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If you contributed to a company pension plan during your working life, you may be entitled to receive regular pension income from your employer.

The two most popular types of company pension plans are Defined Benefit Plans (DB) and Defined Contribution Plans (DC). Employers also provide Deferred Profit Sharing Plans (DPSP) to help employees fund their retirement.

 

Defined Benefit Plans

The most common of all company pension plans, a defined benefit plan guarantees a certain level of pension income based on a pre-established formula. The formula varies among companies, but generally reflects a combination of:

  • your years of service
  • your income
  • a percent of your income as established by the pension plan.

DB plans typically have a normal retirement date (NRD) of age 65, but it could be earlier.

 

Defined Contribution Plans

A defined contribution plan - sometimes referred to as a "money purchase plan" - defines the contributions to be made by both you and your employer, but not the amount of pension income you'll receive. The retirement income that you obtain is based on the investment earnings in the plan.

With a DC plan, the employee bears the investment risk, and generally chooses the investment holdings. When you decide to start drawing income from your DC plan, you will have a choice among numerous income options, dependent upon the rules applicable to your plan. This could include a Life Income Fund (LIF), a Locked-In or Prescribed Retirement Income Fund (LRIF, PRIF) or a life annuity.

 

Deferred Profit Sharing Plans (DPSPs)

Although DPSPs are not considered formal pension plans, employers provide this option to attract and retain employees, the proceeds of which can be a valuable source of retirement income. In this type of plan, contributions are made on behalf of an employee. Contributions and any investment income earned remain tax-sheltered until retirement. At retirement, the employee can either transfer the employer's portion of the funds to his or her RRSP or select an eligible retirement income option.

 

Six Key Questions to Ask about Your Company Pension Income and Benefits

  1. Using estimated retirement dates, how much pension income am I entitled to receive?
  2. Can I buy more pension credits now to increase my income during retirement?
  3. Is my pension indexed to keep up with the cost of living?
  4. What happens to my pension when I die? Are there survivor benefits? Are these survivor benefits reduced in any way?
  5. Will my pension income affect my government benefits? How?
  6. Does the company provide any other retirement benefits such as medical insurance coverage, life insurance or dental care?
 
 

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