Q&As from Total IPP eConference:

MRS responses to questions posed during the eConference

1. Are copies of the advisor brochure or PDF of the presentation available?
2. Will the eConference be archived for future use?
3. Is GBL associated with Gordon B Lang actuarial firm? Are there other firms available for use within MRS?
4. Do most or all MFDA dealers allow advisors to offer IPPs to our clients? Do I need additional training/licensing?
5. What are the initial set up costs as well as ongoing actuarial fees for the IPP?
6. Is the IPP creditor proof? And is the custodian separate from the client's corporation?
7. With an RRSP if you need the funds you can take them out with an IPP if you need the funds what can you do?

GBL responses to questions posed during the eConference

The following responses are to questions raised during the April 23, 2009 Total IPP eConference and have been prepared by Gordon B. Lang & Associates Inc. (“GBL”) and have been posted to the MRS website as a courtesy.
The responses by GBL are provided without any warranties of any kind and M.R.S. Inc., M.R.S. Securities Services Inc., M.R.S. Correspondent Corporation, their affiliates and their respective officers, directors, employees and agents (collectively, the “ MRS Parties”) make no representations and disclaim all express and implied warranties and conditions of any kind, including, without limitation, representations, warranties or conditions regarding accuracy, timeliness, completeness, merchantability or fitness for any particular purpose and the MRS Parties assume no responsibility to you or any third party for the consequences of any errors or omissions.
GBL is independent of MRS and neither are authorized to act or represent that they act on the other’s behalf.

1. In general, what has your experience been with accountants supporting the IPP strategy with their business/professional clients?
2. How does one change an actuary on an existing IPP with MRS?
3. Can existing IPPs be rolled into the Total IPP? The reason a client may want to is (e.g.) an IPP with an insurance company has too many restrictions on asset holdings - generally restricted to the segregated funds that the insurance company sells.
4. Can the GBL fees be paid by and deducted by the corporation?
5. Through insurance companies, the MER and all other fees are deducted from the IPP account. Can the MER and other fees be charged outside the IPP?
6. Please address any costs over and above what would be incurred as opposed to insurance company plans. Are there any additional admin or trustee fees?
7. You had mentioned that fees can be collected directly out of the IPP account? Does this reduce the members current funding contributions?
8. Are the fees tax deductible if collected outside the plan?
9. You mentioned that fees would be taken from the MRS Account. Would it not be better to bill the company so that the fees are tax deductible? Is this an option to be able to have the IPP fees billed to the company?
10. What would be the process, costs, tax filings, accountant work requirements if this was not done using the Total IPP package?
11. In the case study of the doctor, if you factored in the fees from the IPP what would be the net amount ?
12. What is available for advisors to use that can quickly illustrate the advantages of using an IPP?
13. What is the maximum annual contribution limit to an IPP?
14. If the plan is required to grow at 7.5% per year. What happens if the investment portfolio earns more, are member or company deductions affected ?
15. If the personal tax rate is at the maximum and the small business rate is in place, does the IPP still makes sense?
16. Is an IPP appropriate for someone with a strong, reliable annual cash flow?
17. An IPP being a defined benefit plan, loses it's flexibility for lump sum withdrawals. Do you find that business owners see this as a major stumbling block for their retirement?
18. My question is related to terminal funding of an IPP. Do you have a process/software/spreadsheet that can conservatively estimate future terminal funding requirements addressing variables such as spouse’s age, indexing etc. I.e.; IPP established in 2010, and retirement expected within 5 years. How much cash will my small business need to set aside to meet terminal funding requirements in the future?
19. What happens if a plan is set up and becomes under funded and client has reduced cash to top up?
20. In the case study presented at the eConference, what if the Client's current RRSP is only $275,000.00? What are his options?
21. If I have a qualified prospect, what are my next steps?
22. Does an IPP apply to lawyers and incorporated medical professionals like optometrists?
23. If correct: one needs a good salary (T4) for IPP. What can be done for an incorporated doctor paying herself low salary + dividend, and paying dividends to her children?
24. Is it possible to set up a non-connected plan with a sponsoring company for some executives? Also would this plan be multiple IPPs or one?
25. Does it make set to set up a plan at the age of 66?
26. Can children be put into the pension plan without working in the family business?
27. How could this be applied to a single Canadian key employee who works for a US based employer who wishes to set up a pension plan for this single employee working in Canada? Are there benefits for the US employer?
28. How do you address income in retirement? The pension income is fixed where the RRSP income is determined by the client?
29. How do you take an income from the pension once you retire?
30. At retirement, how does the client convert to a pension - do they buy an annuity? When is the client required to make withdrawals?
31. What steps are involved if an IPP needs to be wound down?
32. What happens on death of the IPP owner?
33. How does an IPP support the business owner who sells their business for a large sum; can the client roll/shelter this sum?
34. Are there any restrictions that govern how funds are invested?
35. Can segregated funds and/or GMWB products be used in an IPP?
36. With a 30 year Canada bonds paying about 3.6%, how does the client make up the shortfall to the planned 7.5% ROI in the plan?
37. When moving assets into an IPP that is otherwise non-registered, the asset loses it's capital gains and dividend tax exemptions. This is why fixed income assets are recommended in the IPP. How do you respond to those that are fixed on owning capital gain and dividend producing assets instead?
38. How many IPPs has GBL set up in Quebec and is dealing with clients in French ever posed a problem?
39. Do you have Actuaries in Montreal and Quebec city that are French speaking?

