- Usually based on years of service and salary
- Guaranteed pension income
- Employer covers administrative costs and investment risk
- Creditor proof

- More flexible than a defined benefit plan
- Creditor proof

- Often many investment choices
- Flexibility in retirement and estate planning

Employer Advantages

- Makes older workers easily to let go

- Simpler and less costly than DB plans
- Employees bear investment risk

- No pension standards required

Contributions

- Based on actuarial calculations: age, gender, life expectancy, earnings growth
- Sometimes fully paid by employer
- Possible employee contribution option

- Required by employer
- Often a fixed contribution rate

- Deducted from pay, within regular RRSP limits
- Only employees may contribute; some employers raise pay and compel participation

Tax Implications

- Usually employer alone contributes
- If employee contributes, deductible up to amount outlined in plan text

- Employee contributions deductible up to a yearly maximum of $13,500

- Employer contributions are taxable and subject to CPP/QPP and EI

Vesting

- Generally 100% two years after joining the plan

- Generally 100% two years after joining the plan

- Vest immediately

Portability

- Awkward when switching
- Three choices: leave "as is" and collect benefits at retirement, transfer to new employer, open LIRA

- Simpler to move than DBs
- Usually same as for DB but value more transparent

- Easily transferable to another RRSP or employer plan

Withdrawals

- At retirement only

- At retirement only

- Permitted but discouraged before retirement, firms may suspend contributions

At Retirement

- Monthly pension check or life annuity often based on last five years' earnings
- Maximum $1,722.22 per year of service; eg. $60,277 for 35 years

- No guarantees; pension depends on investments
- Convert to either an annuity, locked in RRSP or Life Income Fund (LIF)

- Payout depends on contributions and investments
- Cash or transfer to another registered plan

Cautions

- Watch assumptions on annual statement
- Might be intergrated with CPP/QPP benefits
- May not be adjusted for inflation
- Limits RRSP contribution room

- Do your home work and study investment choices carefully

- Ask for propectuses and portfolio expenses

Government Regulations

- Provincial and federal pension legislation
- Income tax act

- Provincial and federal pension legislation
- Income tax act

- Not subject to pension laws