Top 16 Places To See In Australia

The land down under is vast and the list of things to see and do is HUGE! Whether you come to play at the beach, climb a mountain, explore a city, walk in a rain forest, camp in the bush, or get lost in the outback, Australia is both exciting and unique!Top 16 Places To See…Great Barrier ReefOne of the seven wonders of the natural world and one of Australia’s most remarkable natural gifts, the Great Barrier Reef is blessed with the breathtaking beauty of the world’s largest coral reef. The reef contains an abundance of marine life and comprises of over 3000 individual reef systems and coral cays and literally hundreds of picturesque tropical islands with some of the worlds most beautiful sun-soaked, golden beaches.UluruUluru is a UNESCO World Heritage site and is a large sandstone rock formation in the southern part of the Northern Territory in central Australia. It has a length of 3,4 km, a maximum width of 2 km, it’s 9 km in circumference, and most of its bulk is actually below the ground. The peak rises majestically to a height of over 350 m above the surrounding plain. Uluru is notable for appearing to change colour as the different light strikes it at different times of the day and year, with sunset a particularly remarkable sight when it briefly glows red.Sydney Opera HouseAnother UNESCO World Heritage site and one of the most recognisable images of the modern world – right up there with the Eiffel Tower and the Empire State Building, and is one of the most photographed and has come to represent ‘Australia’. It is a multi-venue performing arts centre and was conceived and largely built by Danish architect Jørn Utzon, who, in 2003, received the Pritzker Prize, architecture’s highest honour.The Great Ocean RoadOne of Australia’s most famous drives is a 243-kilometre (151 mi) stretch of road along the south-eastern coast between the Victorian cities of Torquay and Warrnambool. Discover scenic attractions, wildlife and nature. See an amazing array of wildlife, the spectacular 12 Apostles, beautiful beaches, stunning rainforests, waterfalls and more.Fraser Island, QueenslandStarts the Great Barrier Reef a few hours north of Brisbane. It is the largest sand island in the world and a World Heritage Site. You can only arrive on the unspoiled island by eco friendly tours or your own 4WD, as there are no sealed roads. There are limited places to stay on the island so make sure you book in advance. Drive and play on its long white beaches, witness some of the clearest fresh water in the world, trek through its ancient rainforests, and get up close and personal with wild dingoes.