Answers:

MRS responses to questions posed during the eConference

1. Are copies of the advisor brochure or PDF of the presentation available?
   Copies were sent via email to all participants. Contact your Business Development Manager or visit www.mrs.com/TotalIPP for more information.
   
   
2. Will the eConference be archived for future use?
   Yes the eConference is archived at www.mrs.com/eConferences.
   
   
3. Is GBL associated with Gordon B Lang actuarial firm? Are there other firms available for use within MRS?
   GBL is Gordon B Lang and Associates. MRS is actively looking to expand the Total IPP program with other actuarial firms.
   
   
4. Do most or all MFDA dealers allow advisors to offer IPPs to our clients? Do I need additional training/licensing?
   Most MFDA dealers allow advisors to offer to their clients. No additional training or licensing is required. The actuary would liaise with you and your client. The advisor would still maintain the client relationship and be responsible for asset selection.
   
   
5. What are the initial set up costs as well as ongoing actuarial fees for the IPP?
   GBL costs are $2,750 for a 1 person plan with an annual fee of $500 to $800 (depending on province) and a triennial fee every 3 years. MRS charges a $300 annual fee.
   
   
6. Is the IPP creditor proof? And is the custodian separate from the client's corporation?
   Yes they are. The Custodian would be M.R.S. Trust Company and is separate from the sponsoring corporation.
   
   
7. With an RRSP if you need the funds you can take them out with an IPP if you need the funds what can you do?
   The plan is locked in so unless the person is collecting the pension they would not have access to the funds. Most clients have RRSPs outside of the IPP they use for this purpose.
   

ˆTop

GBL responses to questions posed during the eConference

1. In general, what has your experience been with accountants supporting the IPP strategy with their business/professional clients?
   Many do and other accountants may need educating on the strategy. The key is to invite the accountant to any client meetings so that they do not feel left out of the process.
   
   
2. How does one change an actuary on an existing IPP with MRS?
   GBL would review the documents and then if the client agrees a change of actuary is filed.
   
   
3. Can existing IPPs be rolled into the Total IPP? The reason a client may want to is (e.g.) an IPP with an insurance company has too many restrictions on asset holdings - generally restricted to the segregated funds that the insurance company sells.
   Yes they can be. The cost would depend on whether amendments have to be made to the plan. GBL would need to review the existing documentation to map out what changes need to occur to move the plan over.
   
   
4. Can the GBL fees be paid by and deducted by the corporation?
   Yes they are deductible to the corporation as an expense. Costs can be billed to the corporation directly or the IPP account itself.
   
