Retirement Plans & Income
Retirement plans are customized to assist the professionals / business owners and/or their employees to save for retirement or target a retirement income.
Plans for the professionals / business owners available include but not limited to:
- Registered Retirement Savings Plan (RRSP)
- Defined Contribution (DC) Pension Plan
- Individual Pension Plan (IPP)
- Retirement Compensation Arrangement (RCA)
- Insured Retirement Plan (IRP)
Plans available for the professionals / business owners employees include:
- Group RRSP
- DC Pension Plan
- IPP / DB Pension Plan
- Deferred Profit Sharing Plan (DPSP)
Individual Pension Plan (IPP)
A Defined Benefit Pension Plan which has 3 or less members. Usually set up for executives, professionals and business owners.
Supplementary Executive Retirement Plan (SERP) / Retirement Compensation Arrangement (RCA)
These plans are setup for professionals / business owners / senior executives to remove the limitation imposed by the Income Tax Act for high wage earners.
Retirement benefits are usually based on a defined benefit formula but retirement benefits can also be provided on a defined contribution basis.
These plans are usually not funded (i.e. no assets and no contribution are set aside to pay for these benefits. These benefits are paid from general expenses.
The Retirement Compensation Arrangement / Agreement (RCA) is the formal mechinism under which these plans can be funded.
Defined Contribution Pension Plan (DCPP)
A pension plan where the promise of is to make contributions to the plan based on a pre-defined formula, i.e. usually a percentage of salary / compensation.
The retirment benefit is a lump sum that is based on the contributions made and the investment earnings to the date of retirement. The lump sum can be used to provide retirement income (LRIF) or can be used to purchase a lifetime pension (annuity)
Registered Retirement Savings Plan (RRSP) / Group RRSP
A retirement savings plan where contributions are made to a tax-sheltered plan. The contributions grow with investment earnings. Members usually make their own investment decisions
The retirement benefit is a lump sum. The lump sum can be used to provide retirement income (RIF) or can be used to purchase a pension for the lifetime (lifetime annuity) or for a certain period of time (annuity certain)
A Group RRSP is a collection of individual RRSPs that have many advantages to due economies of scale. Some of teh advantges are:
- Lower cost, i.e. lower MERs
- Access to institutional funds
- Improved fund governance
- No transaction costs
- No annual administration cost
Deferred Profit Sharing Plan (DPSP)
Designed to reward good performance and create a sense of partnership between the professionals / business owners and their employees
Setup and sponsored by the corporation. Periodically, corporation makes contributions to the DPSP from profits earned. Individual employees are not allowed to contribute.
Contributions are tax-deductible to the corporation. Contributions grow with investment earnings in a tax-sheltered environment.
Benefit payable for the member is the accumulated account balance.
Income Replacement Policy (IRP)
A financial planning strategy that addresses the needs for insurance and supplementary retirement income.
Deposits are made into a permanent life / universal life insurance policy.
When supplementary retirment income is needed, the policy is assigned to to a financial institution as collateral for a line of credit against as the cash value of the policy. Funds borrowed against the line of credit is used as a retirement income supplement. On death, the insurance proceeds pay off the outstanding loan balance and the excess is paid to the named beneficiary, tax free with limited or no tax consequences.