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Membership Information

Eligibility for Plan Membership:

Effective January 1, 2000, as an Employee you are eligible to be a member of your Employer’s pension plan if you;

  • are Bermudian or the husband or wife of a Bermudian; and
  • are 23 years old or more; and
  • have completed 720 or more hours of employment with your Employer in any calendar year prior to membership in the pension plan.

A pension plan may specifically permit membership eligibility on an earlier basis. Once eligible, an Employee must become a member of the pension plan. After becoming a member of the pension plan, membership must continue even if you work less than 720 hours in subsequent years.

Once an Employee has become a member of the pension plan, membership continues until normal retirement age, unless the Employee retires before that time or ceases to be employed (subject to the provisions of the Act).

Where an Employee is employed by more than one Employer, that employee must be a member of each pension plan for which the criteria for eligibility has been met.

Self-employed Persons

As a Self-employed Person you must apply for registration of a Self-employment Pension Plan in accordance with the Act and the Regulations, if you…

  • are Bermudian or the husband or wife of a Bermudian; and
  • are between the age of 23 and 65; and
  • have pension-able earnings from self-employment exceeding $20,000, in a calendar year.

Types of Pension Plans:

Pension plans can vary greatly in terms of their structure and the benefits they provide. The two most common types of pension plans are the defined benefit pension plan and the defined contribution pension plan. Employer Pension Plans will typically be either defined benefit or defined contribution plans. Financial Institution Pension Plans can only be defined contribution plans.

1. Defined Benefit Pension Plans

It is important to note that in a defined benefit pension plan, members earn a specified benefit while they are working. This benefit will later be paid out as a regular monthly amount, during the member’s retirement years.

Defined benefit plans are designed to provide members with a specified amount of pension benefit when they retire, based on a pre-determined formula. Generally, this formula depends on factors like - length of membership in the plan, level of earnings and, in some cases, job classification. The formula is described in the pension plan documents, which are made available to the members.

Members of this type of plan are advised annually by the plan administrator of the amount of pension benefit they have earned or “accrued” up to that point.

Employers with defined benefit pension plans and their Employees (in the case of contributory plans) are obligated to set funds aside monthly to pay for the pensions that members will receive in retirement. The amount of funds to be set aside is determined by the plan actuary after giving regard to the defined benefit formula set out in the plan documentation and the minimum annual accrual rate. The Employer must fund no less than 50% of the vested contributory pension. The Act sets out the minimum annual rate (as a percentage of a member’s final average earnings) at which a defined benefit must accrue.

2. Defined Contribution Pension Plans

In a defined contribution pension plan, a specified amount of money is contributed monthly in relation to each member. The contributions are placed in an investment account in the member’s name. Under the Act, the contribution amount is determined as a percentage of an Employee’s “pensionable earnings” as indicated in the contribution schedule (see “Contributions”).

“Pensionable earnings” includes

wages, salary, leave pay, any fee or commission, and any bonus (including payments from a profit sharing scheme) which exceeds 10% of the Employee’s basic wage or salary, for the period in question.

“Pensionable earnings” does not include

over-time payments in respect of hours worked in excess of 35 hours in any week,

severance payments, retirement or long-service recognition payments, or

health insurance premiums.

If pensionable earnings exceed $200,000, you are not required to contribute on the excess over $200,000, annually. In other words an Employee’s pensionable earnings are capped at $200,000 per year.

Members of this type of plan are advised annually by the plan administrator of the accumulated contributions that have been made to the plan on their behalf and the investment earnings on such contributions.

Members of a defined contribution pension plan do not know the amount of pension they will receive until they actually retire. At that time, the contributions, plus earnings, which constitute the member’s account balance in the plan will be used to provide the member with a monthly pension.

3. Multi-employer Pension Plans

Multi-employer Pension Plans can be established for Employees of two or more Employers. The Employers are typically in the same line of business (e.g., the hotel industry, the construction industry, etc.) and have established the plan pursuant to an agreement (usually collective). Contributions made to the pension fund are determined in relation to an Employee’s employment with one or more of the Employers that participate in the plan.

Characteristics of Multi-employer Pension Plans are as follows:

Established for Employees of two or more Employers

Contributions are in accordance with an agreement between the employers

Plans may be either defined benefit or defined contribution plans

Employers MUST NOT be affiliated

The plan MUST NOT be a Financial Institution Pension Plan

4. Financial Institution Pension Plans

A Financial Institution Pension Plan is a pension plan established by a financial institution and approved by the Commission to offer a defined contribution pension plan for individuals, whether employees or self-employed.

