I see some older posts about the 75% rule so I just wanted to clarify something. Here is the rule,
"Contribution rates may vary between employees under a DC pension plan. A plan‟s minimum contribution rate must be no less than 75% of the maximum contribution rate used in the pension plan. For example, if the maximum contribution rate for an employee is set to 12% of pensionable earnings, then the contribution rate for any other member must be at least 9% of pensionable earnings."
The way I read it is, that all contributions based on Pensionable earnings must be within 75% of each other. However, we do not care about the Member Contribution (column J) In other words if someone earns 400K his max contribution (due to the law of the land) is 30K. That is only 7.5% of his salary. However, it is 15% of his pensionable earnings. Now take the guy who earns 65K his contribution according to relative to his salary is 15% and relative to his pensionable earnings is 15% as well. So despite the fact that personally the 65k earner is contributing double the percentage of his income (The 400k earner is contributing 7.5% while the 65k 15%) we don't care. The 75% rule only pertains to the Pensionable earnings factor. So if the 65k only contribute say 11% of his pensionable earnings while the 400k contributes 15% then we have a problem.
In a nutshell our key concern is pensionable earnings Is that correct?
"Contribution rates may vary between employees under a DC pension plan. A plan‟s minimum contribution rate must be no less than 75% of the maximum contribution rate used in the pension plan. For example, if the maximum contribution rate for an employee is set to 12% of pensionable earnings, then the contribution rate for any other member must be at least 9% of pensionable earnings."
The way I read it is, that all contributions based on Pensionable earnings must be within 75% of each other. However, we do not care about the Member Contribution (column J) In other words if someone earns 400K his max contribution (due to the law of the land) is 30K. That is only 7.5% of his salary. However, it is 15% of his pensionable earnings. Now take the guy who earns 65K his contribution according to relative to his salary is 15% and relative to his pensionable earnings is 15% as well. So despite the fact that personally the 65k earner is contributing double the percentage of his income (The 400k earner is contributing 7.5% while the 65k 15%) we don't care. The 75% rule only pertains to the Pensionable earnings factor. So if the 65k only contribute say 11% of his pensionable earnings while the 400k contributes 15% then we have a problem.
In a nutshell our key concern is pensionable earnings Is that correct?
EOM 3 Task 5