Module 11

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Why do employers provide supplementary executive/employee retirement arrangements (SERPs)?

To reduce overall labor costs

To attract and retain executive and highly skilled employees (correct)

To comply with government regulations

To simplify the retirement process for employees

How do SERPs offer flexibility compared to traditional retirement plans?

They offer lower pension benefits to all employees

They are tailored to individual needs, offering more or less generous pensions (correct)

They are mandatory for all employees

They have stricter eligibility criteria for participation

What is the primary purpose of supplementary retirement arrangements like SERPs in competitive markets?

To enhance the total compensation package and maintain a competitive advantage (correct)

To discourage mid-career executives from joining the company

To promote salary reductions

To increase employee turnover

What is the concept of 'Top-up Plans' in supplementary retirement arrangements?

Plans that selectively enroll employees when their pension entitlement is limited by certain factors Signup and view all the answers

What criteria may influence how SERP provisions are structured to meet the needs of employees in senior positions?

Attractive retirement income and retention of key executives Signup and view all the answers

Why might employers establish supplementary retirement plans for mid-career hires?

To compensate for lost pension credits or attract and retain valuable mid-career employees Signup and view all the answers

What is a key consideration for employers when deciding if employees will be required to contribute to a funded Retirement Compensation Arrangement (RCA)?

Tax deductibility allows for mandatory employee contributions. Signup and view all the answers

What is the main advantage of funding a supplemental plan using a Retirement Compensation Arrangement (RCA)?

Security of assets in an RCA separate from company assets. Signup and view all the answers

Under the Income Tax rules, what is a specific arrangement excluded from the definition of a Retirement Compensation Arrangement (RCA)?

Deferred Profit Sharing Plans (DPSPs) Signup and view all the answers

What scenario would likely prompt the use of a retiring allowance?

Recognition of long service or loss of employment. Signup and view all the answers

Why do some companies believe funding executive pensions is inappropriate?

To avoid sheltering executives from potential company failure. Signup and view all the answers

What limits apply under the Income Tax rules on retirement allowance amounts that can be transferred to Registered Pension Plans (RPPs) or Registered Retirement Savings Plans (RRSPs)?

$2,000 multiplied by years before 1996 and $1,500 for each year before 1989 with unvested employer contributions. Signup and view all the answers

What best describes a retiring allowance?

$5,000 lump sum recognizing long service or loss of employment. Signup and view all the answers

Why are supplementary retirement arrangements often noncontributory?

To provide financial security without employee contributions. Signup and view all the answers

What is a key advantage of an employer-sponsored group TFSA over individual TFSA accounts?

Additional Tax Shelter beyond registered plans Signup and view all the answers

In what situation would a Canadian aged 71 or older prefer a TFSA over an RRSP?

Seeking tax-free investment income Signup and view all the answers

What distinguishes VRSPs from PRPPs in terms of employer contributions?

Mandatory employer contributions for VRSPs Signup and view all the answers

What is a characteristic feature of employee savings plans concerning company contributions?

Employer contribution matching may be offered Signup and view all the answers

When is a stock option plan typically granted to eligible employees?

As an incentive for profit increase or retention Signup and view all the answers

What is the primary purpose of a Share Appreciation Rights plan offered by companies?

Provide cash amount based on stock appreciation Signup and view all the answers

How are funds held in a savings or thrift plan designed to acquire shares of company stock?

Held in individual accounts by any institution capable of tax reporting Signup and view all the answers

What is a characteristic feature of a Deferred Share Unit Plan with respect to payments?

Immediate payment upon retirement or termination Signup and view all the answers

What is the purpose of a secular trust?

To fund retirement income with limited withdrawals Signup and view all the answers

Under the ITA deeming rules, what does an employer acquiring an interest in a life insurance policy for retirement benefits trigger?

Special RCA rules applying to the policy Signup and view all the answers

What is the main reason an employer might establish a profit-sharing plan according to the text?

To foster a sense of partnership and reward good performance Signup and view all the answers

What types of profit-sharing plans operate in Canada according to the text?

Cash profit-sharing plans, deferred profit-sharing plans, and employee profit-sharing plans Signup and view all the answers

What is a characteristic of employee's profit-sharing plans (EPSPs) according to the text?

Employees are taxed annually on allocated amounts Signup and view all the answers

What is a key characteristic of a tax-free savings account (TFSA) as described in the text?

Withdrawals are subject to taxation Signup and view all the answers

How are policy payments treated under the special deeming rules applied by the ITA?

As RCA contributions subject to a 50% tax refund Signup and view all the answers

What does the RCA trust receive when an employer fails to provide the next letter of credit?

Financial security for pension benefits Signup and view all the answers

Why might immediate taxation due to vesting provisions lead to inequities with EPSPs?

It may result in taxed but unreceived amounts for employees Signup and view all the answers

What tax treatment do employee's profit-sharing plan (EPSP) contributions receive according to the text?

Employees are taxed annually on allocated amounts including contributions Signup and view all the answers