Organizations often look for ways to retain and adequately compensate their key executives.
With the retirement compensation arrangement, the notional executive retirement plan and the individual pension plan, employers have access to ideal solutions to meet these challenges.
In the context of an individual pension plan, the plan member and the employer are very often the same person. An IPP offers a number of benefits from both the member’s and the employer’s perspective.
This type of plan is often set up once a company has generated significant earnings and wants to avoid paying too much tax.
How does it work?
- Plan set up for one or a few people and funded by the company (tax deductible)
- Contains a defined benefit component that provides retirement income generally equivalent to 2% of the average of the three highest annual salaries earned for each year of service credited
- Allows savings to grow tax free
- Can be maximized by transferring the plan member’s RRSP
Who is it for?
An IPP is a made-to-measure plan designed for company owners as well as self-employed individuals whose average annual income is generally over $100,000.
Benefits for employers
- Significant tax savings: contributions reduce company earnings
- Assets in an IPP reduce shareholders’ equity, which can facilitate the sale of the company
Benefits for plan members
- Allows more money to be saved for retirement than an RRSP
- Recognizes years of past service, increasing the retirement pension
- Customizable: annuity indexation, early retirement without reduction and bridge benefit
- Contributions made to the plan by the employer are not taxable
- Assets exempt from seizure by creditors
- And much more
An RCA is a non-registered pension plan for employees whose contributions and benefits generally have reached the maximum allowable amount under a registered plan. RCAs hold their own assets and are funded through a retirement compensation arrangement trust or an insurance contract. This enables employers to offer executives higher benefits than those allowed by registered pension plans.
How does it work?
- Employer contributions determined by actuaries
- Choice of defined benefits or defined contributions
- Contributions paid into the RCA trust and tax-deductible for the employer
- Contributions and investment income subject to a flat 50% tax rate (tax gradually refunded when retirement benefits are paid and fully refunded at the end of the agreement)
Who is it for?
The RCA is an ideal solution for high income earners (over $100,000) who wish to maintain their lifestyle in retirement. Its flexibility allows for perfect alignment between higher wealth accumulation objectives and employer tax strategies.
Benefits for plan sponsors
- Contributions are 100% tax-deductible and exempt from payroll and healthcare taxes
- Not governed by provincial pension regulators
- Assets can be creditor protected
- Flexibility to design a plan tailored to employer needs and objectives
- Solution available to non-resident status employees
Benefits for executives and business owners
- Benefits accumulate tax deferred until withdrawal
- Flexible contribution and withdrawal options (no age or dollar amount requirements)
- Assets are not subject to probate fees when a beneficiary is named
- Employer contributions have no impact on employees’ RRSP room
- Offshore retirement options
- Tax efficiency for business owners when transferring assets from the company to the individual
This non-registered plan enables providing for benefits above the limits imposed on registered plans.
How does it work?
- Virtual plan: no actual money is invested, and the account balance is strictly notional
- Deemed contributions accumulate with a notional return to determine the amount payable upon termination or retirement
Who is it for?
This type of plan is designed for high earners for whom a portion of their contributions is not eligible to be paid into a registered savings vehicle or registered pension plan.
Benefits for plan sponsors
- Way to incentivize key executives
- Non-registered plan: no regulatory approval required
- Little disclosure required
- Benefits deductible upon payment
Benefits for executives
- Can be tailored to specific needs
- Benefits taxed only when received