Page 140 - A Canuck's Guide to Financial Literacy 2020

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Employer/Employee Contributions of Defined Contribution Plan

Employer Contributions - Vesting

Keep in mind that the employer's contributions are a tax-deductible expense and are not
a taxable benefit to the employee. The employer contributions are kept separate from the
employee contribution for investment purposes. When an employer contributes to the plan,
their contributions have to "vest" meaning that they're not available until after a period of
time, usually two years in most provinces.

However, keep in mind that, in most jurisdictions, defined benefit and defined contribution
plans may be automatically vested which will entitle the plan member to receive both the
contributions of the employer and their own.

Employee Contributions

Employee contributions are tax-deductible during the year they are made. Employees
are also responsible for making their own investment decisions regarding their contributions
into the plan. Their investment decisions are based on their own risk appetite and
investment objectives. The employer would usually provide investment options for the
employees to choose from.

Leaving the Defined Contribution Plan

Leaving the Plan Before Retirement
Before an employee can reap in the benefits of the employer's contribution to the plan, they
must make sure that the benefits have been "vested". Once vested, the contributions are
locked and can only be used for retirement purposes.

Leaving Before Vesting Period
If a plan member leaves or quits the plan before the vesting period has ended, they would
be refunded all their contributions plus interest.

Leaving After Vesting Period
If a plan member leaves or quits after the vesting period, they have three options

o Take the deferred pension at their "normal" retirement age (65)
o Transfer the pension amount to their new employer's pension plan if
applicable
o Transfer the amount to a locked-in account such as a Locked In Retirement
Account (LIRA) or Locked In Registered Retirement Savings Plan (LRSP)