There are basically two types of Registered Pension Plans:
- The "Defined Benefit" plan
is an agreement to provide specific benefits at retirement, based
on years of service and earnings.
- The "Money Purchase" or Defined Contribution plan operates
much like an RRSP. Employer and employee contributions
are accumulated in the plan and are used to purchase a retirement
income, the amount based on the accrued funds and on interest
rates at the time of the employee's retirement.
The Money Purchase RPP is by far the simpler,
more flexible plan. The
Defined Benefit plan, while providing the employee with a guaranteed
amount of retirement income, can be complex and expensive. The
Money Purchase concept is therefore more popular today, particularly
with small to medium size businesses. An important advantage
is that the employer can easily control and forecast the cost of the
program, which is always a fixed percentage of payroll. Total
plan expenses are typically about 5% of the covered payroll, but
can start lower if necessary. We have also designed rich plans.
The unique features and tax treatment
of the plan make an MP-RPP one of the most highly appreciated benefits
an employer can provide. It
is an effective way to attract and keep well-trained, motivated employees. An
RPP can also be used in conjunction with a Payroll Deduction RRSP
or Deferred Profit Sharing Plan.