Trying to decide if a deferred profit sharing plan (DPSP) or a group registered retirement savings plan (group RRSP or GRRSP) is right for your employees? You've come to the right place.
Here's the key difference: only the employer funds a DPSP, while a group RRSP also lets employees contribute through payroll, usually with an optional employer match. Both are employer-sponsored group savings plans, so the choice is less about two separate products and more about how you want to structure your employer contributions. Trying to decide which is right for your employees? You've come to the right place. Group plans are an effective way to attract and retain talent while helping your employees reach their financial goals faster.
This article walks through what each plan offers, the main differences between a DPSP and a group RRSP, and the pros and cons of each, so you can make an informed decision about which plan suits your employees.
What is a DPSP?
A DPSP is an employer-sponsored plan registered with the Canada Revenue Agency (CRA) that lets you share company profits with your employees. You can decide whether to set up a DPSP for all employees or a select group.
Only you, the employer (also known as the plan sponsor), can contribute to the plan. Employees cannot invest. Contributions are paid into a trust fund established by a trustee, which can be a bank, insurance company, or other financial services provider.
The trustee is responsible for operating the plan and ensuring benefits are paid to employees. Employers can contribute up to the maximum contribution limit, which is 18% of the employee's annual earned income or half of the money purchase (MP) limit, whichever is less.
In years with no profit, no contributions are required. All contributions are tax-deductible for the employer, and contributions grow tax-free for your employees. Employees are taxed on contributions only when they make a withdrawal.
Employees can use a DPSP alongside other retirement savings plans. However, their RRSP contribution room is reduced by the DPSP contributions received in the previous year. For instance, if you contribute $1,000 to your employee's DPSP, this reduces their RRSP contribution room by $1,000 the following year.
Since the DPSP is an employee-only plan, no company owners, relatives or spouses of owners, or anyone with a 10% or more ownership stake in the company can participate. As the employer, for example, your spouse or child could not participate in the DPSP. Some senior executives and leaders who hold a high stake in the company may also be excluded.
What is a group RRSP?
A group RRSP is an employer-sponsored retirement savings plan. It works like an individual RRSP but is set up on a group basis, which provides a number of benefits.
Employees contribute to the group RRSP with pre-tax dollars through payroll deductions. Contributions are invested into a basket of preselected investments by the plan administrator, typically an insurance company, bank, or online financial services provider.
You can decide whether to set up a matching plan where you match employee contributions, usually up to 3% to 5% of their annual salary. You can also set up a flat employer contribution plan, where you contribute a predetermined amount regardless of whether the employee participates. Or you can establish a non-matching plan, where the employee contributes what they want and you contribute nothing.
Any contributions you make are considered taxable income for the employee. However, employees enjoy tax savings on all personal contributions immediately, rather than waiting until tax time for a reimbursement from the government.
DPSP vs group RRSP: what's the difference?
The short version: a DPSP takes employer contributions only, while a group RRSP lets employees contribute too — and employer money in a group RRSP vests immediately, where a DPSP can hold it for up to two years. Both are group savings plans that provide opportunities to earn tax-deferred returns, but those differences matter.
There are also differences in the ownership of plan contributions. When an employer contributes to a group RRSP, the employee immediately owns that money. So if you make a contribution and your employee quits the following day, they own the money in their group RRSP.
With a DPSP, there is a vesting period. This is a hold, as long as 2 years, between the time you contribute and when the employee takes ownership. If your employee quits or is let go before the end of the vesting period, the money in the DPSP goes back to you.
Feature | DPSP | Group RRSP |
|---|---|---|
| Who contributes | Employer only | Employee, with optional employer match |
| Contribution schedule | Employer's choice; can be skipped in low-profit years | Regular, usually every payroll |
| Ownership/vesting | Vesting period of up to 2 years | Immediate ownership, no vesting |
| Effect on RRSP room | Reduces the employee's RRSP room the following year (via a pension adjustment) | Employee and employer contributions both use the employee's RRSP room |
| Taxation of contributions | Tax-deductible for employer; employee taxed on withdrawal | Employer contributions are tax-deductable for the employer and treated as taxable income for the employee; employee contributions get immediate tax savings |
Employer and employee pros and cons: DPSP vs group RRSP
The right choice depends on your goals. The tables below compare a DPSP and a group RRSP side by side — first from your perspective as the employer, then from your employees' perspective.
