Quirion Financial
Services

1085 Carrick Street
Thunder Bay, ON
P7B 6L9

807-622-3700
1-800-785-2877

Defined Contributions Plans

As the name suggests, contributions to DCRPPs are defined in the plan agreement. An employer contributes a fixed percentage or dollar value, of the employee's pay and the employee may also contribute a fixed amount outlined in the plan.
In a DCRPP, the contributions are defined, but the benefits are not. The pension derived from a DCRPP depends on the contribution amounts, investment performance, number of years of contributions, and many other factors.
Cost effective. Pension contributions are not a taxable benefit, so CPP, EI, worker's compensation and employer health tax payments do not increase.
Employee retention. Vesting provisions for most provinces may help employers retain employees, saving training and development costs. Design flexibility. You control a great deal of your company's pension plan design, including:
  • contribution level
  • investment options whether employees should contribute or not
  • eligibility for participating in the plan; and
  • vesting and retirement periods within legislated requirements.
Accurate cost forecasting. As contributions are defined, you can accurately forecast the company's costs for providing a pension to employees.

Defined Benefit Pensions
As the name suggests, the benefits of a DBPPs are defined in the plan agreement. The benefit is usually a formula based on the number of years an employee has worked or contributed, their average salary (or final year's salary), and a set percentage that may be tied to CPP. In a DBPP, the retirement benefit is defined, but the contributions are not.
A simple benefit formula for a DBPP might be as follows: 1.5% x NUMBER OF YEARS EMPLOYED x AVERAGE SALARY FOR FINAL FIVE YEARS.
Under this formula, an employee with 20 years of service and an average salary of $50,000 over the final five years of employment prior to retirement would have earned an annual retirement benefit of $15,000 or $1,250 per month.