Understanding the deferred profit sharing plan: retirement saving options for Canadian employees
This article was produced by HCM Dialogue
“Many Canadian employers have set up group RRSPs for their employees. The Deferred Profit Sharing Plan (DPSP) is a less well-known retirement savings plan that can be a good option for companies wanting to help their staff save for retirement,” according to Doug Ronson.
To better understand, let’s get deeper into these two options. “DPSPs are similar to RRSPs in a couple of ways. First, they help your employees save for retirement. Second, both plans are tax-deferral schemes. As mentioned, that means your employees won’t pay tax on the contributions until they withdraw the funds. DPSPs are 100% employer-funded. An RRSP, by contrast, can be either employee-funded or a joint effort between the employer and employee. That means you might match your employees’ contributions, or your employees may be the only ones contributing to an RRSP,” according to Jungo HR.
What are the advantages of a DPSP for employers?
According to Doug Ronson, the advantages for employers are:
- Can claim a tax deduction for contributions.
- Can require that employees remain with the company for up to two years in order to receive their contributions. If an employee leaves the firm before then, the contributions are returned to the company. This helps with employee retention.
- Can halt contributions if there are no profits or reduced profits.
What are the advantages of a DPSP for employees?
According to Doug Ronson, the advantages for employers are:
- Do not contribute to the plan. The DPSP is only made up of funds from the employer.
- Contributions are tax-deferred. Employees only pay tax when they make a withdrawal.
For more information on this matter, you can consult the Goverment of Canada’s Guide for RRSP and DPSP.
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