Contributing to a DB pension plan

Typically, your employer calculates your defined benefitBenefit Money, goods, or services that you get from your workplace or from a government program such as the Canada Pension Plan.+ read full definition (DB) plan contributions each pay period and deducts them directly from your pay.

5 things to know about contributions

  1. Contributions are usually based on a percentage of your pay.
  2. You can deduct these contributions on your taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition return.
  3. Your employer may be allowed to raise or lower the employee contributionContribution Money that you put into a savings or investment plan.+ read full definition rate depending on the funding requirements and terms of the plan.
  4. These funding requirements are determined by actuaries who review the plan periodically, typically every 3 years.
  5. Your employer also contributes to the plan. Your employer must fund at least 50% of the pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition benefits you earn.
Entitlement to employer contributions

Some plans require you to be a plan member for a certain length of time before you are entitled to benefits related to your employer’s contributions. This is called “vesting” and the length of time varies by province. If you leave the plan before you are vested, you will always get your own contributions back, with interest. In Ontario, vesting is immediate, so you are always entitled to benefits related to your employer’s contributions.

2 key points

  1. Contributions are deducted directly from your pay
  2. Your contributions are tax-deductible to you
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