What age is too old to go to AC and collect a full pension?

[Old fella]

Pilots DB pension at AC is over-funded - The corporation is taking a funding holiday.

DB pension at the Service Provider(NC) is completely funded, we get the data every year.

[fish4life]

By no means am I a financial expert but the "funding holiday" seems like such a bad idea. Right now the company is making record profits (great news) so wouldn't right now be a great time to over fund the pension since they are flush with cash? This way during the next inevitable downturn when cash is hard to come by the company can take a holiday then and the pension fund will still be above water instead of being under funded then.

[rudder]

Keep in mind that during the early "low earning" years you accumulate RRSP contribution room that you can later use anyway.

That is not necessarily correct. The RRSP contribution limit is not calculated the same as the TFSA contribution limit.

Every year, a calculation is made by CRA based on Earned Income provided by the individual based on their income tax filing. It is calculated based on 18% of earned income (to a limit) for that year. Yes, unused contribution room may be carried forward. But if earned income is just $50K, then the RRSP calculated contribution limit earned in that year is just $9000. It does not matter how much money that you make the next year or any year thereafter.

[Dockjock]

By no means am I a financial expert but the "funding holiday" seems like such a bad idea. Right now the company is making record profits (great news) so wouldn't right now be a great time to over fund the pension since they are flush with cash? This way during the next inevitable downturn when cash is hard to come by the company can take a holiday then and the pension fund will still be above water instead of being under funded then.

There is a maximum allowable over-funding beyond which it is not permitted to contribute, I believe it is 110%. There was talk of raising that to 125% but I haven't kept up. If companies could, and they probably would like to, contribute more than this amount to as you suggest save for a rainy day, even though that would be a great long-term idea and no business leader really thinks this way (they would likely return the money to shareholders as a first priority), it would be an easy way to shelter profits from tax. So the government prohibits this because it wants its tax revenue. So a funding holiday is actually a forced stop of contributions by the government so that those excess profits can be taxed. It is somewhat of a miracle that the AC pensions are now over-funded and yet rates are still where they are. If rates ever (and this seems increasingly unlikely) rise to normal levels again, there will be a very, very long contribution holiday. A decade long probably. Which is why the DC pension is such a gut-punch because it was introduced during a, in hindsight now, fairly short period where the entire company was vulnerable due to the DB pension funding laws, which AC got temporary relief from in 2009 but which never fully changed to allow for longer downturns.

As for DC, it is a group RRSP with the exception that you cannot withdraw money while employed. Contributions accumulated every year regardless of funding level (funding level is irrelevant), which if you were to make lemonade out of lemons, means there are no holidays.

Apologies on my previous explanation I was vastly mistaken and edited this post.

[LTD]

Dockjock,

With all due respect to your detailed explanation of Air Canada's DC plan (or any other DC plan in Canada). It is completely inaccurate on all accounts.

ACs DC plan (like any other DC plan in Canada) is pretty much exactly like an RRSP and is limited and bounded by the exact same rules and limitations.

The ONLY difference between a generic RRSP and any DC plan, is your employer also helps contribute a percentage of your salary into the DC plan (total capped at 18% of your salary or the current Canadian limit of about 24k a year, whichever is lower) and the funds available to invest into in a DC plan are limited to whatever your company negatioted with the financial institution in charge of your company plan.

Long story short... DC plan = RRSP.

Hope this info helps,

LTD

[Franky Jr]

RRSP's do not equal DC.

Very similar though.

In a group rrsp if you put in 6% and the company puts in 12%, you pay tax on the company's contribution.
In a DC if you put in 6% and the company puts in 12%, you pay NO tax on the company's contribution.
-->This is why AC pilots net a lot more money than WJ pilots every paycheck, AC pilots pay no tax on the companies contribution. WJ has no DC thus no saving on the companies contribution so the WJ pilots must pay tax on the company match.


In a group RRSP, if you quit. You can move that money to any company/brokerage and have the rrsp left intact there. Rules going forward are whatever the law is.
In a DC plan if you quit, you can move the money to any company/brokerage you want except that it has to go into a LIRA which has its own set of additional rules like how old you must be before you can make any withdrawls.

To me a DC has more policy, but the tax efficiency is more than worth waiting till a certain age to access your money.

[LTD]

RRSP's do not equal DC.

Very similar though.

Like you said Franky, they are Very similar.
And for the sake of discussion on this forum, I stated the DC = RRSP because the differences are not as notable as comparing DB vs. DC. And unless you are studying for bachelors in finance exam, it's safe to consider them equal.

