Share business success
Employer contributions can reward employees for their part in the organization’s performance.
Deferred Profit Sharing Plan (DPSP)
Turn business performance into lasting employee value.
A Deferred Profit Sharing Plan lets an employer contribute to a registered workplace plan for eligible employees under contribution rules set out in the plan. It can reward performance, support retention and work alongside a Group RRSP as part of a coordinated retirement strategy.
Employer funded · Flexible contributions · Flexible vestingEmployer funded · Flexible contributions
DPSP at a glance
A flexible way to turn profits into employee retirement savings.
Employer contributions onlyEmployees cannot contribute directly to a DPSP. The participating employer funds the plan.
Tax-deferred growthAllocated contributions and investment earnings remain tax deferred until paid from the plan.
Employer-funded contributions
Plan-selected investments
Defined eligible employee group
Vesting and forfeiture rules
Employer fundedContributions are provided by the employer rather than employees.
Contribution flexibilityFunding can vary from year to year, subject to the plan’s contribution terms.
Vesting optionsEmployer contributions can vest immediately or within the permitted two-year period.
Pension adjustmentAllocated amounts affect each employee's future RRSP deduction room.
What Is a DPSP?
A registered plan for sharing profits with employees.
A Deferred Profit Sharing Plan is an employer-sponsored plan registered with the Canada Revenue Agency. The employer makes contributions under the plan’s terms, which specify how amounts are determined and allocated to eligible employees.
Employees do not contribute to the DPSP. Employer contributions and investment earnings generally accumulate without immediate tax to the employee, while allocated contributions create a pension adjustment that affects the employee's RRSP deduction room for the following year.
Eligibility rules need particular attention.Related persons and specified shareholders—or people related to them—are generally excluded under DPSP rules. Employer circumstances and employee eligibility should be confirmed before implementation.
Why Employers Choose a DPSP
More room to adapt from one year to the next.
A DPSP can connect employer retirement funding with business performance while giving employees a tangible stake in shared success.
Flexible annual funding
Contributions may vary from year to year according to the plan’s terms and the employer’s circumstances.
Support retention
A vesting period of up to two years can strengthen the connection between the benefit and continued employment.
Tax-deferred accumulation
Employees do not include allocated contributions or investment growth in income until amounts are paid from the plan.
Centralized administration
A group provider can support recordkeeping, investment access, statements and employee service.
DPSP + Group RRSP
A coordinated arrangement can place employee contributions in the Group RRSP and employer contributions in the DPSP. This separates the two funding sources while giving employees one connected workplace retirement program.
Plan Design
Good design starts with a clear framework.
A DPSP works best when employees understand who is eligible, how contributions are determined and when employer-funded amounts become vested.
01
Define the contribution formula
Document how contributions are determined, any conditions that apply and how much discretion the employer retains.
02
Choose the allocation method
Establish how the employer's contribution will be allocated among eligible employees.
03
Set the vesting approach
Choose immediate vesting or a period that does not exceed the permitted two-year maximum.
04
Plan for forfeitures and departures
Specify how non-vested amounts are handled and what options apply when a vested employee leaves.
DPSP vs. Group RRSP Contributions
Similar purpose. Different rules and treatment.
Both can form part of an employer's retirement strategy, but they differ in contribution rules, vesting, employee taxation and eligibility. A coordinated Group RRSP and DPSP can use the strengths of each.
Questions worth asking
- Should employer funding vary with profits?
- Would a vesting period support retention?
- Are all intended participants eligible for a DPSP?
- How should contributions be allocated?
- Should employees also contribute through payroll?
- How will pension adjustments be communicated?
DPSP Contributions
Employer-only contributions made under the registered DPSP terms.
- Employer contributions are made from profits under the registered plan’s terms; the amount may be discretionary.
- Employees cannot contribute directly
- Vesting can be immediate or delayed up to two years
- Allocated amounts create a pension adjustment
- Related-person and specified-shareholder restrictions apply
Employer Group RRSP Contributions
Employer contributions deposited into each participating employee's RRSP.
- Follows the Group RRSP’s contribution policy
- Can be combined with employee payroll contributions
- Amounts belong to the employee when contributed
- Employer contributions are generally a taxable benefit
- Contributions use the employee's available RRSP room
Contribution & Tax Considerations
The details matter from funding through reporting.
Contribution formulas, pension adjustments, vesting and payment options need to be administered in accordance with the plan terms and Income Tax Act requirements.
Employer contributions
Annual allocations are subject to the DPSP contribution limit: the lesser of 18% of the employee's compensation and one-half of the year's money purchase limit. Qualifying employer contributions may be deductible within the applicable rules.
Plan contribution termsAnnual contribution limitEligible compensationEmployer deductionPlan terms
Employee tax treatment
Allocated contributions create a pension adjustment and reduce RRSP deduction room for the following year. Vested amounts are taxable when paid unless transferred directly to an eligible registered plan.
Pension adjustmentTax-deferred growthVested balanceDirect transferTaxable payment
Plan-specific advice is important.DPSP eligibility, contribution deductibility, related-person rules, forfeitures and tax reporting can be fact-specific. Employers should confirm the intended structure with the provider and appropriate tax or legal advisors.
Frequently Asked Questions
DPSPs, explained.
The registered plan document and provider rules determine how the particular arrangement operates.
What is a DPSP?
A Deferred Profit Sharing Plan is an employer-sponsored plan registered with the CRA. The employer makes contributions for eligible employees under the registered plan’s terms. Allocated amounts and investment earnings remain tax deferred until paid.
Can employees contribute to a DPSP?
No. Employee contributions are not permitted. Employers often pair a DPSP with a Group RRSP when they also want employees to make payroll contributions.
Does the employer have to contribute every year?
Not necessarily. The plan terms determine how contributions are made and may allow employer discretion. CRA guidance states that a contribution is not required for a year in which the employer does not make a profit.
How long can DPSP contributions take to vest?
Employer contributions must vest after no more than two years of DPSP membership, although the plan can provide for earlier or immediate vesting.
What happens to non-vested amounts when an employee leaves?
Non-vested amounts are forfeited. Under the plan terms and DPSP rules, forfeitures must be reallocated to other beneficiaries or refunded to the employer within the required timeframe.
Can business owners participate?
Not everyone is eligible. DPSP rules generally exclude people related to the employer, specified shareholders and people related to specified shareholders. The organization's ownership and participant list should be reviewed before setup.
What happens when a vested employee leaves?
Vested amounts must be dealt with within the required period after employment ends. Depending on the plan and the employee's election, the amount may be paid or transferred directly to an eligible registered plan, such as an RRSP.
Can employees withdraw DPSP money while still employed?
A DPSP can permit withdrawals of vested amounts while the employee remains employed, but it does not have to. The employer's plan terms and provider contract determine whether in-service withdrawals are available.
Could a DPSP strengthen your retirement and reward strategy?
We can help you design a new DPSP, coordinate it with a Group RRSP or review an existing plan's contribution formula, vesting, investments, fees and provider service.