ead@tmsoft.UUCP (Elizabeth Doucette) (03/06/88)
In article <118@edson.UUCP> doug@edson.UUCP (Doug Konrad) writes:
:1) Deferred Benefit Plans: You contribute, and your company contributes.
Defined Benefit Plans
: When you retire, you pension reflects your income during your
: last 5 years (typically) of employment. Your pension is NOT
: really linked to how much you contribute. If there is a shortage
: in the plan, your employer has to pay.
:
:2) Money Purchase Plans: You contribute, and your company contributes. When
: you retire, the trustees of the pension plan take this pot of
: money which has accumulated over your employment, and buy an
: annuity. The annuity income is your pension.
:
:Now to the tax law...
:
:If you are a member of a deferred benefit plan, the lower RRSP contribution
:limit applies. Presumably, this is because deferred benefit plans give you
:inherent protection from inflation until retirement (and occaisonally, after).
:
:If you are a member of a money purchase plan, the $7,500 limit applies, less
:the contributions you make to the plan. Money purchase plans are definitely
:poorer than deferred benefit plans (unless you expect 40 years of deflation).
:This higher limit helps to compensate.
My understanding of section 146(5)(a)(i) of the income tax act is that
there is no distinction between different types of pension plans, with
regard to RRSP contribution limits.
The section discusses who makes contributions to the pension plan.
Paraphrased, this section states that if a contribution is made to a
taxpayer's pension plan by a person other than the taxpayer, then the
lower limit applies.
No distinctions between different types of pension plans are made.
Given the above definition of Money Purchase Plan, (you and the company
contribute), it follows that the $3,500 limit applies.
If you disagree with this interpretation, I would appreciate finding
out the section of the Income Tax Act that applies.dave@lsuc.uucp (David Sherman) (03/08/88)
In article <284@tmsoft.UUCP> ead@tmsoft.UUCP (Elizabeth Doucette) writes: >:If you are a member of a money purchase plan, the $7,500 limit applies, less >:the contributions you make to the plan. Money purchase plans are definitely >:poorer than deferred benefit plans (unless you expect 40 years of deflation). >:This higher limit helps to compensate. > >My understanding of section 146(5)(a)(i) of the income tax act is that >there is no distinction between different types of pension plans, with >regard to RRSP contribution limits. Elizabeth is correct. Until 1986 there was a difference between money-purchase and defined-benefit plans in that a member of a defined- benefit RPP was limited to $3,500 per year of RPP (*not* RRSP) contribution. This limit was removed and they're treated the same now. Under the new regime starting in a year or two, however, the RRSP contribution room allowable for pension plans will be ($15,500 minus RPP contributions) for a money-purchase plan (the $15,500 won't be $15,500 until 1995 or so), and ($15,500 minus a-number-reached-through- a-complex-formula) for defined-benefit plans. The formula will apporimxate the current value of the future benefits under the plan. David Sherman -- { uunet!mnetor pyramid!utai decvax!utcsri ihnp4!utzoo } !lsuc!dave