guaranteed pension (such as 5 or 10 years) or a joint and survivor pension to guarantee that income is provided to a surviving spouse. Joint and survivor pension - Answer- refers to the continuation of pension payments provided to the eligible spouse following the death of the plan member. Preretirement death benefit - Answer- refers to the commuted value of a pension that is provided to an eligible spouse or beneficiary of a deceased plan member who was not in receipt of a pension from the plan at the time of death. Postretirement death benefit - Answer- refers to the benefits payable to an eligible spouse or beneficiary of a deceased plan member who was collecting pension benefits from the plan at the time of death. This will vary based on the type of plan and the options selected by the plan member at the time the pension payments commenced. Locking-in - Answer- refers to the restrictions on registered pension plans that prohibit plan members from withdrawing the funds prior to retirement. Reciprocal transfer agreement - Answer- refers to the terms and conditions under which a plan member can transfer pensionable service or funds from one registered pension to another Indexation - Answer- refers to an annual pension increase to account for the rising cost of living. Ad hoc adjustments - Answer- refers to a pension increase on an irregular basis to compensate for the rising cost of living. flat benefit plan - Answer- multiplies years of service by a flat dollar amount to calculate pension benefits, rather than a calculation based on plan member's earnings. For example, a benefit formula of $40 per month per year of service for an employee with 25 years of pensionable service would provide an annual pension of $12,000 (calculated as $40 x 25 x 12). best average earnings plan - Answer- bases calculations on the average earnings during the employee's best earning years (such as the five highest earning years). Since some employees reduce their working hours towards the end of their career, they may experience reduced incomes in the years immediately preceding retirement. A best average earnings plan can eliminate the potential risk from this scenario by focusing on the employee's highest earning years. Registered Retirement Savings Plan (RRSP) - Answer- refers to a vehicle used to help individuals save for retirement by offering tax assistance for contributions made to the plan and allowing funds to grow tax-sheltered until withdrawn. Group RRSP - Answer- refers to a collection of individual RRSPs established by the employer to facilitate employee contributions to an RRSP, by way of payroll deductions Canada Revenue Agency (CRA) - Answer- refers to a Canadian federal agency that administers tax laws for the Government of Canada and for most provinces and territories and various social and economic benefit and incentive programs delivered through the tax system. Income Tax Act (ITA) - Answer- refers to the legislation that defines terms of administration and enforcement with compliance responsibilities assigned to the CRA. Pension standards legislation - Answer- refers to legislation that outlines minimum standards relating to plan member rights under an RPP. Guidelines for Capital Accumulation Plans (CAP Guidelines) - Answer- refers to guidelines intended to support the continuous improvement and development of industry practices, reflecting the expectations of regulators regarding the operation of a capital accumulation plan. Structured group RRSPs - Answer- refers to a plan in which the employer matches either all, or a portion, of the employee contributions to the plan and may impose withdrawal restrictions to encourage employees to save the funds to provide a retirement income. Earned income - Answer- refers to gross salary (salary before deductions), used to determine the amount an individual can contribute to registered plans. Fiduciary requirements - Answer- refers to the responsibility of a plan sponsor to make decisions, such as the selection of the plan administrator and fund manager(s), with prudence and diligence. Self-directed RRSP - Answer- refers to an RRSP account in which the owner controls the assets and the investment decisions. Locked-in RRSP - Answer- refers to a registered plan that is locked in until retirement age and the money must be used to provide retirement income. Withholding taxes - Answer- refers to taxes withheld at source and remitted directly to CRA upon a withdrawal from a registered plan. Deferred profit-sharing plan (DPSP) - Answer- refers to a registered savings plan that permits only employer contributions on behalf of an employee up to a specified dollar limit in any one taxation year. Connected person - Answer- refers to an employee of the plan sponsor who is related to the plan sponsor, or who is, or is related to, a specified shareholder of the plan sponsor. This includes any individual who does not deal at arm's length with the plan sponsor, or who holds, alone or in combination with someone, 10% or more of the issued shares of any class of shares of the plan sponsor or related plan sponsor. Comprehensive savings limit - Answer- refers to an amount equal to 18% of a taxpayer's compensation, subject to a dollar maximum, on which an individual will receive preferential tax treatment for contributions to retirement savings. Pension adjustment (PA) - Answer- refers to the amount of accruals under pension plans that are converted to approximate lump-sum values and reported to CRA annually. Factor of nine - Answer- refers to the calculation of nine times the approximate amount of annual pension accrued in the year, minus $600, to determine the PA of a DB pension plan. Past service pension adjustment (PSPA) - Answer- refers to an amount calculated to determine the difference between the sum of PAs actually reported for earned pensions and the amount that would have been reported after an upgrade, when an employer amends an RPP to increase pensions already earned. Certifiable PSPA - Answer- refers to the requirement to certify with CRA when providing past service upgrades that