Individual Pension Plan
Encyclopedia
An Individual Pension Plan or IPP is a Canadian retirement savings vehicle. An IPP is a one-person maximum Defined Benefit Pension
Plan (DB Plan) which allows the plan member to accrue retirement income on a tax-deferred basis. As such, an IPP must conform to the Canadian Income Tax Act (ITA) and regulations (ITR) as well as the requirements of the Canada Revenue Agency
(CRA) with respect to defined benefit pension plans.
a) The plan sponsor is an incorporated
, active company;
b) The plan member is an employee of the corporation who earns T4
or T4PS employment income from the corporation;
c) The pension plan document indicates a formula defining the amount of benefit to be earned by the plan member;
d) Plan Investments must follow strict guidelines;
e) Plan sponsor contributions to an IPP, as certified by an actuary
, are deductible from corporate income; and
f) Benefits paid out of the IPP are taxed upon receipt.
The IPP member is a Connected Person or a Highly-paid Employee (who is a non-Connected Person). The ITR defines these members as Specified Individuals.
The plan sponsor is the corporation employing the member and paying the member's T4 income. IPP contributions are essentially a portion of the member’s T4 income transferred via the corporation to the IPP funding vehicle.
DB Plan contributions must be calculated by an Actuary based on the Pension benefit formula, the member’s age and T4 earnings history, and a set of actuarial assumptions.
Because the IPP only provides benefits to Specified Individuals, the IPP is termed a Designated Plan. While a Designated Plan, the IPP is subject to maximum funding restrictions.
Maximum funding restrictions require the actuary to use ITR-mandated actuarial assumptions.
When the IPP is no longer a Designated Plan, the actuary may use his discretion to determine appropriate actuarial assumptions.
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
Plan (DB Plan) which allows the plan member to accrue retirement income on a tax-deferred basis. As such, an IPP must conform to the Canadian Income Tax Act (ITA) and regulations (ITR) as well as the requirements of the Canada Revenue Agency
Canada Revenue Agency
The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...
(CRA) with respect to defined benefit pension plans.
IPP rules and regulations
Some of these rules and regulations are:a) The plan sponsor is an incorporated
Incorporation (business)
Incorporation is the forming of a new corporation . The corporation may be a business, a non-profit organisation, sports club, or a government of a new city or town...
, active company;
b) The plan member is an employee of the corporation who earns T4
Income taxes in Canada
Income taxes in Canada constitute the majority of the annual revenues of the Government of Canada, and of the governments of the Provinces of Canada...
or T4PS employment income from the corporation;
c) The pension plan document indicates a formula defining the amount of benefit to be earned by the plan member;
d) Plan Investments must follow strict guidelines;
e) Plan sponsor contributions to an IPP, as certified by an actuary
Actuary
An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries provide expert assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms ....
, are deductible from corporate income; and
f) Benefits paid out of the IPP are taxed upon receipt.
The IPP member is a Connected Person or a Highly-paid Employee (who is a non-Connected Person). The ITR defines these members as Specified Individuals.
The plan sponsor is the corporation employing the member and paying the member's T4 income. IPP contributions are essentially a portion of the member’s T4 income transferred via the corporation to the IPP funding vehicle.
DB Plan contributions must be calculated by an Actuary based on the Pension benefit formula, the member’s age and T4 earnings history, and a set of actuarial assumptions.
Because the IPP only provides benefits to Specified Individuals, the IPP is termed a Designated Plan. While a Designated Plan, the IPP is subject to maximum funding restrictions.
Maximum funding restrictions require the actuary to use ITR-mandated actuarial assumptions.
When the IPP is no longer a Designated Plan, the actuary may use his discretion to determine appropriate actuarial assumptions.
See also
- PensionPensionIn general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
- Pension systemPension system-Pension systems in various countries:*ANSES *Superannuation in Australia*Social Security *Canada Pension Plan*Chile pension system*Indian pension system*KiwiSaver *Social security *UK Pension Provision...
s around the world - Registered Retirement Savings PlanRegistered Retirement Savings PlanA Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act...
(RRSP) - Retirement Compensation ArrangementsRetirement Compensation ArrangementsRetirement Compensation Arrangements are defined under subsection 248 of the Canadian Income Tax Act, which allows 100 per cent tax-deductible corporate dollars to be deposited into an RCA, on behalf of the private business owner and/or key employee. No tax is paid by the owner/employee until...
(RCA) - Registered Retirement Income FundRegistered Retirement Income FundA Registered Retirement Income Fund or RRIF is a tax-deferred retirement plan under Canadian tax law. Individuals use an RRIF to generate income from the savings accumulated under their Registered Retirement Savings Plan...
(RRIF) - Retirement plan
- Superannuation in AustraliaSuperannuation in AustraliaSuperannuation is a retirement program in Australia. It has a compulsory element whereby employers are required by law to pay an additional amount based on a proportion of an employee's salaries and wages into a complying superannuation fund.An individual's superannuation fund can be accessed...
- 401(k)401(k)A 401 is a type of retirement savings account in the United States, which takes its name from subsection of the Internal Revenue Code . A contributor can begin to withdraw funds after reaching the age of 59 1/2 years...
- United StatesUnited StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
Further reading
- 'Supersize that RRSP with an IPP' Jonathan Chevreau, Financial Post, Published: Monday, August 20, 2007
- ‘Pension plan way to ease RRSP losses’ Jonathan Chevreau, Financial Post, Published: Thursday, December 11, 2008
- 'Actuaries disagree over IPP strategy for recouping 2008 RRSP losses’ Jonathan Chevreau, Financial Post Blog, Published: Thursday, December 18, 2008