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The Real Retirement: Why You Could Be Better Off Than You Think, and How to Make That Happen by Bill Morneau, Fred Vettese

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Appendix D: A Guide to Retirement Programs in Canada

This document was prepared by Morneau Shepell actuaries to provide an overview of employer-sponsored retirement programs in Canada. It focuses on group plans rather than individual plans and on plans that are registered—in other words, those that are tax-assisted and government-regulated.

Types of Retirement Programs

Retirement programs can be characterized by the type of benefits they provide. The main types are:

  • Defined benefit (DB) plans: In a DB plan, the employer assumes most or all of the financial risk. The employer contributions are dependent on how well the pension fund investments perform, in addition to a variety of factors such as turnover, retirement patterns, and mortality.
  • Capital accumulation plans (CAPs): In a CAP, the employee assumes the financial risk and the employer contributions are usually a stable percentage of pay.

Defined Benefit Plans

A DB plan provides a pension benefit that is defined in terms of the employee's length of service and/or earnings. If an employer were to adopt a DB plan today, it would probably be one of the three types described below.

1. Flat dollar plans provide a fixed amount of pension for each year of credited service (e.g., $50 of monthly pension for each year of credited service). This has been the plan of choice for unionized employees who are paid hourly wages.
2. Final Average Earnings (FAE) plans provide a pension based on a percentage of the employee's average earnings ...

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