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Matthew Hageman

Whether you are thinking about adding a retirement plan as part of your employee compensation package or you are looking to move away from the logistics and costs within a pension plan, a Deferred Profit Sharing Plan (DPSP) may be a good fit for your company.

Like a Group RRSP (GRSP), a DPSP helps your employees save for their retirement. Unlike a GRSP, only the employer can contribute to a DPSP. Since only employers can contribute to a DPSP, many firms use a combination of both a GRSP and a DPSP when an employer wishes to match employee contributions.

For example: An employer may wish to match employees contributions to their GRSP up to 3% of salary, but instead of putting 3% into the employees’ GRSP, they will put it into a DPSP account.

A common misconception of DPSP’s is the expectation that employers only contribute in years with high-profits. While you are able to set up a DPSP this way, we find the most common setup involves a deposit to the DPSP when running payroll. This can function either as a match to an employee contribution or as an additional benefit tool without requiring employees to deposit into a GRSP.

There are multiple advantages to using a DPSP account, such as:

1. Avoiding extra payroll expenses:

When an employer contributes to a GRSP account, CRA views the contribution as additional pay. Both the employee and employer have to pay their share towards EI & CPP. In a DPSP, neither the employee or the employer will have to pay additional payroll expenses for contributions to the account. 

2. Building in a vesting requirement:

Having a retirement plan is important for employee retention along with owner’s caring about the well-being of an employee’s future. With a DPSP, the employer has the right to include a vesting period of up to two years. If an employee chooses to leave your company before that period expires, all DPSP contributions are returned to the employer.

In the case of the GRSP, once an employer contributes to an employee’s account, that contribution is automatically vested, therefore staying with the employee if they choose to leave your company

3. Tax deferral for the employee:

Like in an RRSP, employees don’t have to pay tax on the money that they have within a DPSP account until they choose to withdraw it.

4. Contributions are tax-deductible for the employer:

Employers have 120 days after the end of their fiscal year to remit tax-deductible contributions to the DPSP.

Ready to take a look at how a DPSP could fit into your compensation package? Let's talk!

How a DPSP works:

With the above information on why a DPSP may be a good fit for your business to implement, we should also dig into some of the specifics on how it works.

To start a DPSP, an employer would contact their HMA The Benefits People advisor who will help the employer with designing their plan (or redesigning a current plan in place). The employer will choose how they wish to contribute to the plan, either with a matching percentage or the ability to put in flat amounts.

Once setup, an employee will join the plan and fill out a survey online to determine the risk level of their investor profile. The employee will get online guidance, directing them to the funds that match their investor profile.

Once the employer makes a contribution, or sets up a recurring payment in line with their payroll, the employee will be able to view their online portal (or app) and watch their investment start to grow.

 

DPSP Considerations:

A DPSP is a good solution for many businesses, but there are a few things to consider before implementation:

  • All contributions reduce the employee’s RRSP contribution room, so if they have a personal account open, they will need to be aware of the rules so they do not over-contribute.
  • Stakeholders with 10%+ ownership of the company cannot participate in the plan, as the focus of a DPSP is on tax deferral for employees rather than owners.
  • A DPSP is an employer only contribution, so an employee cannot have a spousal plan to split contributions like they can in a RRSP.

 

Speak to an HMA The Benefits People Advisor today to see if a DPSP is the right solution for your business.

 

Matthew Hageman

Matt graduated from Queen’s University in 2019 and jumped right into the Insurance industry working for a wholesale insurer. His transition to HMA The BENEFITS People in early 2020 demonstrated his desire to have a direct impact on helping individuals and businesses find solutions to their personal situations and benefit needs. Matt has finished two of the three courses towards his Group Benefits Associate (GBA) designation. He successfully completed his Canadian Securities Course and Life License in early 2020, illustrating his passion for the financial industry and desire to deepen his understanding of estate building. On his spare time, Matt loves to cook and stay active with skiing, swimming, running and biking.
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