Characteristics of defined contribution and of defined benefit pension plans
Characteristics shared by both plan types
A written contract registered with Retraite Québec
A pension plan is a written contract under which you and, in some cases, your employees are required to make periodic payments to a pension fund in order to provide your employees with a retirement income.
Defined contribution and defined benefit pension plans are generally administered by a pension committee (the committee is the "plan administrator"). As the employer, you can sit on the committee or by designated by the committee to carry out specific duties.
If you plan has less than 26 members and beneficiaries, you can act alone as the plan administrator (if allowed by the plan text). In that case, you have the same duties and obligations as a pension committee.
The contributions paid into a pension fund are deductible from your taxes. They are also excluded from the calculation of your contributions to other programs such as employment insurance, the Health Services Fund, etc.
If employer contributions vary according to the number of years of employment or credited service, they must be approved by Retraite Québec. The variable employer contributions must meet certain rules.
Protection of the pension fund
You cannot at any time or for any reason take money out of the plan's pension fund. Your creditors cannot touch the fund either. In other words, the pension fund cannot be seized in the event of bankruptcy and it cannot be put up a guarantee for any obligations other than obligations of the plan.
Characteristics specific to defined contribution plans
- The amount of contributions paid into the pension fund is set in advance.
- 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.
- 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.
Characteristics specific to defined benefit plans
- The cost of benefits and the contributions to be made to the pension fund are determined by an actuary. Those contributions include both those that you, as the employer, are required to make and those that the members make (if required to contribute).
- 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.
- The plan can provide for early retirement or phased retirement measures (or both) to more effectively manage the firm's human resources.
- As the employer, you are responsible for the plan's funding.
An informed employer will act without hesitation
To set up a pension plan that corresponds to your financial means and to your employees' needs, you will need to contact consultant who specializes in the pension field (an actuary or any other person qualified to set up a pension plan) or a financial institution.
Complete an application for registration of a pension plan, which will guide you through our procedures.