Kakadu, Northern TerritoryIs one of the few World Heritage Sites listed for its cultural and natural values. Kakadu is a place of exceptional beauty and unique biodiversity. Its Aboriginal owners and the Director of National Parks own it jointly. Kakadu experiences 6 seasons and has an abundance of unique wildlife and plant species.Apart from the wetlands there are many beautiful gorges and waterfalls in the park and many people come to visit, not just for this, but to also learn more about the Aboriginal people who have inhabited the area for tens of thousands of years. It is best to visit the park on a guided tour or with your own car. Large saltwater crocs can be found everywhere here so do not ignore the no swimming signs.The KimberlysWhile in Broome, you can hire a 4WD and explore the beautiful Kimberly region. Your best path is the Gibb River Rd, a 660 km dirt track that runs through the heart of the Kimberly region. Driving along the Gibb will take you through spectacular landscapes of red dirt, boab trees, intensely colored ranges, gorges, rock pools and waterfalls that this region is most known for.The most popular falls and gorges to visit are Windjana Gorge, Galvans Gorge and the most popular Bells Gorge.Climb the Sydney Harbour BridgeThe Sydney Harbour Bridge is a steel through arch bridge across Sydney Harbour that carries rail, vehicular, bicycle and pedestrian traffic between the Sydney central business district (CBD) and the North Shore. The dramatic view of the bridge, the harbour, and the nearby Sydney Opera House is an iconic image of both Sydney and Australia. The bridge is locally nicknamed “The Coat Hanger” because of its arch-based design.The Bridge Climb is the ultimate experience of Sydney. Choose from three guided Climbs that take you to the summit of this world famous Bridge, 134 metres above Sydney Harbour.Ningaloo Reef, Exmouth, Western AustraliaImagine visiting Great Barrier Reef fifty years ago, before tourists came and butchered. Well, you have that opportunity when you visit Ningaloo, one of Australia’s greatest unknown treasures. Exmouth offers you a “range to reef” experience with rugged ranges and gorges on one side and spectacular Ningaloo Reef on the other.Ningaloo is one of those rare places on earth where you can walk from the white sandy beaches straight onto the coral reefs and begin exploring the underwater world -even just by standing in water that reaches your knees you will be surrounded by hundreds of curious fish swimming around your legs. Ningaloo is a great spot for scuba diving or better yet, swimming with the gentle whale sharks.Visit a Winery.Australia makes great wine and an abundance of it. There are several wine regions around the country you can visit and enjoy. A day trip to the wineries is an experience never to forget. You can usually jump on a tour and spend the day moving from vineyard to vineyard, sampling various wine and delicious cheeses. Most notably are the Hunter Valley, north of Sydney; The Barossa Valley in South Australia; and Margaret River in Western Australia.Coober PedyIn the middle of the South Australian desert, with temperatures hitting heights of near 50 degrees Celsius, you might be wondering why I would recommend a visit to this outback town. Coober Pedy produces most of the world’s opals; hence the only reason there is a town there and why it brings its 4,000 residents in from over 40 countries.It is so hot in Coober Pedy that the town’s inhabitants actually live underground. Homes, shops, restaurants and pubs can be found down under in cool sandstone dugouts. Coober Pedy is a fascinating place to visit to learn about its history, drink beer in caves, play golf on a course that has not one blade of grass on it and pick up some precious opals.Broome, Western Australia.Broome is situated in the far north coast of Western Australia. It is a haven for backpackers, and pearl farmers. Backpackers run the majority of the shops in this small town and can be found lighting up the bar atmosphere at night. Broome is one of Australia’s most unique towns with its ‘country/outback feel’ right on the ocean.Cable Beach is consistently rated as one of the world’s best beaches, and a day can be spent here playing cricket on the beach, or swimming with crocodiles and jelly fish (do be careful and read the signs) In the evening, catch a sunset cocktail from the Cable Beach resort or even take a casual beach stroll on a camel. You may even decide you want to stay for a while, work on a pearl farm and earn some money to fund your Broome adventure.Explore TasmaniaPoor Tasmania gets largely overlooked by many of Australia’s backpackers and mainland dwellers. Taking the time to come to Tasmania will provide you with an unforgettable traveling experience. The travelers that do make the trek to Tasmania rave about its unspoiled beauty.


Tasmania is the Australia’s most mountainous state and has some of the oldest and tallest trees in the world. Tasmania’s Cradle Mountain National Park is a World Heritage listed site and is a fantastic hiking place to explore its beautiful lakes, rainforests, and waterfalls.Karijini National Park, WAKarijini is the second largest national park in Western Australia and one of the most spectacular sights in the Pilbara. It has breathtaking gorges, crystal clear rock pools, waterfalls, and stunning scenery. There is a system of excellent walk trails of varying levels which will lead you deep into the subterranean gorges and through waterfalls where you can dive into sparkling rock pools. There are excellent picnic areas as well as allocated camping sites within the park. One of the great benefits of the Park is that its scenery is so accessible. Once you park, you can literally walk 50 metres and peer into canyons to see waterfalls and emerald coloured rock pools.Aboriginal Cultural ToursWhy not spend some time in Australia learning about the Aboriginal culture? Australian Aboriginal culture is the oldest living civilization on Earth. The Aboriginal people survived for 50,000 years as nomadic dwellers, never suffering from ailments such as the common cold. They lived off the land and know many secrets to the power the Earth holds for health, healing, and spiritual connection.The most untouched area is Arnhem Land in the Northern Territory. You must apply for permits before you arrive, as it is a highly protected area, owned and controlled by the Aboriginal people, and visitations are limited.Join the Festival FunAustralians love a good party. Wherever you are in the country you are bound to find a festival to join in on, especially in the summer months. Some of the most popular festivals being Australia Day that is celebrated on January 26 or my favourite ANZAC Day, which is celebrated on April 25. Make sure you head to your local pub at some stage of the day for a game of Two Up- the only day this gambling game is legal.

Choosing A Retirement Plan For Your Small Business

A qualified retirement plan can be beneficial to employers and employees alike, yet for a small business owner who is busy with daily operations, the time and effort involved in choosing a plan can seem daunting. It does not have to be.

