Page 133 - A Canuck's Guide to Financial Literacy 2020

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Defined Benefit Plans

Registered Pensions Plans also known as Employer Pension Plans are set up on behalf of
employees or a union in order to provide periodic payments in retirement. These plans are
registered with the CRA and appropriate federal and provincial regulatory
authorities. These regulatory authorities define the minimum standard of benefit that must
be provided by an RPP to the plan members. There are two types of employer pension
plans:

• Defined Benefit Plan
• Defined Contribution Plans

Defined-benefit pension plans, also known as DB plans, are the preferred choice for unions
and employees as they promise a guaranteed monthly pension income in retirement. These
types of plans are slowly being phased out as the plan sponsor assumes all the risk in
making sure that this guaranteed monthly income in retirement is achieved.

Amount of Benefits

The benefit that plan members could receive in retirement is determined by a formula that
considers several factors such as length of employment and salary history. Companies and
plan sponsors have different type of formulas that they follow but below are three common
formulas.

Pension Rules and Regulations

Under current pension rules and regulations, Defined Benefit Plans may provide a pension
benefit of up to 2% of earnings per year of service up to the following maximum amounts.
(DB Limit)

Year MP limit DB limit

2020 $27,830 $3,092.22

2019 $27,230 $3,025.56

2018 $26,500 $2,944.44

2017 $26,230 $2,914.44

2016 $26,010 $2,890.00