How are DB Plan benefits related to DC Plan contributions?
The Federal Government has created the magic factor of 9 whereby $9 of contributions is deemed equivalent to $1 of annual pension payable from age 65. This magic factor ‘equalizes’ the tax-assisted savings between DC Plans and DB Plans. This equalization is reported administratively on the plan member’s T4 Slip Box 52 – Pension Adjustment (PA). IMPORANT: The magic factor of 9 represents an average over a plan member’s entire working career. Because of the power of compound interest, the ‘true’ relationship is $2 – $3 at younger ages and $13 – $14 at older ages for each $1 of annual pension payable from age 65.
The Federal Government has created the magic factor of 9 whereby $9 of contributions is deemed equivalent to $1 of annual pension payable from age 65. This magic factor equalizes the tax-assisted savings between DC Plans and DB Plans. This equalization is reported administratively on the plan members T4 Slip Box 52 Pension Adjustment (PA). IMPORTANT: The magic factor of 9 represents an average over a plan members entire working career. Because of the power of compound interest, the true relationship is $2 – $3 at younger ages and $13 – $14 at older ages for each $1 of annual pension payable from age 65.