Retirement plans come in two flavors: qualified and non-qualified. A qualified plan is desirable because it provides a vehicle for tax-deferred retirement savings for both the business’ employees and its owner, with allowable contributions in excess of those permitted for IRAs. A qualified plan also provides the employer an immediate deduction for the contributions made. Depending on the plan, it can encourage employees to maximize the business’ profits and to remain with the employer. Plans can be customized with optional features.

Non-qualified plans do not have to meet many of the requirements imposed on qualified plans, and have a wider range of features and provisions as a result. However, in most cases the employer does not get an immediate tax deduction for a non-qualified plan. Such arrangements also have to avoid “constructive receipt” by the employee in order to defer the employee’s taxes until the money is actually distributed. This usually exposes the employee to credit risk if the business fails before the deferred compensation is paid out. Non-qualified plans are sometimes useful, but most small businesses will prefer one of the qualified plan arrangements described in this article.

All of this can leave your head swimming, especially if personal finance is not your area of expertise. To simplify the exercise, think of finding a retirement plan that fits your small business like buying a new car. You should consider what retirement plan vehicle will fit your business’ size, needs and budget, as well as offering any special features you want. The more “tricked out” your retirement plan, the more costly it will be to establish and maintain.

The SEP (Simplified Employee Pension) IRA is the bare-bones model that gets you from point A to point B. It is easy to adopt, and typically custodians like Schwab or T. Rowe Price offer a basic form to start one. A SEP can be established as late as the employer’s income tax filing deadline, including extensions. After the initial set-up, the employer has no further filing requirements.

With a SEP, the employer makes contributions for all eligible employees. The common threshold for eligibility is an employee who is at least age 21 and who has been employed by the employer for three of the last five years, with compensation of at least $550 during the year. Eligibility standards can be less strict than this if the employer chooses. Contributions are an equal percentage for each employee’s income. The maximum contribution for 2013 is 25 percent of compensation, but no more than $51,000 total ($52,000 in 2014). (The same limits on contributions made to employees’ SEP-IRAs also apply to contributions if you are self-employed. However, special rules apply when figuring the maximum deductible contribution.) In a year where cash is limited, an employer does not have to make a contribution. SEP contributions are due by the employer’s tax filing deadline, including extensions.

A SEP is a great choice for a sole proprietor or a small business with a few employees, where the employer would like to have a retirement savings vehicle that allows larger, tax deductible contributions than does a traditional IRA with minimal fuss and maximum flexibility.

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is also easy to establish and has no ongoing filing requirements for employers. SIMPLE IRAs are only available to businesses with fewer than 100 employees and no other retirement plan in place. These plans operate on a calendar-year basis and can be established as late as October 1.

While only the employer can contribute to a SEP IRA plan, a SIMPLE IRA allows employees to contribute to their own accounts, up to $12,000 in 2013 and 2014. Also, participants age 50 and older can make additional contributions, up to $2,500. The employer can either match employee contributions up to 3 percent of compensation (not limited by an annual compensation limit) or make a 2 percent of compensation nonelective contribution for each eligible employee (limited to an annual compensation limit of $255,000). The employer’s matching contribution can go as low as 1 percent when cash is constrained; however, the employer can use this option no more than 2 years out of a 5-year period. Unlike a SEP, a SIMPLE plan requires that the employer contribute each year.

An employer must deposit employees’ salary reduction contributions within 30 days of the end of the month in which the money is withheld from employee paychecks. The matching or nonelective contributions are due by the due date of the employer’s federal income tax return, including extensions.

All employees who have earned income of at least $5,000 in any prior 2 years and are reasonably expected to earn at least $5,000 in the current year must be eligible to participate in a SIMPLE IRA.

A SIMPLE can be a good choice for a small employer who would like to benefit from the tax deduction for employer contributions while encouraging his or her employees to save for retirement. Many employees will find this sort of plan attractive because it allows for higher contributions than a traditional IRA and requires employer contributions. It entails a greater administrative burden than a SEP, although this burden is still relatively small, and offers less flexibility. If cash flow is not an issue, a SIMPLE plan might be for you.

Once an employer makes a contribution to a SEP or SIMPLE plan, the employee is 100 percent vested in that contribution. Employees can take their contributions with them, even if they quit the next day. If employee retention is a concern, a plan that allows for deferred vesting, such as a Money Purchase Plan (MPP) or Profit Sharing Plan (PSP), may be a better fit. Vesting can either be graduated over a period of years of service or take effect all at once after a certain period of years. These plans are the middle-of-the-line models that provide more features than the most basic plans.