As for DB vs. DC: Those are two entirely different species of pension plans..

And to get back to the title of this thread: with a DC pension plan, the concept of a "full pension" doesn't exist.
With a DC plan (or an RRSP) the more years/money you contribute to the plan + the better markets/funds perform, the more money you will have at retirement. That's basically all it boils down to.

Interesting to note that the DC pension plan is up for renegotiation in the 2017 contract reopener, as it sadly remained unchanged/unimproved during the latest round of negotiations.

Respectfully,
LTD

[Soar]

" $24,930 a year" - I suppose this is pretty obvious, but that's your contribution, correct? (then AC contributes)

Some helpful numbers here,

Max RRSP contribution is $24,930 a year (which at AC you will reach when making above 140k). So, in 25 years at 6% interest you will have 1.5 million. If you deiced to budget to the age of 90 (and keep a 3.5% rate of return or better) that's $75,000 a year in retirement.

The main issue here is getting your DC contributions to the max ($24,930) as soon as you can, which with the new 4 year low pay scale is difficult.

[rudder]

" $24,930 a year" - I suppose this is pretty obvious, but that's your contribution, correct? (then AC contributes)

Some helpful numbers here,

Max RRSP contribution is $24,930 a year (which at AC you will reach when making above 140k). So, in 25 years at 6% interest you will have 1.5 million. If you deiced to budget to the age of 90 (and keep a 3.5% rate of return or better) that's $75,000 a year in retirement.

The main issue here is getting your DC contributions to the max ($24,930) as soon as you can, which with the new 4 year low pay scale is difficult.

No, that is the 'all source' limit for which you can claim the tax deduction for the full amount of your own contributions and it cannot exceed 18% or your earned income for that tax year (unless you have unused RRSP contribution room carried forward).

[AirFrame]

In a group rrsp if you put in 6% and the company puts in 12%, you pay tax on the company's contribution.
In a DC if you put in 6% and the company puts in 12%, you pay NO tax on the company's contribution.
-->This is why AC pilots net a lot more money than WJ pilots every paycheck, AC pilots pay no tax on the companies contribution. WJ has no DC thus no saving on the companies contribution so the WJ pilots must pay tax on the company match.

I'm not sure this is quite accurate. If you put in 6%, you don't pay tax on that 6% either... As a contribution to the RRSP, you are forgiven the tax on it until such time as you withdraw it when you are retired. In every group RRSP I was part of (non-aviation world), companies made matching contributions that showed as "income" on my tax return, but as contributions to RRSP's they were deductions as well, and came out tax free at the end.

[Longranger]

RRSP's do not equal DC.

Very similar though.

In a group rrsp if you put in 6% and the company puts in 12%, you pay tax on the company's contribution.
In a DC if you put in 6% and the company puts in 12%, you pay NO tax on the company's contribution.
-->This is why AC pilots net a lot more money than WJ pilots every paycheck, AC pilots pay no tax on the companies contribution. WJ has no DC thus no saving on the companies contribution so the WJ pilots must pay tax on the company match.


In a group RRSP, if you quit. You can move that money to any company/brokerage and have the rrsp left intact there. Rules going forward are whatever the law is.
In a DC plan if you quit, you can move the money to any company/brokerage you want except that it has to go into a LIRA which has its own set of additional rules like how old you must be before you can make any withdrawls.

To me a DC has more policy, but the tax efficiency is more than worth waiting till a certain age to access your money.

This is simply not true, at WestJet, if you direct your ESP to the Group RRSP, you don't pay tax on the contribution you get from the company if you fill out the forms to be taxed at source. As well you can contribute up to 20% of your salary, which is matched by the company to the RRSP if you have the contribution room, and that would be fully tax deductible. If you didn't fill out the required CRA form, you would pay the taxes every pay and then have to wait for tax time to get your refund, but if you did, you would get your tax back every pay, making it tax free.

[tsgarp]

With the new DC pension at AC do you select the investment vehicle or does the company? The reason that I ask is that I have funds in two other pension plans at the moment and I was hoping to take the transfer values of both of them and place,them into the AC plan if I get hired.

[gasbag1]

The Company deals with the DC funds not individuals.

[matthew.oommen]

The Company deals with the DC funds not individuals.

You all arguing about making 140 k, and I'm here eating my 99 cent mac and cheese hoping I get to have your problems someday.

#firstworldproblems #lifeofanFO