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  5. Pension Plan Comparison Table

Pension Plan Comparison Table – DCPP/RRSP/TFSA

 

DCPP [Defined Contribution Pension Plan]

Group RRSP/RRSP [Registered Retirement Savings Plan]

Group TFSA/TFSA [Tax Free Savings Account]

PURPOSE

Employer sponsored plan that provides tax shelter and income for employees in a regulated retirement program. Employer sponsored (Group) and individual plan options. Provides tax shelter which enables members to accumulate funds for retirement. Employer sponsored (Group) and individual plan options. Flexible registered savings vehicle. Allows members to earn tax free investment income that can be used toward retirement.

 

ELIGIBILITY

As per plan rules but no later than 2 years of service. Voluntary or compulsory. As per plan rules. Voluntary or Compulsory. No legislated eligibility requirements. Must be 18 years or older and have a valid SIN number. Otherwise, no legislated eligibility requirements.

 

CONTRIBUTIONS

Employee & Employer contributions allowed.[1] Employee & Employer contributions allowed. (No legislated minimum contribution by employer). Employee & Employer contributions allowed. (No legislated minimum contribution by employer).

 

TAX STATUS OF CONTRIBUTIONS

Both employer and employee contributions deductible up to a limit established by Canada Revenue Agency. [2] Employee contributions tax deductible up to specified amount. Employer contributions and employer-paid administration fees are considered a taxable benefit for employees.

 

Employer and employee contributions are not tax deductible.

 

MAXIMUM CONTRIBUTIONS

18% of current year’s compensation or current dollar limit of $24,270 for 2013 (whichever is less). 18% of previous year’s earned income or current dollar limit of $23,820 for 2013 (whichever is less).

 

$5,500 annual limit plus any carry forward room.

ADMINISTRATIVE COSTS/CONCERNS

As per plan rules. Employee typically pays administrative, education & investment fees. (It is important to negotiate that the employer covers ALL fees.)

 

As per plan rules. Paid by employer, employee or combination of the two. As per plan rules. Paid by employer, employee or combination of the two.

ACCOUNTS

Individual or Pooled funds

 

Individual Accounts Individual Accounts

 

 

VESTING

Varies by jurisdiction. Employer contributions are typically vested after two years of membership. Employer/some jurisdictions may allow for earlier or immediate vesting. [3]

 

Immediate Immediate

LOCKING-IN –

Pension funds must be used to purchase specific financial product (LIF, LRIF or Annuity).

Varies by jurisdiction. Typically locked-in after 2 years of plan membership but can be locked-in earlier depending on jurisdiction. 3

 

Not Locked-In Not Locked-In

WITHDRAWLS

Withdrawal of required employee and employer contributions not permitted while in plan.[4] Cash withdrawals are allowed but subject to withholding tax. Can be controlled by 1) the imposition of a waiting period for rejoining plan 2) suspension of future employer contributions for a period of six months.

 

Cash withdrawals are tax and penalty free. Funds can be withdrawn at any time.

RETIREMENT INCOME

Transfer options limited to locked-in vehicles only (LIF, LRIF, annuity[5]…)

 

Cash, RRIF[6], annuity or a combination of the three Cash payment or transfer to another TFSA

INCOME SPLITTING

Not possible In group plans sponsor may allow spousal RRSP accounts. Contributions  to spousal accounts allowed and are withdrawn without tax or penalty

 

[1] Employer must contribute at least 1% of employee’s remuneration

[2] Reduces RRSP contribution limit

[3] Vesting & Locking in by province: BC: 2 years plan membership, Alberta: 2 years plan membership, Saskatchewan: 2 years plan membership, Manitoba: Immediate, Ontario: Immediate, Quebec: immediate, New Brunswick: 5 years continuous service or 2 years plan membership, Nova Scotia: 2 years plan membership, PEI: 3 years plan membership and 5 years of continuous service, Newfoundland and Labrador: 2 years plan membership

[4] Provincial legislation provides for cash withdrawals/unlocking of pension funds in specific cases:  disability, terminal illness or termination of employment.

[5] LIF: Life Income Fund – Locked-in income fund available in all provinces. The LIF is used to hold pension funds and payout retirement income. There is a maximum and a mandatory minimum withdrawal limit. LRIF: Locked-in retirement income fund available in Alberta, Newfoundland and Labrador, Manitoba, and Ontario. The LRIF is used to hold pension funds and payout retirement income and it carries a maximum and a mandatory minimum withdrawal limit. Unlike the LIF, conversion to an annuity at age 80 is not mandatory for the LRIF. Annuity: Fixed monthly income payable for life or a specified term with survivor options.

[6] RRIF: Registered Retirement Income Fund – Un-locked income fund used to hold pension funds and payout retirement income. There is a minimum withdrawal limit but no maximum limit.

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