Similar to a SEP, a PSP allows for discretionary contributions by the employer. This is a beneficial feature if the business’ cash flow is a concern. The employer contributes what he or she can and the contributions are divided among employees based on a formula set by the plan. This is commonly based on an individual employee’s compensation relative to total compensation. Employer contributions are limited to the lesser of 100 percent of the employee’s compensation or $51,000 for 2013 ($52,000 for 2014). An employer can deduct amounts that do not exceed 25 percent of aggregate compensation for participants. A plan must be established by the last day of the business’ fiscal year. Contributions are due by the business’ tax filing deadline, including extensions.

A PSP is a good choice if cash flow is variable. It can motivate workers to increase profits and the likelihood of receiving a contribution. However, many employees might not find it as beneficial as a plan with guaranteed contributions. These employees may prefer a Money Purchase Plan (MPP).

A MPP is similar to a PSP, but it requires an annual contribution of a specific percentage of employee compensation, up to 25 percent. This creates a liability for the business, and thus may not be a good choice if cash flow is uncertain. An MPP must be established by the last day of the business’ fiscal year. Contributions must be made by the due date of the employer’s tax return, including extensions.

Standard eligibility requirements for both a PSP and an MPP are employees over age 21 and who have at least one to two years of service with the employer. If two years of service are required for participation, contributions vest immediately.

MPPs and PSPs also may allow loans to participants, a feature that employees often find attractive. Loans are usually limited to either (1) the greater of $10,000 or 50 percent of the vested balance or (2) $50,000, whichever is less. Loans must be repaid, with interest, over 5 years, unless they are used to purchase the employee’s principal residence.

The vesting and loan features make MPPs and PSPs more difficult to establish and maintain than SEP or SIMPLE plans. Both types of plan require employers to file Form 5500 with the IRS annually. These plans also both require testing to ensure that benefits do not discriminate in favor of highly compensated employees. Employers may also find the administration of plan loans to be burdensome. The added features of MPPs and PSPs make them more costly and complicated than the standard model SEP and SIMPLE plans.

You may choose an MPP or PSP if you would like a plan that encourages employee retention and you can handle the extra paperwork. Whether you choose an MPP or a PSP depends mainly on your cash flow.

The fully loaded model retirement plan is the traditional 401(k). These plans allow employee and employer contributions, vesting of employer contributions (employee contributions are always fully vested), and other options such as loans. These plans can be as basic or as complex as the employer wants. However, with complexity comes cost.

Annual employee contributions for a 401(k) are limited to $17,500 for 2013 and 2014. Participants age 50 and older can contribute an additional $5,500. Combined, the employer and employee contributions can be up to the lesser of either 100 percent of compensation or $51,000 for 2013 ($52,000 for 2014). Employers can deduct contributions up to 25 percent of aggregate compensation for participants and all salary reduction contributions. A 401(k) must be adopted by the end of the business’ fiscal year, and contributions are due by the business’s tax filing deadline, plus extensions.

An employer’s contribution to a traditional 401(k) plan can be flexible. Contributions can be a percentage of compensation, a match for employee contributions, both or neither. However, the plan must be tested annually to determine that it does not discriminate against rank-and-file employees in favor or owners and managers. A Safe Harbor 401(k) does not require discrimination testing but does require the employer to make either a specified matching contribution or a 3 percent contribution to all participants.

Commonly, 401(k) plans must be offered to all employees over age 21 who have worked at least 1,000 hours in the previous year.

A 401(k) is a good option for an employer who would like a plan with salary deferral, like a SIMPLE IRA, but also allows for vesting of employer contributions. An employer considering this sort of plan should be able to afford the contributions and the additional administrative work required. A 401(k) is a good option for larger businesses, where the maintenance of such a plan is less burdensome.

The plans I have described in this article are all defined contribution plans. This mean that the plan determines the contributions made, not the ultimate benefits received. Once the contribution is made, the employee invests it however he or she sees fit. At retirement, the amount the employee can withdraw is dictated by the performance of those investments. Poor investments lead to smaller retirement savings.

Defined benefit plans, in contrast, are the Rolls Royces of the retirement plan world. These plans include traditional pension plans, which pay out a set amount to an employee in retirement. The employer, not the employee, takes on the investment risk and will have to make up most shortfalls if the money originally set aside does not cover the ultimate expense.

