Assignment Case Study: 

Written and Video response required

Henry and Cheryl Chen are clients of yours. Henry is 55 years old and Cheryl is also 55 years old. Theyare parents of two adult children that no longer require any financial support.They have been employed for 25 years following graduating from an Ontario University, and have beenCanadian residents their entire lives.Both have Pension plans. Henry's tenure with his employer is longer than Cheryl's, thereforehis pension plan, a Defined Benefit plan, would have provided for a higher pension income at age 65.Cheryl's pension plan is a Defined Contribution plan, but she has only been employed with hercurrent Employer for 10 years. They both have contributed to their RRSPs over the years and maxedout what was remaining in RRSP contribution Room. Henry and Cheryl have been long tenured clientsof yours, so when Cheryl calls and shares the news that Henry has been recently diagnosed with anaggressive and what is being thought to be, a terminal immunological disease, you are bothsurprised and saddened by this news.It goes without saying that you are empathetic to their challenges ahead, and want to assist in any wayyou can in terms of their financial decisions and clarification of options available to them.Cheryl has questions and is giving you more than two weeks, in order to provide you with enough timeto prepare options and recommendations given the significant changes that will result from Henry'shealth challenges going forward.Shortly after the call you request and receive the following information:Henry's Defined Benefit Plan has the following stipulations: Henry's DB pension benefit is based on a formula:= 2% X yrs of pensionable service X best five years of Income All employees are eligible to receive an unreduced pension based on a factor of 85, with aminimum retirement age of 55 years of age. Henry's pension has a survivor benefit of 60 %, for which Cheryl is listed on the plan Henry'sPension stipulates that if a plan member dies prior to the eligibility period (age 55 to 65) then

there is an option to commute 100% of the pension value to the surviving spouse. Conversely ifa plan member dies during the eligibility period (55-65) or after Pension payments have begun,then their spouse would receive 60% of the commuted value, or of the pension payments goingforward. As a result of the seriousness of Henry's diagnosis he is going to stop working and has requesteda pension commutation calculation, as an option to consider. He was informed that he would beeligible to receive an annual benefit of $53,900 at age 65, a commuted value at age 55 of$300,000 . Present Value factor at Henry's age 55: 5.5Henry's last 10 years of Pensionable Income:Age 54: $80,000 Age 49: 75,000Age 53: $78,000 Age 48: 75,000Age 52: $76,000 Age 47: 74,000,Age 51: $76,000 Age 46: 74,000Age 50: $74,000 Age 45: 73,000For the purposes of this case make the following assumptions:They both have contributed to CPP at the maximum YMPE levels throughout their careers. All pensioncalculations and amounts should reflect 2024 figures, which will require some research.The clients are very concerned about exposure considering how compromised Henry's immune systemis, and therefore have requested that you record your thoughts and recommendations in a videomessage, as they have always appreciated the meetings you have had in the past, they wish to receiveyour thoughts and recommendations in this format, which will permit them to review it and take time toconsider your thought, before responding.Your clients have questions:Please answer these in a written report - Word Doc, not PDF. The question and your answer (show yourwork please) in each case is required, point form is fine. To be provided in addition to the videorequested.

Written Report - (10 marks - divided as follows)

1. What amounts of CPP would be available to Cheryl in 2024 figures at age 60, and 65 ?

2. What if any other amounts would Cheryl be eligible to receive should Henry predecease her ?

3. Please check the figure of $53,900 Annual Pension Benefit for Henry at age 65, to ensure it iscorrect. (show your work) ? 

4. How much of the commuted value that Henry would be eligible to receive at age 55, could betransferred from the DB plan without any tax consequences at time of transfer ? (show yourwork) ? 

5. Should Henry and Cheryl consider commuting Henry's work pension now ? Why or why not ?

Answer rating: 100% (QA)

1 Amount of CPP available to Cheryl in 2024 figures Age 60 The estimated maximum CPP retirement pens... View the full answer