Deferred Profit Sharing
Deferred Profit Sharing Plans (DPSPs) offer a supplement to a company’s Registered Pension Plan or Group RRSP. As an employer, you may contribute any amount out of profits, up to legislated maximums into your employees DPSP account, or a trust fund, where contributions and earnings are sheltered from income tax until withdrawn.
There are many employee benefits to DPSPs:
Tax-sheltered growthContributions to a DPSP are made from company profits which are shared by the employer. There may be years when no contributions are made, so DPSPs should not be relied upon as a sole source of retirement income for your employees. However, the contributions are made only by the employer and grow in a tax-sheltered environment until withdrawn.
Vested but not locked-in
After contributions are vested, usually after two years of membership, the contributions are not locked-in. Depending on the plan design, employees may be able to withdraw these funds any time after the vesting period subject to federal withholding taxes.
Additional RRSP contributions
With DPSPs, employees can still make contributions to thier RRSPs, up to the maximum allowable limit. Contributions made by you, the employer, in one year will reduce your RRSP contribution room for the following year. No contribution receipt will be issued to reduce your employees taxable income. A Pension Adjustment (PA) will be issued to reduce their following year’s RRSP contribution limit. Unlike a Group RRSP or pension plan, only employer contributions are allowed under a DPSP. Most employers use a DPSP as a complement to a non-contributory Group RRSP, for example, an RRSP with no employer contributions.
Contributions to a DPSP are limited to the lesser of 18% of employee compensation, or half of the defined contribution (or RRSP) limit. Contact and EFG advisor for more information.