The characteristics of your simplified pension plan

A simplified pension plan is a written contract by which an employer only or an employer and workers are required to make monetary contributions in view of providing the workers with retirement income.

Your retirement income depends on the amounts accumulated in your accounts

The amount of your retirement income depends, among several factors, mainly on the total amounts accumulated in your accounts, that is:

  • your own contributions (if you are required to contribute)
  • your employers contributions
  • transferred amounts, if any
  • interest earned by the contributions

The amount that must be contributed is set in advance under the plan. The actual amount of your retirement income is not set in advance.

Locked-in and not locked-in accounts

Each plan member has two accounts: one is locked-in and the other is not locked-in.

Locked-in and not locked-in account
Type of contribution or transfer Locked-in account Not locked-in account
Employer contribution Yes No
Additional employer contribution Yes No
Member contributionEmployer's choiceEmployer's choice
Additional voluntary member contribution No Yes
Transfer from a deferred profit-sharing plan (DPSP)Employer's choiceEmployer's choice
Transfer from a not locked-in source No Yes
Transfer from a locked-in source Yes No

The locked-in account is made up of regular and additional employer contributions, your own member contributions and certain amounts transferred to the plan (if your plan allows transfers).

The not locked-in account is made up of your additional voluntary contributions, certain transferred amounts (if your plan allows transfers) as well as member contributions that must be credited to the not locked-in account (as determined by the employer ou, in some cases, by the employer and the union).

Simplified pension plan : who assumes the risk?

How a defined contribution plan works can be compared to the workings of a registered retirement savings plan (RRSP). In addition to the total amount accumulated in your accounts, your retirement income will depend, among other factors, on the interest rates in effect when a life annuity is purchased or the rates applicable to a life income fund (LIF). A high return on your pension fund's investments combined with high interest rates at the time an annuity is purchased or when your account is transferred to a life income fund (LIF) ensures a higher pension during retirement.. The balance of your not locked-in account can be withdrawn directly in cash or transferred to a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF).

Each member of the plan selects from the options offered the investments to be made the amounts credited to his or her accounts. The risk related to fluctuations in the investment yields of the accounts is assumed by the member. The employer's obligation is limited to making the contribution required under the plan's provisions.

What happens when you retire?

A simplified pension plan is not used to "pay a retirement pension". Instead, the amount credited to the member's accounts is used to purchase a life annuity from an insurer or is transferred to a life income fund (LIF), from which a retirement income can be drawn.

If you do not take your retirement immediately, the amount can also be transferred to a locked-in retirement account (LIRA) so that it can be used to pay you a retirement income later, when you retire.

The amount credited to your not locked-in account can also be transferred to a registered retirement savings plan (RRSP or to a registered retirement income plan (RRIF). You can also obtain a cash refund of your not locked-in account.

Do you want to find out more about your plan?

Consult your plan summary or contact the financial institution that administers your plan.

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