A defined contribution pension plan or a defined benefit plan?

You can take the initiative to offer a pension plan to your employees or you can act on a request from an employees' union.

  • Defined contribution plans and defined benefit plans are generally indicated for large businesses.

    If you company is a small business, a simplified pension plan (SIPP) may be just what you need.

  • Defined contribution and defined benefit plans are contracts registered with Retraite Québec, under which you agree to make periodic payments to a pension fund in order to provide your employees with a retirement income. Such plans may also require employees to make regular member contributions.
  • You decide (perhaps with the help of a specialist) the main characteristics of your plan. Once that has been done, the plan text must be registered with Retraite Québec and the Canada Revenue Agency.
  • You can decide (in conjunction with the union, as applicable) to make amendments to the plan or to terminate it.
  • As the employer you may be:

    • the administrator of your plan, if it has less than 26 members.
    • mandated by the pension committee that administers the plan to accomplish certain tasks. If the pension committee has delegated certain functions to you, you are then responsible for those functions.

Two plan types

Defined contribution plans

The amount of the contributions that you pay into the pension (and that paid by your employees, if they contribute) is set in advance.

  • The risk related to fluctuations in the pension funds rate of return are borne by the members and beneficiaries.
  • Your participation is limited to the contributions that you are required to make under the plan provisions.

The amount of a member's retirement income depends, among other factors, on the total amount accumulated in the member's account, that is:

  • contributions that you made as the employer
  • member contributions made by the employee (if required to contribute)
  • interest credited to contributions.

Defined benefit plans

  • In a defined benefit plan, the pension fund is made up of the employer contributions, which you make, the member contributions made by your employees (if required to contribute).
  • The cost of benefits and the contributions to be made to the pension fund are determined by an actuary.
  • The amount of a member's retirement pension generally corresponds to a percentage of his or her salary, multiplied by the number of years of credited service under the plan.

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