   
5. Through insurance companies, the MER and all other fees are deducted from the IPP account. Can the MER and other fees be charged outside the IPP?
   It depends on the product. If it is fee based - yes. In a typical Mutual Fund the MER cannot be carved out. In these cases the corporation would get an indirect deduction by receiving larger future contributions.

   ˆTop
   

6. Please address any costs over and above what would be incurred as opposed to insurance company plans. Are there any additional admin or trustee fees?
   For an insurance plan the costs are lower but the MERs are much higher than if you went with a non seg fund product, so essentially the fees are there but just hidden in the product offering.
   
   
7. You had mentioned that fees can be collected directly out of the IPP account? Does this reduce the members current funding contributions?
   It does not reduce the funding. It would create a larger top up when the valuation review is conducted.
   
   
8. Are the fees tax deductible if collected outside the plan?
   Yes if they can be carved out they are directly deductible to the corporation. If they are not able to be carved outside the account then they are factored into the performance when the 3 year review is conducted.
   
   
9. You mentioned that fees would be taken from the MRS Account. Would it not be better to bill the company so that the fees are tax deductible? Is this an option to be able to have the IPP fees billed to the company?
   The client has that option. If the fee comes from the account they get a larger future contribution and that is a deduction regardless.
   
   
10. What would be the process, costs, tax filings, accountant work requirements if this was not done using the Total IPP package?
    It would depend on the Actuarial firm. For GBL without a corporate trustee the set up costs are $500 higher.

    ˆTop
    

11. In the case study of the doctor, if you factored in the fees from the IPP what would be the net amount?
    It would depend on the corporate tax rate for the deduction on the fees.
    
    
12. What is available for advisors to use that can quickly illustrate the advantages of using an IPP?
    GBL has an online illustration tool at www.gblinc.ca/products/forms/ipp showing the difference with an RRSP.
    
    
13. What is the maximum annual contribution limit to an IPP?
    It depends on the age of the individual. It can vary from $22,200 for a 40 year old to $30,800 for a 71 year old.
    
    
14. If the plan is required to grow at 7.5% per year. What happens if the investment portfolio earns more, are member or company deductions affected ?
    When the valuation is completed, if the plan has over performed then the contributions would be reduced accordingly.
    
    
15. If the personal tax rate is at the maximum and the small business rate is in place, does the IPP still makes sense?
    Yes. It still is providing a larger tax deferred growth for retirement and is creditor proof.

    ˆTop
    

16. Is an IPP appropriate for someone with a strong, reliable annual cash flow?
    Yes it would be preferred that the corporation has a steady cash flow. The IPP is not to offset a onetime taxable situation.
    
    
17. An IPP being a defined benefit plan, loses it's flexibility for lump sum withdrawals. Do you find that business owners see this as a major stumbling block for their retirement?
    No as it is forced savings for retirement. Most people do not save ample amounts for the latter years, the IPP protects them from spending retirement assets.
    
    
18. My question is related to terminal funding of an IPP. Do you have a process/software/spreadsheet that can conservatively estimate future terminal funding requirements addressing variables such as spouse’s age, indexing etc. I.e.; IPP established in 2010, and retirement expected within 5 years. How much cash will my small business need to set aside to meet terminal funding requirements in the future?
    A GBL illustration shows what the amounts are for different ranges of ages during the quotation process and estimates as to what those amounts are. We do illustrate what potentially the terminal funding requirement would be and the additional benefit it is purchasing.
    
    
19. What happens if a plan is set up and becomes under funded and client has reduced cash to top up?
    The post retirement indexing would have to be removed to offset the deficit. Normally plans have 5 years to fund a deficit.
    
    
20. In the case study presented at the eConference, what if the Client's current RRSP is only $275,000.00? What are his options?
    If there is no unused room, past service must be reduced to match the available RRSPs for transfer.