While in theory an employee could do better with a defined contribution plan, depending on investment results, the certainty of a set payout in retirement makes defined benefit plans highly attractive to participants. However, such plans are costly and administratively complex. On top of annual filings, the plan needs to be tested by an actuary. The required future payments become a liability of the company. The burdens of these plans have made them unattractive for many businesses, and they have become much less common in recent years. In most cases, especially for small businesses with employees, it is not economical to adopt a defined benefit plan.

Adopting a qualified plan for your small business need not be a hassle, even if you want to adopt one for the 2013 tax year. However, be prepared for the administrative complexity, and cost, to grow in step with the plan’s features. In general, though, the benefits of tax-deferred savings and contribution deductions for employers make setting up and maintaining one of these vehicles worth the price tag.

How Does My Defined Benefit Pension Plan Work?

The Defined Benefit Plan used to be the standard for pension plans. Over the last 10 years, many companies have been phasing out these plans in favour of Defined Contribution Plans. Some companies may give you the option of switching between them as well, or converting from one type to another. This article is focused on the Defined Benefit Plan. If you start working for a company today, you will most likely be offered a Defined Contribution Plan unless you work for the public sector, a unionized environment, or a company with a long standing defined benefit plan.

How do I know the difference between the two plans? See the definitions below. The words in bold are terminology you will often see in the discussion of defined benefit pension plans.

Defined Benefit and Defined Contribution Plans Defined

A defined benefit plan is a pension plan where the future payout in retirement is defined by a set formula when you join the company. It is a calculation that usually includes your highest average salary, time working in the company, and how much money was contributed by you and the employer. The money is invested on your behalf and the firm is responsible for risk if something goes wrong. There is usually an implied rate of return that is guaranteed by your employer each year, which is the investment rate of return your money would earn if you could see your pension plan in a bank account.

A defined contribution plan is where the money you pay into the plan is defined: the amount contributed either by you or on your behalf by the company. It is a set dollar amount based on your salary in the year that you are working. You can think of it as the company (and sometimes you and the company) contributing to your pension account. This is similar to a Registered Retirement Savings Plan (RRSP) account, except that it is locked in. Locked in means that the money is in your name and you are entitled to the money, but cannot withdraw it unless there is a very exceptional circumstance. (i.e. this is the only money I have and I need to pay my bills). Also like an RRSP Account, you get to choose the investments in the defined contribution scenario, and you are taking the risks. If you invest in a fund and it loses money, you must deal with the consequences. It is for this reason that it is good to have a plan. If you are in a situation where you have a defined contribution account, you will have to make the decisions.

I know that I have a Defined Benefit Plan, What Now?

The good news is that defined benefit plans tend to work without many decisions being made on your part. This article is designed to make you aware of how they work so that you can be aware of potential changes and make decisions such as benefits changes, whether to stay at your employer a certain number of years, whether to transfer your pension to another institution, or convert to another type of plan (i.e. The Defined Contribution Plan). You may also be given warning if the promises that were made to you when you joined the pension plan get changed by the time you actually receive payment in retirement.

How Does It Work?

A defined benefit pension plan is basically a giant bank account, covering retirement for many employees in an organization over a long period of time. The employees and the employer contribute money every year, and this money is collected in this account. The entity that manages this bank account is called the plan sponsor. This account is typically run separately from the company operations, or from the institution it represents. For example, the GM pension plan is a separate entity from GM the corporation. The only relationship the pension plan and the underlying company should have is for company contributions, adding money to increase funding of the plan, or removing money over and above the projected amount needed to pay the present and future pensioners. If there is any other money transfer between the pension plan and the company, this should be monitored as it may signal funding problems, or a permanent change in the structure of the pension plan (for example company mergers, amalgamations or division split off from the parent company).

