Employer Sponsored Retirement Benefits Overview

Retirement plans deferring the taxation of employment income and investment growth until a later stage of life. There are three major forms of retirement plans with various degrees of structure, bureaucracy and administrative costs. The most onerous is a registered pension plan (RPP), the simplest is a registered retirement savings plan (RRSP), with a deferred profit sharing plan (DPSP) falling in the middle.

Purpose of a Retirement Savings Program

Why provide a retirement savings program?

  • tax effective compensation
  • encourages and rewards long service
  • facilitate the replacement of older workers
  • provide clarity and security not found in informal understandings
  • provides retirement income for staff
  • disciplined savings program
  • encourages employees to save for their retirement
  • match expenses to the time those benefits were earned

Retirement Savings Plan Design Issues

  • compensation vs. expression of paternalism
  • vesting
  • past service contributions
  • defined contribution vs. defined benefit
  • whether omissions of the past should be corrected
  • past service contributions
  • defined contribution vs. defined benefit
  • degree of risk the organization is willing to accept
  • defined contribution vs. defined benefit
  • investment risk
  • inflation risk
  • longevity risk
  • cost shifting by government programs
  • employee appreciation
  • simple & easy to understand plan design
  • vesting schedule
  • defined contribution vs. defined benefit

Retirement Savings Plan Requirements

Plans that are organized and administered to provide a pension benefit for employees must:

  • be registered under a provincial or federal Pension Benefits Acts
  • be registered with the federal Department of National Revenue for purposes of the Income Tax Act
  • have benefits, terms and conditions in compliance with the act
  • satisfy the regulations as to solvency and investments
  • be funded by advance payments under an accepted actuarial method
  • comply with governance guidelines for capital accumulation plans