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Registered Pension Plans
Group RRSPs
DPSPs
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Registered Pension Plans
Revenue Canada allows an employer to choose from the following funding media:
- Trust in Canada, with a written trust agreement. The trustees may either be a trust company of a group of persons of which at least 3 are resident in Canada and one is independent of the employer (i.e., not a significant shareholder, partner, or employee.)
- A contract for insurance with a insurer authorized to operate in Canada.
- A pension society or corporation.
- An arrangement administered by the Government of Canada or province of Canada, or,
- A combination of the above methods.
The funding arrangement itself may be fully insured or non-insured. A fully insured approach is handled through a contract with an insurance company called a Group Annuity Contract, which, in return for specified premiums, guarantees to pay the plan benefits to the members. In fact, what occurs is that deferred annuities are purchased for all members on a year by year basis based on their in year pension accrual, for defined benefit plans, or the level of contributions, for defined contributions plans. This type of approach places the full liability for benefits on the insurance company, as their premium levels would be have to be sufficient to provide the promised benefits despite the for that future investment experience is unknown. Therefore the premium levels were determined on a very conservative basis, including the assessment of a risk charge to compensate the insurer for the perceived rise. In the 1970's, employers recognized that they were able to establish a pension plan on a non-insured basis, and let the plan bear the investment risk. Group Annuities became obsolete due to this approach by employers, and by changes to certain provinces' pension legislation in the 1980's which incorporated minimum interest credits to be applied to member contributions. Government of Canada annuities have not been available since the end of World War II. Most plans now operate on a non-insured basis, using either an insurance company contract of a trust (trusts can direct a portion of the plan assets to an insurance company contract.) Some plans that have been in existence for long periods have a portion of their benefits provided on an insured basis and the balance on a non-insured basis.
A non-insured arrangement is occasionally referred to as a deposit administration arrangement.
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