Feeling light on the lingo of retirement savings? You're not alone. This guide helps you decipher the buzzwords, jargon, and acronyms so you can get financially fluent as soon as possible.
Fortunately, you don't need the Rosetta Stone to crack this code. You just need a clear, plain-language walkthrough of the terms. In no time, you'll be speaking the language of group retirement — and no more will time, energy, and savings be lost in translation.
Defined Benefit Pension Plan (DBPP)
A DBPP is a type of pension plan in which your employer promises a specific pension amount for retirement, and that amount can vary between employees. It is typically determined by a formula that takes into account earning history, how long the employee has been with the company, and age.
Defined Contribution Pension Plan (DCPP)
A DCPP is a retirement savings plan that offers benefits to employees based on their contribution levels before retirement. The amount of money you put into a DCPP is defined, but the final amount you receive at retirement age is not.
Deferred Profit Sharing Plan (DPSP)
A DPSP is an employer-sponsored retirement plan that needs to be registered with the Canada Revenue Agency (CRA). An employer would use a DPSP to share company profits with employees — either the entire employee base or just a select group.
Employers are the only ones allowed to contribute to DPSPs. Contributions are paid into a trust fund established by a trustee, such as a bank, insurance company, or other financial service provider.
The DPSP contribution limit is whichever of these is lower:
18% of the employee's compensation, or
half the money-purchase (MP) limit the CRA sets each year (its annual "DPSP limit").
In years the company doesn't turn a profit, no contribution is required.
Since a DPSP is an employee-only plan, company stakeholders, relatives or spouses of owners, or anyone with a 10% or greater stake in the company cannot participate.
Group Registered Retirement Savings Plan (GRRSP)
A GRRSP is often also referred to as a Group Retirement Savings Plan (GRSP). It's nearly identical to an individual RRSP, but members receive benefits through being in a group plan.
Employees are able to contribute to their GRRSP with pre-tax dollars through payroll deductions — it comes right out of their pay cheque and goes directly into the account. Contributions are then invested into a basket of investments by the plan administrator, typically an insurance company, bank, or financial services provider.
Pooled Registered Pension Plan (PRPP)
A PRPP is a group retirement option that can be offered through an employer or joined on your own — including if you're self-employed or your employer doesn't participate. The PRPP is a retirement plan available for individuals, including individuals who are self-employed.
With a PRPP, contributions are put into a larger, pooled pension plan. Members of a PRPP get the benefits of a group retirement plan this way — including lower administrative costs. A PRPP is also flexible and moves with members from job to job.
Registered Pension Plan (RPP)
A RPP is an employer-established group retirement plan that is registered with the Canada Revenue Agency (CRA). Employers are responsible for establishing the RPP with a financial institution and choosing how the money is invested. Employers are also required to contribute.
There are two types of RPPs:
Defined Benefits RPP: this plan specifies a guaranteed pension amount for employees. The amount is determined based on a formula that considers individual employee salary and length of employment. Both employer and employee can contribute to this plan. No matter how the investments in an RPP perform, an employer is required to pay out the predetermined pension amount to employees upon retirement.
Money Purchase RPP: this type of RPP allows both employer and employee to contribute to the plan without a specific pension amount set. Both the employer and employee usually contribute a set percentage of salary, and employer contributions are generally required.
Key group retirement terms
Benefits broker
A professional that specializes in employee benefits. This person would work with an employer to help them build out a benefits package. They know what benefits are available in today's market and the vendors that provide them, and help to break down pricing.
Employee contribution
The amount the employee chooses to contribute to a savings or retirement plan through a Group Retirement Savings Plan (GRSP).
An example: imagine an employer offers a GRSP for their employees. The employee contributes $50 to the account each pay period. That $50 is the employee contribution.
Employer contribution
The amount the employer has to contribute or chooses to contribute to a savings or retirement plan for their employees.
Let's look at that same example: imagine an employer offers a GRSP for their employees. The employer contributes $50 to the account each pay period. That $50 is the employer contribution.
Fiduciary
A person or organization who, acting in the best interests of another person or organization, is charged with managing assets on behalf of that individual or organizational client. A fiduciary is ethically, and likely legally, bound to make recommendations that are in the best interests of those to whom they have a fiduciary obligation.
A fiduciary duty arises when a person or an organization places their trust in another to exercise its expertise and fulfil a certain obligation or mandate.
Matching plan
A type of GRSP in which employers match the contributions put in by employees. A typical matching plan means employers do not contribute unless employees do, so matched contributions add money toward an employee's retirement. Employers typically only match up to a certain percentage of the employee's salary.
Let's continue with the previous example: imagine an employer offers a matching plan as part of their GRSP. If an employee contributes $50 to their GRSP per pay period, the employer will also contribute $50. The employee's account is now at $100, with only $50 coming from the employee.
Management expense ratio (MER) fee
The MER fee is the cost of investing in an investment vehicle, whether it's a mutual fund or an exchange-traded fund (ETF).
Provider
The secondary organization that provides the GRRSP. This is typically an insurance company, bank, or other financial service provider.
Sponsor
The organization that promotes or brings in a retirement savings program to a workplace. In most cases, the sponsor is the employer or organization.
