Registered Pension Plans
Group RRSPs
DPSPs
When a defined benefit pension plan operates on a non-insured basis the total cost to provide the plan benefits is estimated on a regular basis by a qualified actuary. This "Actuarial Valuation" reviews the level of benefits provided by the plan and the demographics of the employee group, and then determines an appropriate method of scheduling the plan funding. Estimates of future investment earnings, salary increases, mortality and turnover rates are used, based on the actuary's experience, provincial guide lines, and the professional standards of the Society of Actuaries. The total cost is then split between the employee contributions defined in the plan, and the employer who pays the balance of the total. A fund must be established to receive the contributions, pay benefits and the expenses of operating the plan, and to invest the balance in accordance with regulatory guidelines and to the objectives established by the employer and/or a pension committee.
With respect to defined contribution plans, contributions are directed to the plan be the employer and employee to be invested. Investments may be controlled either by the individual member of the plan, or by the employer, or in the occasional situation, by a combination of members and the company. (e.g., the company controls the investment of its contributions to the plan and each member controls the investment of their contributions.) Again, a fund must be established to receive the contributions and invest them according to the selected investment policy. The specific investment guidelines included in the federal PBSA legislation include:
- A maximum investment in any one person, two or more associated persons, or affiliated corporations, or 10% or less. This restriction does not apply if the restriction does not apply if the funds are placed in:
- deposits guaranteed by governments, held by banks, trust companies, or other financial institutions
- segregated, mutual or pooled funds that comply with the restrictions
- certain funds of life insurers
- with an investment corporation, real estate corporations or resource corporation
- in securities and funds made up of securities guaranteed by the federal or a provincial government
- funds based on a widely recognized index of a broad class of publicly traded securities.
- A maximum investment in one parcel of real property or a Canadian resource property of 5% of the plan's assets. The aggregate value of all investments in Canadian resource properties is limited to 15% of the value of the plan's assets. The total value of all investments in real property and Canadian resource property cannot exceed 25% of the book value of the plan's assets.
- A maximum investment of 30% in securities which have attached voting shares of the issuing corporation. Certain exceptions are allowed.
- Investments in "related parties" are prohibited unless they are traded at a public exchange, the value is nominal, or the transaction is required and takes place at fair market value.
Pension Benefits Standards Act, 1985, and all provincial Pension Benefits Standards Acts.
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