CIFPS 4th Annual National Conference 2006

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CIFPS 4th Annual National Conference - 2006

• Vancouver
• May 28 May 31

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Individual Pension Plans (IPPs)
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AGENDA
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What is an IPP?
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What is an IPP?Registered Pension Plan
(employee/employer relationship)
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What is an IPP?Registered Pension Plan
(employee/employer relationship) Contd
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What is an IPP?Defined Benefit, not Defined
Contribution (RRSP is DC)
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What is an IPP?Ancillary Benefits can be added
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What is an IPP?Who Determines How Much can be
Paid into an IPP?
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History of IPPs
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History of IPPsPrior to October, 1968
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History of IPPsInformation Circulars 71-4 and
72-13Rx
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History of IPPs1980 Significant Shareholder Plans
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History of IPPsThe Sedgwick IPP Marketing Scheme
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History of IPPsRegulation 8515 (Designated
Pension Plans)
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History of IPPsRegulation 8515 (Designated
Pension Plans) Contd
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What are the rules regarding IPPs?
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What are the rules regarding IPPs?What is a
Connected Person? Specified Individual?
Designated Plan?
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What are the rules regarding IPPs?Highest
Average Earnings versus Updated Earnings
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What are the rules regarding IPPs?Maximum
Lifetime Pension
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What are the rules regarding IPPs?Maximum Bridge
Benefit
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What are the rules regarding IPPs?Past Service
Pension Adjustment
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What are the rules regarding IPPs?Past Service
Pension Adjustment
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What are the rules regarding IPPs?What are the
Funding Levels for 2006
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What are the rules regarding IPPs?What are the
Funding Levels for 2006 (Contd)
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What are the rules regarding IPPs?What are the
Cost Levels for 2006
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What are the rules regarding IPPs?What are the
Cost Levels for 2006
CRA rules limit the amount of transfer to RRSP to
the following
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What are the rules regarding IPPs?What are the
Cost Levels for 2006
The cost of purchasing an immediate pension with
maximum bridge would be approximately
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Why would one want an IPP?And When?
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Why would one NOT want an IPP?
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Business Planning Cycle
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Retirement Planning
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IPP A Possible Solution

• Comprised of one (individual) plan member
  spouse may participate, provided she is employed
  by same or associated employer
• Complex rules simple concept
• Employer must sponsor and fund (employee
  contributions permitted)
• Registered defined benefit pension plan

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IPP A Possible Solution (Contd)

• Benefit is clearly defined
• Lifetime - 2 of Updated Annual Compensation for
  each Year of Service with Employer (within annual
  ITA limits)
• Bridge - Within ITA limits payable to age 65
• Spousal Pension on Death - 66 2/3 of members
  lifetime
• Indexing - Yes

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IPP A Possible Solution (Contd)
Maximum Annual Benefit Accruals under the ITA
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Ideal Candidates for an IPP

• Owner/manager or senior executives of private or
  public corporation
• Age 41 or older
• Business must be incorporated
• T4 earnings of approx. 106,000 in 2006, 112,000
  in 2007, etc. (dividend income ineligible)
• Have an employer that is willing to set one up

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An IPP is NOT Like an RRSPThe Good (Contd)

• Annual Contributions in an RRSP depend on
  earnings only Annual Contributions to an IPP
  depend on earnings and AGE higher the age,
  higher the annual contribution requirement

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An IPP is NOT Like an RRSPThe Good

• Younger than Age 41 RRSP More advantageous
  Older than 41 IPP more advantageous
• IPP must fund the benefit promise, hence
  additional funding may be required if shortfall
  in pension fund (ongoing or member/plan
  termination) RRSP no such requirement
• IPP is creditor-proof RRSP may be assigned
• Investment risk transferred to plan sponsor
• Any money borrowed by Company to fund IPP
  contributions is tax-deductible to Company,
  unlike borrowing to make personal RRSP
  contributions

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An IPP is NOT Like an RRSPThe Bad

• Restrictions on withdrawal of funds as subject to
  locking-in in most provincial jurisdictions in
  Canada
• No spousal contributions permitted and reduces
  income-splitting opportunities
• Requires a trustee either self-trusteed (3
  individual trustees, at least one at
  arms-length), corporate trustee or life insurance
  company

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An IPP is NOT Like an RRSPThe Ugly

• Administration costs IPPs set up 3,000 -
  5,000, annual 1,000 - 1,500, every 3 years
  2,500 RRSPs - 100 for self-administered
• Any surplus over permissible ITA limits will be
  paid to employee as fully taxable lump sum upon
  termination of employment/IPP, if elect the
  transfer option

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An IPP IS Like an RRSP

• Contributions tax deductible IPP by Company from
  business income RRSP by taxpayer
• Investment income accumulates and compounds on a
  tax-deferred basis
• Upon death by member, all assets in an IPP may be
  transferred to spouse and rolled over to an RRSP
  on a tax-deferred basis, similar to that for an
  RRSP
• Investments, if RRSP-eligible are also
  IPP-eligible
• Foreign content limits are the same
• Taxed when amounts withdrawn/paid

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And, Finally

• Thank You
• Q A