CHAPTER 14 Retirement Plans, Employee Benefits and Savings Plans
EMPLOYER-SPONSORED RETIREMENT SAVINGS PROGRAMS Many employers voluntarily offer private pension plans. These may be specific to a single employer or they may be multi-employer pension plans that are administered by boards of trustees. Generally, pension plans are defined benefit, defined contribution or retirement savings plans. Defined benefit plans are increasingly less common in the private sector. They, like employment and labour matters generally, are governed by federal or provincial legislation, depending on the nature of the particular business or undertaking. To qualify for preferential tax treatment, pension plans must also be registered under the federal Income Tax Act and comply with the requirements of that Act. Federal and provincial pension benefits standards legislation sets out minimum standards applicable to pension plans and specifies rules relating to many aspects of the pension arrangement, including (i) funding, (ii) eligibility, (iii) pension formula, (iv) pensionable service, (v) contribution requirements, (vi) vesting and locking-in, (vii) early, normal and postponed retirement, (viii) accrual of benefits and forms of pension, (ix) investing and withdrawing pension fund assets, (x) transfers of pension fund assets and (xi) amendments or discontinuance of a pension plan. Employers with operations in more than one province or territory may operate one pension plan that is registered where the plurality of members work. The pension plan also provides pension benefits for members employed in the other provinces or territories. Where an employer provides a registered pension plan to employees, the level of benefits that can be provided from the plan is limited by the registration rules of the Income Tax Act . A supplementary arrangement is needed if the pension income that the employer wishes to provide exceeds that limit. Supplementary pension arrangements are commonly known as Supplementary Executive Retirement Plans (SERPS), top-up or top-hat plans.
These plans may take a variety of forms and may be formal, informal, funded or unfunded. Employers can also offer other retirement savings programs such as group registered retirement savings plans and deferred profit-sharing plans. Registered retirement savings plans and deferred profit-sharing plans permit employees to save for retirement on a tax- sheltered basis. Under the Income Tax Act , these plans are subject to specified contribution limits and qualified investment restrictions. In Québec, employers with 10 eligible employees or more must either offer a form of pension or retirement savings arrangement or subscribe to a “voluntary retirement savings plan” (VRSP). An employer is not required to contribute to a VRSP, but employees must be allowed to contribute by way of payroll deduction. The federal government has introduced the additional option of a pooled registered pension plan (PRPP). The PRPP is intended to provide a low-cost retirement savings option for employers that currently do not provide retirement plans. The federal government, Nova Scotia, Québec, Saskatchewan, Manitoba and Ontario have all enacted PRPP legislation and supporting regulations. Employee Benefits Every province and territory in Canada has a public health insurance program. Generally, these programs cover hospital and medical care. Public programs are funded by general tax revenues and, in some provinces, premiums or payroll taxes (public employment insurance and workers’ compensation programs are described in the Employment Law chapter of this guide). Employee health benefits provided by employers evolved largely to supplement the basic protection offered by government programs.
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