    ˆTop
    

21. If I have a qualified prospect, what are my next steps?
    Contact your MRS Business Development Manager who will coordinate the initial meeting for you with a GBL Inc. representative.
    
    
22. Does an IPP apply to lawyers and incorporated medical professionals like optometrists?
    If they have a Professional Corporation that provides them with T4 income.
    
    
23. If correct: one needs a good salary (T4) for IPP. What can be done for an incorporated doctor paying herself low salary + dividend, and paying dividends to her children?
    Nothing unless they increase their T4.
    
    
24. Is it possible to set up a non-connected plan with a sponsoring company for some executives? Also would this plan be multiple IPPs or one?
    It would be multiple but if in Ontario one should not set up IPPs for non connected employees due to FSCO rules. An RCA for Senior Executive retirement is a better solution.
    
    
25. Does it make set to set up a plan at the age of 66?
    Yes. The funding can be quite large.

    ˆTop
    

26. Can children be put into the pension plan without working in the family business?
    No. They must be have T4 income and you would not add them until they are at least in their mid 30s. So they must be employed by the business to be part of the IPP.
    
    
27. How could this be applied to a single Canadian key employee who works for a US based employer who wishes to set up a pension plan for this single employee working in Canada? Are there benefits for the US employer?
    The US Employer would have to have a Canadian Corporation that is providing T4 income to the employee in Canada. If it is an Ontario based corporation unless the member owns 10% of more shares in the company it is suggested to use an RCA rather than an IPP.
    
    
28. How do you address income in retirement? The pension income is fixed where the RRSP income is determined by the client?
    It is fixed but increases with indexing. It provides better clarity for retirement planning.
    
    
29. How do you take an income from the pension once you retire?
    Either directly from the plan, by purchasing an annuity or winding up to a LIRA and then a payout from a LIF or LRIF.
    
    
30. At retirement, how does the client convert to a pension - do they buy an annuity? When is the client required to make withdrawals?
    They must take pension at age 71 but can start the pension after age 50. If it is just the annual pension it comes directly from the plan as long as there still is a corporate sponsor.

    ˆTop
    

31. What steps are involved if an IPP needs to be wound down?
    A wind up report is produced and filed with CRA. Once approval is received a commuted value is transferred to a LIRA and any excess is paid out as a taxable lump sum.
    
    
32. What happens on death of the IPP owner?
    If there are no other plan members and the pension has commenced the spouse receives a joint and survivor pension. If it is pre pension then the spouse can transfer it to their regular RSP.
    
    
33. How does an IPP support the business owner who sells their business for a large sum; can the client roll/shelter this sum?
    No, as they would have to wind up the plan if there no longer is a corporation. For an asset sale of a business an RCA is a better solution.
    
    
34. Are there any restrictions that govern how funds are invested?
    No more than 10% of the book value can be invested in a single security (stock), however the assets could be invested in a single Mutual Fund or Gov't Bond.
    
    
35. Can segregated funds and/or GMWB products be used in an IPP?
    Yes, Segregated funds and/or GMWB products can be used.

    ˆTop
    

36. With a 30 year Canada bonds paying about 3.6%, how does the client make up the shortfall to the planned 7.5% ROI in the plan?
    The corporation would top up the plan with contributions.
    
    
37. When moving assets into an IPP that is otherwise non-registered, the asset loses it's capital gains and dividend tax exemptions. This is why fixed income assets are recommended in the IPP. How do you respond to those that are fixed on owning capital gain and dividend producing assets instead?
    An IPP is registered so all growth is tax exempt. The assets going in outside of an RRSP transfer would be in cash so I am not sure where the issue of exemptions comes into play.
    
    
38. How many IPPs has GBL set up in Quebec and is dealing with clients in French ever posed a problem?
    At this point the plans GBL has established in Quebec have been in English. GBL is looking at expanding its French service.
    
    
39. Do you have Actuaries in Montreal and Quebec city that are French speaking?
    GBL has an associate actuary in our Calgary office who is bilingual and are adding a Francophone Consultant to service Quebec in the near future.

ˆTop