1) Understanding your employer-sponsored pension plan is important to avoid surprises in retirement. The two main types are defined benefit (DB) plans that guarantee a specific pension amount, and defined contribution (DC) plans where the pension depends on accumulated contributions and investment returns. 2) When you join a plan, you will need to provide personal details and make decisions about contributions and investments. Leaving an employer requires deciding what to do with your pension benefits, such as transferring funds to a locked-in retirement account. 3) In retirement, your pension options will depend on the type of plan and could include receiving income directly from the plan or transferring funds to purchase an annuity. When and how you receive your

1. Helping you sort it all out
Understanding
your pension plan
THE PENSION INCOME-SPLITTING RULES AND YOU
Income splitting is an effective way to reduce a couple’s overall tax bill by
shifting income from the higher-earning spouse to the lower-earning spouse.
Retired Canadians can split up to one-half of their eligible pension income
(income that qualifies for the pension income credit) with their spouses
or common-law partners (subject to certain limits). This not only has the
potential to lower a couple’s tax bill, it may also allow them to avoid
Old Age Security and Age Credit clawbacks that are triggered when an
individual’s income exceeds a prescribed threshold.
“The beginning of
The ways you save, the choices you make about your pension plans
knowledge is the
LIFE PLANNING REPORT
and registered and non-registered investments, and the steps you take
discovery of something
ED MADRO B.A. Econ., CPCA to protect your assets – all play a vital role in generating the retirement
income you expect.
we do not understand”
Consultant
edward.madro@investorsgroup.com We can help you understand all your sources of retirement income and build
a plan focused on your retirement dreams, so there will be no surprises.
3 Knowledge that will pay off in retirement
(403) 220-9654
FRANK HERBERT
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buy or sell specific investments, nor is it intended to provide tax, legal or investment advice. Readers should seek advice
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"Understanding your pension plan: Knowledge that will pay off in retirement"
© Investors Group Inc. 2012 MP1372 (06/2012)
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Investors Group Financial Services Inc.

2. If you’re like many Canadians, your employer-sponsored pension plan will be one of your most DB plans are the most complicated
important sources of retirement income. Knowing how it works will help ensure your finances won’t
stand in the way of your retirement dreams.
It pays to understand your
employer-sponsored pension plan
LOCKED-IN PLANS –
WHAT YOU NEED TO KNOW
Locked-in Retirement Accounts (LIRAs) are a type
of RRSP account set up to receive locked-in funds
Pension plans – what are they?
from your registered pension plan. Before the
Your employer may offer other plans
funds from a LIRA can be withdrawn, they must
to help you save for retirement
first be transferred to a LIF, LRIF (prior to age 71)
or a life annuity.
Life Income Funds (LIFs) and Locked-in Retirement
Income Funds (LRIFs) are similar to Registered
Retirement Income Funds (RRIFs) in that you’re
If you plan to take early retirement, find out the
required to withdraw a minimum amount each year,
earliest date your pension plan will allow this and
which are capped within a certain income range by
assess the financial impacts. Ask about when you
pension legislation. You decide what to withdraw
could receive an unreduced pension and whether
within that range.
Defined Contribution (DC) pension plans, also your pension plan includes a “bridging” benefit
With any locked-in account, you will be required
known as money purchase plans, do not guarantee to provide slightly higher benefits until you reach
to continue managing the investments – a task
the amount of future benefits. Instead, DC retirement age 65 when CPP benefits will kick in (when your
that we can help simplify.
It’s easy to see why there is so much confusion
income depends on accumulated contributions and pension amount will be reduced accordingly).
about company pension plans. Employer-sponsored
Some provinces have introduced “unlocking” features
the investment returns earned by these contributions. Retiring at age 65 (usually normal retirement age)
pension plans are as varied as the companies that
that may provide more flexibility in the use of funds
With a DC plan, your contributions are combined will normally provide a pension that pays you a
offer them, with numerous choices and options –
from locked-in plans.
with your employer’s contributions, plus the invest- fixed, guaranteed income, usually monthly, for the
and lots of puzzling terms like “vesting” and “flex
ment earnings on these contributions, to purchase rest of your life, and a reduced pension for your
benefits.” And company pension plans are so
a life annuity contract that pays you retirement surviving spouse.
automatic, it’s easy to ignore them until you need
the income... but by then, it may be too late. income. With most DC plans, the accumulated Your DB plan may have a portability feature that
amount of your pension benefits can be transferred allows you to transfer your accumulated benefits into
Understanding your pension plan now can help you
to a locked-in plan such as a Locked-in Retirement a locked-in, personally-directed plan – a LIF, LRIF
avoid surprises later, for example, if your pension
Account (LIRA), a Life Income Fund (LIF) or, or PRIF (in some provinces). Make the decision to
income falls short of funding the retirement you’ve
in some provinces, into a Locked-in Retirement transfer to a locked-in account with caution, because
dreamt about. So let us help you – beginning right now.
Income Fund (LRIF) or a Prescribed Retirement it could result in the loss of employer benefits like
Income Fund (PRIF). extended health care, dental care or pension increases
that offset inflation.
There are two basic types of registered employer-
sponsored pension plans, regulated by government: With a Group RRSP or DPSP, your choices are the
same as for your personal RRSP: withdraw the
Defined Benefit (DB) pension plans “define” or guarantee In Group Registered Retirement Savings Plans entire investment in cash (fully taxable) or transfer
a specific pension amount paid to you regularly from (RRSPs), regular contributions are deducted it to a Registered Retirement Income Fund (RRIF)
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when you retire for the rest of your life. The amount from your employment income. It’s important or an annuity.
of your DB pension benefit is set according to your age, to remember that the total contributions into your
length of service and your salary. (The benefit may or DC plans allow you to take the accumulated cash
Group RRSP, plus other personal RRSPs, cannot
may not be indexed to increases in the cost of living). value as a lump sum and purchase a life annuity.
exceed your personal annual maximum contribution
Over 85 per cent of all Canadians enrolled in a pension In most Canadian provinces, pension legislation
limit as set by the Income Tax Act (Canada).
plan are in a defined benefit plan. requires that if you are married, you must purchase
Deferred Profit Sharing Plans (DPSPs) are funded a joint and last survivor annuity unless your spouse
Some DB pension plans include a “flex” feature that solely by your employer and do not have the same agrees in writing to waive this right. You can also
allows you to make additional voluntary contributions rules as registered pension plans. With a DPSP, choose to receive pension income directly from the
to the plan. When you retire, the value of your flex the size of your retirement benefit depends on how plan or transfer the accumulated value to a LIF,
account can be used to purchase additional benefits well the investment performs over time. LRIF or in some provinces, a PRIF and obtain
such as a cost of living increase, a bridging feature your income from the registered fund.
that provides higher income prior to the receipt of
CPP/QPP and OAS benefits, or an unreduced pension
for early retirement.