Employer perspective
Category | DPSP | Group RRSP |
|---|---|---|
| Pros | Flexible funding. Contribute monthly, quarterly, annually, or only in profitable years, and skip contributions when profits are low.<br>Tax-efficient. Contributions are tax-deductible and exempt from federal and provincial payroll taxes.<br>Retention lever. A vesting period of up to 2 years can help reduce turnover (a common, though academically debated, view), and unvested contributions return to you if an employee leaves.<br>Performance incentive. Tying contributions to profit sharing can motivate employees. | Flexible employer match. Choose whether to match, by how much (matching, flat, or non-matching), and pause the match at any time.<br>Attraction and retention. An ongoing, visible match can help attract and keep employees.<br>Employees save alongside you. Unlike a DPSP, the plan also captures employee payroll contributions, increasing total retirement savings.<br>Simple and predictable to run. Contributions come off regular payroll. |
| Cons | Restricted eligibility. Owners, their relatives and spouses, and anyone with a 10%+ stake can't participate, which limits how you reward senior leaders.<br>For-profit only. Non-profit organizations can't offer a DPSP.<br>Employees can't add their own money. Only the employer contributes, so it can't serve as an employee's sole savings vehicle.<br>May be less appealing to talent. The vesting period and irregular contributions can feel like compensation employees can't count on. | No vesting. Employer contributions are owned immediately, so you can't use vesting to encourage retention or recover funds if someone leaves.<br>Payroll taxes. Employer contributions are generally subject to EI and CPP payroll taxes. Visit the CRA for more information. |
Employee perspective
Category | DPSP | Group RRSP |
|---|---|---|
| Pros | Employer-funded. Employees receive contributions without contributing anything themselves — effectively free money.<br>Immediate access. Funds can be withdrawn before retirement, though withdrawals are taxed at the employee's current rate and subject to withholding taxes. | Can contribute their own money. Unlike a DPSP, employees can save through payroll on top of any employer match.<br>Immediate ownership. No vesting period, so contributions are theirs as soon as they're made.<br>Immediate tax savings. Contributions are deducted before tax, lowering taxable income right away.<br>Optional employer match. Potential "free money" where an employer offers a match.<br>Home Buyers' Plan / Lifelong Learning Plan. Funds can be used for the HBP or LLP — options a DPSP doesn't offer. |
| Cons | Unpredictable contributions. Employers aren't required to contribute in low- or no-profit years, so it's hard to rely on for retirement planning.<br>Possible withdrawal limits. A restricted plan can limit withdrawals while the employee is still employed. | Fewer investment options. Group plans can offer a narrower investment menu than a DPSP.<br>Plan cancellation. The employer can cancel the group RRSP at any time. |
How to decide which plan is right for your employees
Because both plans are simply different ways to deliver employer contributions, deciding between them comes down to how much flexibility and control you want over those contributions — and whether you also want your employees contributing. Start by thinking about what you want to achieve. What is your main goal in offering a group plan? Do you want to help employees save for retirement, provide incentives to attract talent, or address employee retention?
When determining what you want to achieve with your group plan, you can also consider the following questions:
Do you want your employees to be able to contribute to the plan? If yes, then go with the group RRSP.
Do you want to contribute to your employees' plan only if the company turns a profit? If yes, go with the DPSP.
Do you want company contributions to be vested to your employees immediately? If yes, then go with the group RRSP.
Both plans have pros and cons. It depends on what you as the employer want to do with the benefit offering: help employees save for retirement and other life goals (group RRSPs) or provide collective performance incentives (DPSPs).
How to switch between a DPSP and a group RRSP
Instructions for employers
It’s possible to switch from one registered plan to another, including the DPSP and the RRSP.
Determine which group plan you want to switch to and which plan provider, such as a bank or online financial institution, you want to use.
Contact your current plan provider and connect them to your new provider. That new provider should do the heavy lifting for the transfer.
Communicate the switch with your employees, sharing the benefits of the new plan and your reasons for switching. Give them adequate time to ask questions and decide what to do with their investments before the change.
A switch between registered plans is a direct, plan-to-plan transfer made on a tax-deferred basis — it is not a cash-out and does not trigger tax. Withdrawing the money as cash is a separate choice from transferring the plan; if an employee did choose to withdraw instead, that amount would be reported as income and taxed accordingly.
Instructions for employees
You can assure your employees that if they don't want to switch from one group plan to another, they also have the option to invest their money in an individual plan. A group DPSP and a group RRSP can be switched to an individual RRSP, provided the employee is 71 years or younger at the end of the year in which the transfer is made.
Which group plan will you choose?
The group plan that is right for you and your employees ultimately depends on what you are hoping to achieve.
If you want a straightforward way to encourage your employees to save for retirement or the purchase of their first home, then the group RRSP is a strong fit. If your goal is to encourage employees to stay for a few years and you only want to contribute when you turn a profit, then the DPSP might be the way to go.
The bottom line is that the DPSP and group RRSP both offer benefits that can help you attract talent and assist your employees in reaching their financial goals faster.