Once money is deposited into this bank account, it is invested for a long period of time to ensure that there is enough money to pay the future obligation. The amount of money promised to future pensioners is tabulated, and this amount is discounted back to the present, using an interest rate called a discount rate. This means that an equivalent amount of money invested in the current year is calculated to equal this expected future obligation. The calculation of the future obligation determines an expected rate of return which is the return necessary for the money sitting in the bank account to pay the future obligation and operate the pension plan. How do they know how much they will have to pay? This is where the actuary comes in. The actuary estimates how long people will contribute and withdraw money from the pension plan based on life expectancy, economic conditions, expenses of running the plan, the investment returns and inflation among other things to come up with a projected benefit obligation. The current health of the plan overall is measured using an asset-liability study, which is exactly what it sounds like – a study of the assets (money expected to be generated by the plan) and the liabilities (money that is expected to be paid out by the plan), or the funding situation of the pension plan. There can different versions of this calculation due to varying assumptions. If you are very keen, you can find the assumptions in the financial reports of your pension plan and see what the variations are. Since these calculations are projecting way out into the future, a small change in an assumption will mean a big change in the result. Keep an eye on this over the years to see what trends may be impacting the numbers. This asset-liability study also determines whether there is a surplus in the plan, or it isoverfunded (more money in the plan that the most current estimate requires to cover the future obligation) or a deficit in the plan, or it is underfunded (less money in the plan than the most current estimate requires to cover the future obligation). If a deficit becomes too large and stays there for a period of time, the plan may become insolvent. This is very similar to a company that goes insolvent because it ran out of cash and couldn’t sustain its business any longer. If this happens, the government may bail out the plan, but this depends on the jurisdiction, funds available and willingness of the government. The alternative is to wind up the planand whatever money is left over is divided among the stakeholders (the pensioners, contributors and entities that operate the plan). This is similar to a bankruptcy proceeding for a corporation.

Contributions

Contributions represent the money put into the pension plan by you and your employer. The contribution amount is usually based on a percentage of salary, and consequently the payout in retirement is also based on your salary. The specific calculation of the payout will vary for each plan – this should be checked with your employer. The retirement calculators provided at your workplace are very handy for figuring out your projected retirement monthly payout. Since the numbers are projecting well out into the future, unless you are within 5 years of your retirement, the numbers will likely change by the time you actually receive payments. The ratio of money you are contributing versus the employer will vary by plan and over time. Generally, the less you contribute, the better off you are if you receive the same benefits. Check your pay stub to make sure that the amount deducted equals the amount that should be deducted. If it is not, ask why. There may be some additional deductions or changes to the percentages that you may not be aware of. In some plans, you don’t see what the employer contributes – you only see what you have contributed. If you know the percentages of both parties, you can figure out how much you are actually getting. Also, for tax purposes, the company will reflect contributions from both parties on your tax slips, as the total dollar amount will impact RRSP contribution room and tax planning. Changes to contributions and benefits are usually reflected after union contract negotiations, or after asset-liability studies are carried out which determine how much money the plan will need to pay the pensioners, and how much you the contributor will need to pay.

Vesting

“Vesting” or “Vesting Period”is the time after which you are entitled to benefits or payment, either now or in the future. When you first join a pension plan, the first vesting period is the time when you are entitled to the employer contributions. It could be your first day of employment, or months and years out into the future from your first day of employment. There may be other vesting periods – times at which you are entitled to pension payments, or health benefits as well as pension payouts. Many defined benefit pension plans will include access to health insurance, and how much is covered is typically what you receive when you are working – but this varies and must be verified with your employer. There may be a vesting period for when you can take early retirement. This is usually called early retirement rather than vesting, but the idea is the same. If you stop contributing to the pension plan, you will lose anything that is not vested. Note that you may leave the company and return to the company but continue contributing in your absence. Whatever is vested can either be taken with you, or received as a deferred payment in the future. The tabulations that are done with the retirement calculators always assume you will contribute all the way up to your retirement without interruption. If you leave earlier, you need to calculate a deferred payment, where you input the start and stop date of your contributions, and how much money you put in over this period. If you are familiar with the concept of an annuity, this is very similar.