A financial institution for the purposes of this Act is:

a bank licensed under the Banks Act 1969 or the Banks and Deposit Companies Act 1999;

an insurer registered under the Insurance Act 1978;

a local trust company licensed under the Trust Companies Act 1991; or

any other company which is approved by the Pension Commission for the purposes of the Act.

5. Self-employment Pension Plans

A Self-employment Pension Plan is a pension plan organized and administered to provide pension benefits in respect of the self-employment of a Self-employed Person. A Self-employment Pension Plan is very much like an employees’ pension plan, except that the only members of the plan are one or more Self-employed Persons in business together.

In respect of yourself (as a Self-employed Person), subject to the following, you must contribute based on your pension-able earnings from self-employment, in a calendar year, at the applicable rate.

“Pension-able earnings from self-employment” is defined as “…net earnings…”. The net earnings are calculated by taking your “gross earnings” minus your “expenses” incurred in running the business, in a calendar year.

“Gross earnings” for purposes of the legislation, include any earnings that you receive from producing, providing or selling goods or services in or from Bermuda.

“Expenses”, for purposes of the legislation, means the costs of operating a business, including any salary you pay someone else who works for you, but does not include any salary (or anything like salary) that you pay yourself.

 

If your pensionable earnings from self-employment are $20,000 or less in a calendar year, you are not required to contribute to the Self-employment Pension Plan for that year, but you may contribute if you wish.

You are not required to contribute more than $5,000 to a Self-employment Pension Plan in respect of a year, although you may contribute more if you wish.  (See example below)

If you participate in a financial institution pension plan, or a registered Employer Pension Plan established or maintained for your employees, you must contribute to that plan, for yourself, at a rate of not less than the rate, at the applicable date, as set out in the “Self-employment Contribution Schedule”.

Rights to Information:

Information that the Plan Administrator Must Provide to Members and Others

  Written explanation of the provisions of the pension plan, including a description of the persons rights and obligations

  Annual statement to each pension plan member – must be provided within 6 months of the plan’s year-end, which includes the member’s…

pension benefits or account balance;

annual and accumulated contributions made to the pension fund;

normal retirement date under the plan;

designated beneficiary; etc.

  Retirement statement – must be provided to the member within 30 days of notification of a member’s retirement

  Termination (other than retirement or death) statement – must be provided to the member within 30 days of termination or notification of termination

  Survivor benefit statement – must be provided to the beneficiary or legal representative within 30 days after receipt of a notice of death

Information Available on Request

Any person with entitlements under the pension plan may make a written request to the plan administrator to review any documents and information relating to the pension plan and the pension fund. Persons who can make such a written request include the following: -

a member;

a former member;

an employer who participates in the pension plan, and

a representative of a trade union which represents members of the pension plan.

The plan administrator may charge a reasonable fee for photocopies

Glossary of Pension Terms

ACTUARY – A professional specially trained to use mathematical techniques to solve problems involving future uncertainty and risk. For the purposes of this Act, an actuary is a person qualified as an actuary and who is a current member in good standing with (i) the Institute of Actuaries in England, (ii) the Faculty of Actuaries in Scotland, (iii) the Societies of Actuaries in the United States of America, or (iv) the Canadian Institute of Actuaries.

ADDITIONAL VOLUNTARY CONTRIBUTIONS – Contributions to a pension plan made by a plan member beyond any amount that the member is required to contribute.

ANNUITY – In pension terminology, periodic payments (usually monthly) provided by the terms of a contract for the lifetime of an individual (the annuitant) or the individual and his or her designated beneficiary; and may continue for a period after the annuitant’s death.

ASSET MIX – The mix of assets refers to the proportions of various types of investments held by a pension fund, usually expressed as a percentage of total investments held in bonds, equities, real estate, etc.

BENEFICIARY – A person who has been formally designated in writing by a plan member to receive any benefits from the plan payable upon the death of the member.

BENEFIT – Generally, any form of payment to which a person may become entitled under the terms of a pension plan.

BENEFIT FORMULA – Provision in a pension plan for calculating a member’s defined benefit according to years of service and earnings, or years of service and a fixed dollar amount, etc.

BEST FIVE-YEAR AVERAGE PLAN – A defined benefit plan that uses in the benefit formula the member’s average earnings during the five years when earnings were highest.

COMMUTED VALUE – Amount of a lump sum payment estimated to be equal in value to a pension or a benefit.

