Retirement
Defined Contribution (DC) Plans
| Defined Contribution Registered Pension Plan |
Voluntary Group RRSP | Structured RRSP | Deferred Profit Sharing Plan | |
| Description | Under a Defined Contribution or "Money Purchase" Registered Pension Plan (DC-RPP), the contributions of plan members and Plan Sponsors are invested towards the eventual purchase of retirement income. The contribution going into the plan is known, while the final benefit is not known. | A Voluntary Group Registered Retirement Savings Plan (RRSP) is a collection of individual RRSPs where routine administration is centralized. Plan Sponsors are not required to con-tribute to the Voluntary Group RRSP. It offers members special benefits such as favourable interest rates and lower investment minimums which they would not normally receive individually. | The Structured RRSP (STRP) provides a systematic method of allocating Plan Sponsor and member contributions in separate accounts under the umbrella of a single Registered Retirement Savings Plan. For tax purposes, the Plan Sponsor's contributions are treated as though they were member contributions added to member's earnings and earmarked as additional member contributions. | A Deferred Profit Sharing Plan (DPSP) is a simple, flexible arrangement whereby a Plan Sponsor distributes a portion of the company's pre-tax profits. Specified shareholders (i.e., individuals who own, directly or in-directly, more than 10% of company stock) are excluded. Employees do not contribute to the plan. |
| Employer Contribution | Fixed % of salary or flat amount in accordance with terms of the Plan. Minimum of 1% of employee earnings. | None | Fixed % of salary or flat amount in accordance with the terms of the plan. | Variable - depending on business conditions. Employer contributions made from or related to "profits". |
| Employee Contribution | Fixed % salary, flat amount or none as specified by the plan. | Voluntary. | May be voluntary or mandatory according to terms of the plan. | Not Permitted. |
| Investment Selection | Qualified investments prescribed by CCRA. Subject to any provincial restraints (e.g. 10% limit on securities of any one company). Employer may allow employees to determine allocation between various funds. | Qualified investments prescribed by CCRA. Subject to any provincial restraints (e.g. 10% limit on securities of any company). Employer must allow employees to determine allocation between various funds made available by the plan sponsor. | Same as RRSPs and specific restrictions prohibiting debt obligations of the employer, as prescribed by CCRA. | |
| Contribution Limits | Limited to the lesser of 18% of earned income for the current year or $18,000 in 2005, $19,000 in 2006, $20,000 in 2007, $21,000 in 2008, $22,000 in 2009 with indexing thereafter. | Total contributions are limited to lesser of 18% of earned income for the prior year (less any P.A.) or $19,000 in 2007, $20,000 in 2008, $21,000 in 2009 and $22,000 in 2010 with indexing thereafter. Unused contribution room can be carried forward to future years. | Limited to the lesser of 18% of earned income and ½ of any defined contribution plan limit. (See DCRPP limits). | |
| Vesting | Province specifies minimum requirements, usually after 2 years of plan membership. Employee contributions vest immediately. | Immediate | Must vest after two years of plan membership. | |
| Locking-In | After the contributions vest, all monies are locked-in. Legislation allows for voluntary contributions to be redeemable, but the plan sponsor has the option of locking in all contributions. Value of the accrued benefit may be transferred to another vehicle - subject to government locking-in rules. | Not locked-in | Not locked-in, but plan terms may restrict withdrawals to termination, death or retirement. | |
| In Service Withdrawals | Subject to the terms of the plan, voluntary contributions may be redeemable. | Allowed at any time. | Normally can be withdrawn anytime but employer contributions may be restricted as outlined in plan specifications. | The plan can allow employees to withdraw all or a portion of their vested benefit at any time OR can be restricted from making a withdrawal until termination of employment or retirement. |
| Options at Retirement | Proceeds must be used to provide life annuity or LIF if province permits. | Proceeds may be taken in cash, or choice of a RRIF or an annuity. Cash withdrawals are subject to tax. | Proceeds may be taken in cash or annuity. Cash withdrawals are subject to tax. | |
| Options on Termination | Portability as specified by plan. Subject to locking-in rules. | Employees can withdraw all funds (employer & employee) or roll-over into individual RRSP. Cash withdrawals are subject to tax. | May be rolled-over into a RRSP, paid in lump sum, instalments or as an annuity. Cash withdrawals are subject to tax. | |
| Legislation/ Registration | Plan must be registered with CCRA and the applicable provincial pension authority. Restrictions apply to plan design i.e. vesting, contributions, eligibility, etc. Plan subject to annual provincial filing fees. Registration can be revoked if limits are exceeded or for non-compliance with legislation. | Must be registered with CCRA. | Must be registered with CCRA. Registration can be revoked if limits are exceeded or for non- compliance with legislation. | |
| Pension Adjustment (PA) | Employer must submit. | Not Required | Employer must submit. | |
| Tax Treatment of Employer Contributions | Contributions are tax deductible. Employer contributions are not subject to payroll taxes. | N/A | Employer contributions can be made: - Directly and included as taxable benefit in income, the employee has the offsetting deductions, or - Indirectly by increasing the employee's salary and deducting corresponding contributions on a pre-tax basis from gross earnings. - Subject to pay-roll taxes. |
Contributions are tax deductible. Employer contributions are not subject to payroll taxes. |
| Tax Treatment of Employee Contributions | Contributions, if any, are tax deductible and earnings are tax sheltered. Benefits are taxable on distribution. | Contributions are tax deductible and earnings are tax sheltered. Benefits are taxable on distribution. | Earnings are tax sheltered. Benefits are taxable on distribution. | |
| Advantages to the Plan Sponsor | - Control over plan design - Cost control - Tax deductions - Guaranteed retirement income |
- Flexibility in plan design - Wide eligibility - Tax deductions - Reduced government reporting - Cost control - Control over plan design - Hassle-free administration |
- Flexibility in plan design - Cost control - Effective incentive - Tax deductions |
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| Advantages to Member | - Sponsor contributions - The benefit of immediate investment & compound interest - Preferred group rates |
- Immediate tax reductions - Convenient, disciplined savings program - Flexibility at termination and retirement - Plan Sponsor contributions (structured RRSP only) - Preferred group rates |
- Deferred, tax-sheltered compensation - Flexibility at termination and retirement - Preferred group rates |
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