Richard
Richius
YaBB God
Posts: 4,369
Political Matrix E: 8.40, S: 2.80
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« on: January 07, 2006, 01:28:56 PM » |
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In many countries, including the United States and Canada, pension funds are examined by the government to ensure solvency and adequate coverage. This is usually done by an actuarial branch of the government whose sole responsibility is to look at the mathematics of all pension plans and decide if it is properly administered.
In some cases, the governement's actuary department will tell the pension plan trustee that they believe insufficient funds are in the pension plan to cover future liabilities and that they should increase the funds put into the pension plan. In the cases of a pension surplus, they will let the company know that they can decrease the contribution rate temporarily.
The level of oversight and compliance varies between countries. I believe in Canada, and probably the United States too, the government "recommends" and it is up to the pension plan trustee to comply or reject the government, up to a point. In some critical cases, they can probably overrule the trustee.
With that out of the way, pension plans in North America are exempt from tax in the following way: money in the fund itself is invested; returns and gains from those investments are generally tax free. The goal of a pension plan fund is to get as much return as possible given a reasonably safe level of risk to ensure solvency for future pension plan claims. If the government had taxed the gains, dividends, and interest in the fund itself that would probably be a huge incentive to people NOT to get a pension plan.
Here is the problem: Frequently in the US and Canada the tax agency (IRS, or CRA) would examine the books of a pension plan fund. Should they deem the company is putting too much money into the pension plan fund, they can tell the company to "stop" putting money in. When you think that pension plans carry ususally between $400,000 to over $2,000,000 per person as a pension fund, times 100,000 people say, you realize a LOT of money is invested here with no revenue for the IRS because it is considered part of a pension plan.
What should a company do when the IRS (CRA) tells it to STOP or severely decrease the funding into the pension plan because they will consider it illegal tax evasion, and the government's actuarial department tells the company to INCREASE funding because they believe future solvency might be at stake?
(This is a real problem, by the way, with no easy answer.)
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