Employee Benefit Plans

A pension plan is an arrangement under which payment is made to RBC Trust (Trinidad & Tobago) Limited as Trustee, by an Employer on behalf of his Employees, to be used in providing the Employee with a pension for life upon retirement. There are various types of pension plans available in Trinidad; though none of them are mandatory.

Insured Plans – Where the contributions paid to the Trustee are remitted to an Insurance company of the Employer's choice. The Insurance Company co-mingles the contributions of all pension plans they manage, so that the combined pool is invested at a fixed rate of return. 

Self Administered Plans - The contributions paid to the Trustee are remitted to an Investment Manager, who invests them in the best interest of the particular plan. The ownership of the assets remain segregated for each plan, as the investment mix is tailored to meet the needs of the separate plans. There is therefore no fixed or guaranteed rate of return on contributions, but there is greater diversification of investments.

There are two types of self-administered plans:

Defined Benefit (DB) Plans - Where the actual benefit that the members obtain at retirement is calculated using a formula outlined within the Plan's rules (usually average salary x years of service x factor subject to a 2/3rds maximum). The Employer is responsible for ensuring that this type of plan is sufficiently funded to provide all future payments to members/beneficiaries.

Defined Contribution (DC) Plans - Where the final benefit due to members is determined  by that member's total contribution plus interest accrued. Unlike a DB Plan, the onus of funding does not rest with the Employer; rather the member's benefit is a direct function of the levels of contribution and therefore the performance of the fund. 

Contributory or Non-Contributory Pension Plans - Either both the Employer and the Employee contribute to the Plan, or the Employer alone contributes

This is considered to be a supplement to a pension plan in a large company, or can operate as the sole deferred annuity vehicle in smaller companies.  Contributions to it are made annually by both the Employer and Employee.

Benefits:

• Employers’ contributions to the Plan, are allowed as a deduction for income tax purposes.
• Members may withdraw their portion plus interest accumulated without being taxed, unlike a pension plan where Members are taxed to do this before the 5 year vesting period.
• Members may withdraw from Savings Plans with their non-taxed contributions plus interest at any point, whereas with a Pension Plan, after being a member for 5 years, the contributions become vested in the plan and therefore can no longer be withdrawn until retirement
• Savings Plans are much cheaper to operate as the Trustee role is not as onerous, and there is no need for actuarial support, so the fees are less
• Employee can transfer his and the Employer's contributions, plus interest accumulated on both, from one savings plan to another, without being taxed. This is similar to pension plans, except that Employer's contributions in the latter can not be transferred before Employee is a member of the Plan for 5 years

Disadvantages:

• Employee's contibutions are not deductible for tax purposes, unlike pension plan contributions.
• On withdrawal from Plan (not transfer), Employer's contributions are taxed at 25% despite the tenure of the Plan.  
• The assets can only be invested locally.

An Employee Stock or Share Ownership Plan is an arrangement whereby the whole or part of a company's annual bonus distribution is applied towards the purchase of shares in that company, to be held by RBC Trust (Trinidad & Tobago) Limited, as trustee, on behalf of that company's employees.

Shares can be transferred to an employee or his nominee where:

1. He is still employed by the company and five years have elapsed from the date of allocation,  
2. He resigns or employment is terminated,
3. He retires or employment ceases due to ill health, and
4. Upon death prior to retirement. 

In the cases of (1) and (2) above, the shares would be subject to tax while scenarios (3) and (4) are not subject to tax.

This is the service of recording all the non-financial and financial data for a plan’s active and deferred membership, for which RBC Trust (Trinidad & Tobago) Limited uses a specially and specifically designed piece of software.

For smaller companies, and for simplicity and cost savings purposes, the Employer may elect to be the company's pension plan administrator. As the number of employees grow however, the pension administration task  becomes more time consuming and complex. It is worthwhile at that stage for the Employer to hire a professional to be the pension plan administrator. This will free up valuable human resources within the Employer, as well as provide independence and transparency in having a neutral third party provide these services by acting in the interest of the Plan's participants and not that of the underlying Employer.