DB Pension Plan Contributions
KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals
- Explain the types of contribution formulas associated with a defined benefit pension plan, such as:
- Percentage of pensionable earnings
- Fixed dollar amount based on years of service or hours worked
- Flat benefit
- Identify that the employer retains decision making authority for how contributions to the pension plan are invested.
- Identify the contributions made by a defined benefit pension plan member for a given pension plan.
- Explain when contributions made to a defined benefit pension plan may be deducted.1
- Explain how each of the factors may impact the suitability of contributing to a defined benefit pension plan, such as:
- Risk tolerance
- Effect on current cash flow
- Effect on future cash flow (impact on value of future pension benefit)
- Effect on current net worth
- Effect on future net worth
- Fiscal discipline of individual
- Psychological impact from decision
- Impact on pension adjustment
- Expected tax rate at time of receipt of pension benefit
- Impact of future receipt of pension benefits on government benefits
- Evaluate how each of the factors may impact the suitability of contributing to a defined benefit pension plan.
- Explain the impact of a contribution to a defined benefit pension plan on registered retirement savings plan contribution room.
- Explain the tax impact of contributing to a defined benefit pension plan.
- Estimate the tax impact of contributing to a defined benefit pension plan.
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