DEFERRED PROFIT SHARING PLANS
UNIQUE PROFIT PENSION OR PROFIT SHARING PLAN
Puhl Employee Benefits is a leading advisor on Employee Benefits and insurance in Calgary. We also provide Deferred Profit Sharing Plans. Here’s a look at what these benefits are and how they can help you.
What is a Deferred Profit Sharing Plan (DPSP)?
A deferred profit sharing plan is unique type of pension or a profit-sharing plan for employees, sponsored by their employer. The plan is registered with the Canadian Revenue Agency.
As per this plan, the employer shares their profits from the business with their employees, according to a set criteria and on a regular basis. The employees don’t need to pay any federal taxes on the money that accumulates in the plan as long as they don’t withdraw it.
Let’s Understand How the Deferred Profit Sharing Plan Works
Any employer that participates in a DPSP is referred to as the “sponsor” and the employees who get a share of the profits are called as “trustees.” Employees that choose to participate in a DPSP will experience a substantial growth in the contributions made out to them over time – all tax-free. The money can be withdrawn before retirement. You could withdraw the funds partially or fully within the first two years of joining the plan.
Key Features of Deferred Profit Sharing Plans
- For the employer, any contributions made out to the DPSP are tax deductible. Employees don’t have to pay tax on the contributions made out to them until the money is withdrawn.
- All earnings made on the investments are tax-sheltered. You don’t have to pay any taxes on your earnings till they are withdrawn.
- DPSPs are combined with other benefits and pension plans such as a Group Registered Retirement Savings Plan (RRSP). The goal is to ensure that you have as much as you need for your retirement.
- The RRSP contribution room is affected by the contributions made out to the DPSP the year earlier.
- You can decide how you want the money accumulated in the DPSP to be invested. You could, for example, buy company stock with the contributions made out to the plan.
- When the employee leaves a particular company, the money from their DPSP associated with that company can be transferred to a Registered Retirement Income Fund (RRIF), Registered Retirement Savings Plan (RRSP) or to buy an annuity. The employee could cash out, if they choose to. The money that is withdrawn from a DPSP is subject to tax payment.
Why Employers Like Deferred Profit Sharing Plans?
Employers like DPSPs as these plans can be paired with group RRSPs. This makes them a more cost-effective alternative to a defined contribution plan.
Employers appreciate that any contributions made by them to an employee’s account through a DPSP are tax deductible and exempt from federal and provincial taxes.
For a company, providing these plans to employees will cost much less compared to administering a defined contribution plan.
DPSP gives a company the leverage they need to attract and hold on to the best employees. Since these plans are subject to a two-year vesting period and the contributions are tied to the profits made by the company, the employee has a special interest in the success of the business or company they work for.
Your Next Step
If you have any questions on Deferred Profit Sharing Plans, call us at Puhl Employee Benefits on this Toll Free number: 1(888) 508-0077 or fill up this contact form. Our representatives will get back to you as soon as possible. You could also walk into our office at 209, 2577 Bridlecrest Way SW, Calgary, Alberta.