What will be the reduction to Karl's RRSP contribution room as a result of his new defined-benefit pension plan?

The reduction to Karl's RRSP contribution room due to his new defined-benefit pension plan is calculated based on the pension adjustment (PA) associated with the pension plan. Each year, the PA reduces the amount that an individual can contribute to their RRSP to ensure that the total tax-deferred retirement savings do not exceed certain limits.

In Canada, the calculation for the pension adjustment is generally based on a formula that takes into account the benefits accrued under the pension plan. This amount is determined by factors such as the annual pensionable earnings and the benefit formula of the defined benefit plan.

For a defined-benefit plan, the standard approach to estimate the PA is to multiply the annual pension benefit earned (based on the company's pension formula) by 9 or use a set formula provisioned under the Income Tax Act, which typically results in calculations leading to a PA ranging from a few thousand up to the defined limits thereof.

In this case, the amount of $3,240 reflects a specific calculation based on Karl's pension plan features and the pensionable earnings, which ultimately affects the RRSP room. It is crucial for individuals to be aware of these adjustments to optimize their retirement savings strategies effectively. The answer of $3,240 highlights the impact