FAQ - Individual Pension Plans Online Canada

» Glossary of Terms

A. IPP Basic Concepts

B. IPP / RRSP Relationships

C. IPP / RRSP Comparisons

C1. What are the advantages and disadvantages of the IPP compared to an RRSP?
C2. What are the differences between IPP current service costs and maximum RRSP contributions for a 60-year-old plan member commencing an IPP on January 1, 2009?
C3. How much can the IPP plan member who is a connected person tax-shelter in 2009?

D. IPP Funding & Investments

E. IPP Eligibility Process

F. IPP Services Package & Fees

G. IPP Terminal Funding

H. IPP Payouts

Frequently Asked Questions

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A. IPP Basic Concepts

A1. What is an Individual Pension Plan (IPP)?

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 Income Tax Act (ITA) and its regulations (ITR) as well as the requirements of the Canada Revenue Agency (CRA) with respect to defined benefit pension plans. Some of these rules and regulations are:

The plan sponsor is an incorporated, active company
The plan member is an employee of the corporation who earns T4 (or T4A or T4PS) income from the corporation
The pension plan document indicates a formula defining the amount of benefit to be earned by the plan member
Plan Investments must follow strict guidelines
Plan sponsor contributions, as certified by an actuary, are deductible from corporate income
Benefits paid out of the IPP are taxed upon receipt

A2. Who is the IPP member?

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.

A3. Who is the IPP plan sponsor?

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 plan funding vehicle.

IMPORTANT:
An IPP may have more than 1 plan sponsor, provided each plan sponsor pays (or has paid) T4 income to the member. Our actuarial reports will pro-rate the member's actuarial liability during a calendar year based upon T4 income from that plan sponsor divided by T4 income from all plan sponsors. Note that our fees increase when the IPP has more than 1 plan sponsor.

A4. Can a "predecessor employer" sponsor an IPP?

Yes, but only if it meets the following definition in ITR 8500:
"predecessor employer" means, in relation to a particular employer, an employer (in this definition referred to as the "vendor") who has sold, assigned or otherwise disposed of all or part of the vendor's business or undertaking or all or part of the assets of the vendor's business or undertaking to the particular employer or to another employer who, at any time after the sale, assignment or other disposition, becomes a predecessor employer in relation to the particular employer, where one or more employees of the vendor have, in conjunction with the sale, assignment or disposition, become employees of the employer acquiring the business, undertaking or assets.

A5. How are eligible IPP contributions calculated?

DB Plan contributions must be calculated by an Actuary based on the 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.

When the IPP is no longer a Designated Plans, the actuary may use his discretion to determine appropriate actuarial assumptions.