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Contingent pension liability

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Definition of Contingent pension liability

Contingent Pension Liability Image 1

Contingent pension liability

Under ERISA, the firm is liable to the plan participants for up to 39% of the net
worth of the firm.



Related Terms:

Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.


Canada Pension Plan (CPP)

A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).


Contingent Beneficiary

This is the person designated to receive the death benefit of a life insurance policy if the primary beneficiary dies before the life insured. This is a consideration when husband and wife make each other the beneficiary of their coverage. Should they both die in the same car accident or plane crash, the death benefits would go to each others estate and creditor claims could be made against them. Particularly if minor children could be survivors, then a trustee contingent beneficiary should be named.


Contingent claim

A claim that can be made only if one or more specified outcomes occur.


Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.



Contingent immunization

An arrangement in which the money manager pursues an active bond portfolio
strategy until an adverse investment experience drives the then-available potential return down to the safetynet
level. When that point is reached, the money manager is obligated to pursue an immunization strategy to
lock in the safety-net level return.


Contingent Liability

An obligation that is dependent on the occurrence or nonoccurrence of
one or more future events to confirm the existence of an obligation, the amount owed, the payee,
or the date payable.


Contingent Pension Liability Image 2

Contingent Owner

This is the person designated to become the new owner of a life insurance policy if the original owner dies before the life insured.


contingent pay

compensation that is dependent on the
achievement of some performance objective


Current liability

This is typically the accounts payable, short-term notes payable, and
accrued expense accounts on the balance sheet, or any other liabilities that are
expected to be liquidated within a short time interval.


Deferred Tax Liability

Future tax obligation that results from the origination of a temporary
difference that causes pretax book income to exceed taxable income.


Liability

A financial obligation, or the cash outlay that must be made at a specific time to satisfy the
contractual terms of such an obligation.


Liability

A dollar amount of obligation payable to another entity.


Liability

A probable future sacrifice of economic benefits arising from present obligations of
a particular entity to transfer assets or provide services to other entities in the future as a result of
past transactions or events.


Liability funding strategies

Investment strategies that select assets so that cash flows will equal or exceed
the client's obligations.


Liability swap

An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so
as to provide a better match with its assets.


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Limited liability

Limitation of possible loss to what has already been invested.


limited liability

The owners of the corporation are not personally responsible for its obligations.



limited liability company

an organizational form that is a hybrid of the corporate and partnership organizational
forms and used to limit the personal liability of the owners;
it is typically used by small professional (such as accounting) firms


Limited-liability instrument

A security, such as a call option, in which the owner can only lose his initial
investment.


Limited-liability instrument

A security, such as a call option, in which the owner can only lose his initial investment.


limited liability partnership

an organizational form that is a hybrid of the corporate and partnership organizational
forms and used to limit the personal liability of the owners;
it is typically used by large professional (such as accounting) firms


Overfunded pension plan

A pension plan that has a positive surplus (i.e., assets exceed liabilities).


Pension Benefit Guaranty Corporation (PBGC)

A federal agency that insures the vested benefits of
pension plan participants (established in 1974 by the ERISA legislation).


Pension Fund

Assets used to pay the pensions of retirees. An investment institution established to manage the assets used to pay the pensions of retirees.


Pension plan

A fund that is established for the payment of retirement benefits.


Pension plan

A formal agreement between an entity and its employees, whereby the
entity agrees to provide some benefits to the employees upon their retirement.


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Pension sponsors

Organizations that have established a pension plan.



Quebec Pension Plan

A plan that primarily provides retirement and long-term disability income benefits for residents of Quebec.


Registered Pension Plan

Commonly referred to as an RPP this is a tax sheltered employee group plan approved by Federal and Provincial governments allowing employees to have deductions made directly from their wages by their employer with a resulting reduction of income taxes at source. These plans are easy to implement but difficult to dissolve should the group have a change of heart. Employer contributions are usually a percentage of the employee's salary, typically from 3% to 5%, with a maximum of the lessor of 20% or $3,500 per annum. The employee has the same right of contribution. Vesting is generally set at 2 years, which means that the employee has right of ownership of both his/her and his/her employers contributions to the plan after 2 years. It also means that all contributions are locked in after 2 years and cannot be cashed in for use by the employee in a low income year. Should the employee change jobs, these funds can only be transferred to the RPP of a new employer or the funds can be transferred to an individual RRSP (or any number of RRSPs) but in either scenario, the funds are locked in and cannot be accessed until at least age 60. The only choices available to access locked in RPP funds after age 60 are the conversion to a Life Income Fund or a Unisex Annuity.
To further define an RPP, Registered pension Plans take two forms; Defined Benefit or Defined Contribution (also known as money purchase plans). The Defined Benefit plan establishes the amount of money in advance that is to be paid out at retirement based usually on number of years of employee service and various formulae involving percentages of average employee earnings. The Defined Benefit plan is subject to constant government scrutiny to make certain that sufficient contributions are being made to provide for the predetermined pension payout. On the other hand, the Defined Contribution plan is considerably easier to manage. The employer simply determines the percentage to be contributed within the prescribed limits. Whatever amount has grown in the employee's reserve by retirement determines how much the pension payout will be by virtue of the amount of LIF or Annuity payout it will purchase.
The most simple group RRSP plan is a group billed RRSP. This means that each employee has his own RRSP plan and the employer deducts the contributions directly from the employee's wages and sends them directly to the RRSP plan administrator. Regular RRSP rules apply in that maximum contribution in the current year is the lessor of 18% or $13,500. Generally, to encourage this kind of plan, the employer also agrees to make a regular contribution to the employee's plans, knowing full well that any contributions made immediately belong to the employee. Should the employee change jobs, he/she can take their plan with them and continue making contributions or cash it in and pay tax in the year in which the money is taken into income.


Underfunded pension plan

A pension plan that has a negative surplus (i.e., liabilities exceed assets).


Unlimited liability

Full liability for the debt and other obligations of a legal entity. The general partners of a
partnership have unlimited liability.



 

 

 

 

 

 

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