Indexing

When most pension calculations are done, it is assumed that there is no inflation in the numbers. If you see the term “real rate of return”, this interest rate would include inflation, and would equal the nominal rate of return, or typical interest rate that is quoted, minus the inflation rate. As an example, if you received a 5% return on your mutual fund last year, and the inflation rate was 2%, your real rate of return would be 5%-2% or 3%. Why does this matter? Typically pension payments are fixed – once a payment is calculated upon reaching retirement, it stays the same throughout retirement. The problem is that when you retire, you are supposed to have enough money to pay your expenses with this pension payout. If the rate of inflation is 2% every year up to your retirement, this is like saying you can buy 2% less stuff every year. If the promised pension payment is $2000 per month today, and you retire in 20 years, this 2% inflation rate would reduce the amount of stuff you can buy by 40% (2% x 20 years). If this continues while you are retired, say another 20 years, this money will now buy 80% less stuff than today. Imagine paying bills with 80% less money! Indexing raises the payout calculations by the amount of the inflation rate to prevent this erosion of monetary value from happening. Inflation is actually a very personal thing – the price increases of the stuff you personally spend your money on, is what will impact you the most. The pension plans assume that you buy the same quantity of stuff and in the same proportions as the average, or quoted inflation rate. This is likely not true, but it is better than no indexing at all. Some pension plans also have a maximum amount that they will index, or will not fully index but only partially. Check with your employer for the calculation to verify.

Early Retirement Special Features

Most plans have an option to retire early. They will usually combine how long you have worked there, or years of service with your age and determine a threshold for qualification for early retirement. If you retire early, the rules may change. They may give you a reduced pension for a period of time, or some other benefit. This is highly specific to your employer, so do the homework on this one. These features also change over time. The more the employer wants you to retire, the better an offer they will provide. Another indicator is that the more money the pension plan has, or the better the funding situation, the lower the contributions will be and the better the early retirement terms will be. The closer you are to retirement, the more these features will impact you. Retiring early is a very personal decision, as it will affect your retirement plan, tax status, income and employability. Make sure you plan carefully if you are offered early retirement, and do what is best for your needs.

RRSP Effect

The government views all of your pension accounts together when it comes to contribution room. The RRSP room that you are allowed will include defined benefit pension plan room, as well as all other types of retirement accounts. As an example, if you are allowed $12000 worth of RRSP room, and the defined benefit plan contributes $10000 in the relevant tax year (note that this includes your contributions and those of the company), you would have $2000 left for additional contributions to another type of retirement account.

What About the CPP?

The CPP contributions are also accounted for with your defined pension plan. The employer will account for the CPP limits when calculating your defined pension contributions. When you retire, the pension calculator that you use to determine how much money you receive in retirement accounts for CPP entitlements as well. How this accounting is done will depend on your salary and the CPP contribution calculations for the year in question. This would be another question for your employer. When you are retired, you would receive the CPP Payment and the Defined Benefit Pension payment separately, and the Old Age Supplement (OAS) if applicable.

What if I Leave the Company?

If you leave the company and you are vested, you can leave the money with your former employer, or take it with you to another institution. If you leave it with your employer, you will be able to receive it when you reach retirement age – this is called a “deferred payment”. It may also mean a series of payments over time – this is something I would ask the employer, especially if you will be retiring in the next 10 years. Since it is a pension plan, it will remain locked in until you are of retirement age. It would be kept separate from other non-locked in assets that you might have – like RRSPs, Tax Free Savings Accounts (TFSAs) or non-registered (cash) accounts. There are situations when you can combine locked in accounts from different employers into a single account. This should also be discussed with your current employer.

You can also combine defined contribution and defined benefit plans together in certain situations – if your current employer has a way of calculating the value of the contributions between the two (or more) types of plans. This is also possible between defined benefit plans of different types. Please ask your employer for the rules of their pension plan upon arriving or leaving a job to make sure you have all of the options open. You can also manage pension money yourself once you leave the employer. The money would go into a Locked in Retirement Account (LIRA), which can be managed by the same financial institutions that manage RRSP accounts. You can also turn this money over to a financial planner or broker if you believe they can manage your money more effectively than you can. There are usually time restrictions on making these transfers, and rules of protocol to follow, so please ask your company when you leave the firm and get the proper procedure so you can implement this strategy if you want to.

What If I Am Not Vested Yet?

If you leave the company before the vesting date – your funds will be returned to you but employer contributions will be kept by the company. For information purposes, keep track of how much you and the company contribute from when you joined the plan in the event of mistakes. As an aside, always keep your statements and print out hard copies of your records in case of issues with accessing your internet based accounts or loss of history. At the very least, have the records stored in your personal hard drive so they can be accessed without restriction. This is also a good idea for tax purposes. You want to be able to recreate your account situation from start to finish without relying on the internet, or any other parties to supply you with information.

In summation, the defined benefit pension plan is an integral part of your retirement. Even though it is managed by your employer, you should know what is going on and make decisions when appropriate.