Pension and Retirement Benefits in Canada Internal
What are the statutory pension benefits? What do they cover?
Pension benefits in Canada are provided through the national pension system via the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). As the legal employer of your supported employees, Velocity Global must pay into these plans on your behalf.
The CPP is for residents outside of Quebec, while the QPP is only for residents of Quebec. You are required to pay this employer burden. At the end of their careers, recipients will typically be entitled to a pension equal to about 25% of the final average maximum pensionable earnings level.
Pension benefits are considered an employee/employer burden, and both parties have an annual maximum contribution. Velocity Global collects regular payroll withholdings to ensure your supported employees contribute their portion of the premium. Once these maximum contributions have been reached, both parties cease to contribute to them until January 1 of the following year.
Your supported employees also receive some benefits through the Old Age Security (OAS) program. Employers in Quebec are required to enroll certain employees automatically in an optional retirement plan if the employers do not already offer a pension plan or a tax-free savings account.
What pension benefits do most employers offer?
Employers commonly offer supplemental pension benefits, even though they are not legally required to do so.
One popular supplemental pension benefit is a retirement fund matching program called a group Registered Retirement Savings Plan (RRSP). This plan is similar to a 401(k) in the United States. Please note that there are some limitations for your supported employees who relocate to Canada during their first year of employment.
Please note that we do not offer a Deferred Profit Sharing Plan (DPSP) since that is designed for companies who share profits with their employees.
Can an employer make direct contributions to an employee’s private pension?
At Velocity Global, we only contribute to our group Registered Retirement Savings Plan (RRSP). We cannot administer contributions to your supported employee’s private RRSP.
What are the details of Velocity Global’s pension plan in Canada?
Velocity Global’s group Registered Retirement Savings Plan (RRSP) is a supplementary defined contribution (DC) plan. This means that the capital available at retirement is entirely dependent on the money paid into the plan as well as the performance of the supported employee’s investment.
Contributions to the group RRSP are deducted via payroll withholdings and remitted to the plan once a month, but your supported employee can also pay additional sums on a regular or lump-sum basis. These additional payments take place via online banking or pre-authorized withdrawals from a supported employee’s bank account.
We can adjust the contribution rates for you and your supported employee at your request.
Our group RRSP includes more than 20 investment options available to your supported employee. If your supported employee does not select from these investment options, we allocate their contributions to a default fund with a target date closest to the year the supported employee turns 65.
Your supported employee’s contributions to the RRSP are deductible from their taxable income. Tax payments are deferred as long as the supported employee does not exceed their RRSP deduction limit. Please note that tax consequences are also realized whenever the employee withdraws from their RRSP (at their marginal rate in the year in which they withdrew funds).
In the event of an RRSP member’s death, the accumulated funds will be paid to beneficiaries designated by that supported employee. If the supported employee does not assign beneficiaries, payment will be made to the supported employee’s estate.
The RRSP is also an option if you would like to contribute a higher percentage to a supported employee’s retirement fund. We can set up a matching program within an RRSP where a supported employee can make contributions that are followed by an employer match. Employers typically contribute at least 3%.
Please be informed that issues can arise if the matching exceeds the Canada Revenue Agency’s (CRA) annual maximum for contributions. More information on the risks of over-contributing can be found here and here.