3. What decisions do I have
to make when I join a plan?
3 DPSPs are totally funded by the employer and
are often accompanied by the offer of a Group
RRSP for your personal contributions.
When you have the opportunity to join an employer-
3 Every type of plan, except a Group RRSP, will create
sponsored pension plan, you will be given an employee
a pension adjustment on your yearly tax return that
booklet that provides details. Be sure to read the booklet
reduces your personal RRSP contribution limit for
right away. You will also go through an application
the next tax year.
process that requires detailed information about
yourself and your beneficiaries. Your employer or the 3 In general, benefits from a DB or DC pension
provider of the pension plan can assist you through plan cannot be accessed until you leave your
this process. Here are some facts you need to know: employer. The assets cannot be seized or attached
by creditors.
3 Every type of pension plan, except a Group RRSP,
3 With the exception of a DB plan, you may also
requires an employer contribution.
be required to choose your pension plan’s invest-
3 In both DB and DC plans, the amount of your
ments. This is a very important decision that you
contribution is predetermined, usually based
should talk to us about, as it could directly affect
on a percentage of your salary.
the amount of your benefits.
3 With a Group RRSP, you often have the choice
about how much you contribute.
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4. What happens if I leave the employer?
What are your retirement options?
When you leave, you must make a decision about what to do with your
pension plan benefits. You will receive all the money you contributed
to the pension plan plus investment earnings. Unless you are “vested”
you can take this amount as cash (which is fully taxable) or transfer it on
a tax-deferred basis to an RRSP. Provincial legislation establishes exactly
when you are vested and become entitled to the money contributed to
your pension plan by your employer. Once you are vested, provincial
legislation requires that the money in your plan – your contributions,
your employer’s contributions and all investment earnings – is trans-
ferred to a locked-in account such as a LIRA, LIF or, in some provinces,
an LRIF or PRIF.
Members of a DB plan that qualify for early retirement benefits (usually
at age 55 or a combination of age and years of service) may have no choice
but to receive benefits from the pension plan – even if they leave the
company before the plan’s retirement date.
As a member of a Group RRSP or DPSP, you can take your benefits
in cash (fully taxable) or transfer these benefits to a tax-deferred RRSP.
Normally, you must be a member of a DPSP for two years to become
fully vested and thus eligible to receive this benefit.
You would think it’s a simple matter to just retire and have your pension
benefit income roll in, but it can be much more complicated than that.
For example, when and how you elect to receive your pension will have
a direct impact on your income.
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