CONTRIBUTORY PLAN – A pension plan which requires the employees to make contributions (withheld from earnings) in order to qualify for benefits under the plan.

CREDITED SERVICE – Length of service used in the pension plan formula to calculate a defined benefit.

DEFERRED VESTED PENSION – A specified pension determined at the time of termination of employment or termination of a pension plan but not payable until some later date, usually normal retirement age.

DEFINED BENEFIT PLAN – A pension plan providing a benefit determined in advance with reference to various factors including level of earnings and length of employment.

DEFINED CONTRIBUTION PLAN – A pension plan that specifies the contributions to be made by or for the credit of a member. The accumulated contributions and investment yield (on an individual account basis) determine the benefit for the member, at retirement.
FINAL PAY PLAN – A term commonly used for a defined benefit pension plan in which benefits are based on earnings in a member’s last years of service.

FINANCIAL INSTITUTUION – For the purposes of this Act means:

a bank licensed under the Banks Act 1969 or the Banks and Deposit Companies Act 1999;

an insurer registered under the Insurance Act 1978;

a local trust company licensed under the Trust Companies Act 1991;

any other company which is approved by the Pension Commission for the purposes of the Act.

FINANCIAL INSTITUTION PENSION PLAN – For the purposes of this Act, means a pension plan established by a financial institution and approved by the Pension Commission to offer a defined contribution pension plan for individuals, whether employees or self-employed.

FLAT BENEFIT PLAN – A defined benefit plan that specifies a dollar amount of pension to be credited for each year of service.

FORMER MEMBER – A person who has terminated employment or membership in a pension plan and -

is entitled to a deferred pension payable from the pension fund;

is in receipt of a pension payable from the pension fund; or

is entitled to receive any other payment from the pension fund.

FULLY FUNDED – A term describing a plan which, at a given time, has sufficient assets to provide for all pensions and other benefits in respect of service up to that date.

FUNDING – Systematic monthly or other periodic payments into a fund which, with investment earnings, are intended to provide for pensions and other benefits as they become payable.

GUARANTEED ANNUITY – An annuity that will be paid for the lifetime of a person or for a certain period, whichever is longer, but in any event for a minimum guaranteed period. For example, if an annuitant with a five year guarantee dies after three years, payment will be continued to a beneficiary or the estate for the two remaining years.

INDEXING – A provision in a pension plan calling for periodic adjustments to benefits (usually after retirement) according to a formula based on a recognized index of price or wage levels (for example, the Consumer Price Index).

INVESTMENT RETURN (YIELD) – Earnings from investments, including interest on fixed income securities (bonds, mortgages, etc.) and dividends, etc.

LOCKING IN – The term often used in referring to when pension contributions cannot be withdrawn or forfeited on termination of employment if the employee is vested.

MEMBER – A member of a pension plan.

MULTI-EMPLOYER PENSION PLAN – A pension plan established and maintained for two or more employers, who contribute or on whose behalf contributions are made to a pension fund in accordance with an agreement between the employers, but does not include a pension plan where such employers are affiliated and must not be a Financial Institution Pension Plan.

NON-CONTRIBUTORY PLAN – A pension plan in which the employer makes all required contributions.

PAST SERVICE – The period of service accrued by an employee before becoming a member of a pension plan.

PENSION – A periodic payment provided to a person in accordance with the rules of a pension plan.

PENSION PLAN – An occupational retirement scheme organized and administered to provide a pension for the lifetime of retired members.

PORTABILITY – Generally, refers to the options available for transferring a member’s vested benefit on termination of employment.

RETIREMENT INCOME – Income from pension and other sources to which a retired person is entitled. Term may include both private and public pension payments and income from personal savings.

SURPLUS – The amount by which a pension plan’s assets exceed the plan’s total liabilities.

SURVIVOR BENEFIT – The amount payable (usually a lump sum), or a life annuity, payable from a pension plan to the beneficiary or estate of a member who dies before or after retirement.

TERMINATION OF EMPLOYMENT – Severance of the employment relationship for any reason other than death and retirement.

UNFUNDED LIABILITY – Generally, any amount by which the assets of a pension plan are less than its liabilities.

VESTING – A pension plan member becomes vested when the vesting criteria, as set out in the pension plan documents, have been met. Once meeting these criteria, the pension plan member is entitled to the benefits accrued to him or her, under the pension plan.

WINDING UP (OR WIND UP) – In relation to a pension plan, the termination of a pension plan and the distribution of the assets of the pension fund.
 
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