Pension Plans, Simply Put
Having a pension plan available to your employees is extremely valuable, as it supports:
- Financial well-being by encouraging employees to save
- Healthy retirement planning by ensuring employees are saving for the ultimate goal
- Financial planning resources for staff through our team of experts
Putting a pension plan in place is another way you are able to attract, retain, and reward your talented employees. A pension plan is a retirement program wherein an employer makes contributions into a pool of funds, which the employee will have access to upon retirement. The monies contributed are invested on the employee’s behalf.
Currently, there are two types of pension plans an employer can choose from:
Defined Contribution Plan
This is the most common type of program in Canada. In this type of program, the employer makes specific contributions to the plan on behalf of the employee. The amount contributed by the employer to the Pension Fund is usually based on the amount the employee is contributing to a Group RRSP, based on a specific matching percentage or dollar value. What is paid out in retirement to the retiree is based upon the total amount contributed to the program, as well as investment performance.
This program is an excellent tool for employers with 10 employees or more, who want to reward their talented employees. It is very flexible, in that both the enrollment into the program and matching component can be based on years of service.
Defined Benefit Plan
In this type of program, the employer is guaranteeing that the employee will receive a defined amount of money upon retirement, regardless of the performance of the investment the monies are in. The employer is responsible for specific pension payments to the retiree, which is usually determined based on a formula which takes into consideration both earnings and years of service.