DEFERRED PROFIT SHARING PLANS
A Deferred Profit Sharing Plan (DPSP) is a savings plan in which a "for profit corporation" distributes a portion of the company's pre-tax profits to some or all of the employees, except for specified shareholders who are individuals that own, directly or indirectly, more than 10% of company stock. Employees cannot contribute to a DPSP, but they can combine it with other plans offered by the employer such as a Group RRSP which permits employees contributions, therefore enabling both the employer and the plan members to take full advantage of the program.
DPSP advantages to the employer:
- They are very flexible plans that do not require a permanent financial commitment on the part of the employer
- They are very inexpensive plans to operate
- Contributions and administrative expenses come from pre-tax profits and are fully deductible
- They allow employers to establish vesting requirements and/or withdrawal restrictions
- If an employee leaves the company before the end of the vesting period, contributions are credited to the employer; however the employer has the option to shorten the vesting period
DPSP advantages to the plan member:
- Contributions made on a plan member's behalf are not taxed and investment returns are tax-sheltered while they remain in the DPSP
- Employees usually make their own investment decisions for the amounts deposited on their behalf
- Once the contributions are vested, members who terminate their employment may withdraw the money in their accounts (subject to tax withholding) or transfer the funds on a tax-free basis to an RRSP, a pension plan or another DPSP
- Money is not locked-in
- By naming a beneficiary, any death benefit is paid directly to the beneficiary with no need for probate
Contact the Blevins Team for more information.
