A pension plan: talk it over with the employer

If the employer doesn't offer a pension plan, you can take the first steps. The Régie des rentes du Québec has prepared for you a short list of advantages that could get the employer interested in giving pension plans a closer look.

Useful comments to break the ice

• Did you know that 67% of workers would prefer the establishment of a pension plan over a pay increase? That figure is from a SOM survey carried out in December 2003 for Question Retraite and the Régie that questioned non-retired respondents between 25 and 64 of which half were not members of a pension plan.
• Did you know that there is a proven way to more easily recruit manpower? That way is to set up a pension plan. An employer that offers a pension plan is an employer that everyone talks about.

A key question to ask the employer:
Did you know that there is more than one type of pension plan?

• The simplified pension plan (SIPP)
• Defined contribution and defined benefit pension plans

The SIPP is tailor-made for small businesses. And now it is even more flexible and easier to set up and administer.

Tell him that with an SIPP...

• He will have a minimum of administrative duties. The financial institution administers the plan and provides the required information to the members and the supervisory authorities (the Régie des rentes du Québec and the Canada Revenue Agency).
• The employer contribution is not subject to payroll taxes, which is a considerable advantage for small businesses. On the other hand, an employer who contributes to an employee's RRSP must increase the employee's reported salary by the amount of the contribution. That "pay increase" can result in an increase in the employer's payroll taxes for various government programs.

Talk to him about savings in payroll taxes

These savings vary according to the government program involved. Their calculation can be made by a representative or consultant authorized to offer group pensions.

Example - In 2005, an employer with a total payroll is 2 100 000 $ makes an annual contribution of 1 000 $ per employee having a base salary of 35 000 $. With an SIPP, the employer can save 131,60 $ in payroll taxes for each employee. Those savings would not be possible with a group RRSP.

Show him this table

Talk to him about taxation

The taxation rules for an SIPP are more advantageous than those for a deferred profit sharing plan (DPSP). If the bulk of the employers small business is composed of family members, they can all participate in an SIPP but not in a DPSP.

Furthermore, the 18 000 $ annual contribution ceiling for an SIPP, in 2005, is clearly more advantageous than the 9 000 $ ceiling for a DPSP.

Be sure to talk to him about a power sharing agreement

By means of a power sharing agreement with the union, the employer can share with you or another of the company's unions the powers related to a pension plan.

Regardless of what the plan text provides, some powers can be exercised by you or jointly by you and the employer, particularly with respect membership conditions and the withdrawal of members, the withdrawal of the employer, the member contribution and the employer contribution.

Defined contribution plans and defined benefit plans

Make sure the employer knows about the following advantages and details

• The employer can sit on the pension committee (the plan's administrator) or can be designated by the committee to carry out certain functions.
• Defined contribution and defined benefit plans are contracts registered with the Régie des rentes du Québec, under which the employer agrees to make periodic payments to a pension fund in order to provide employees with a retirement income. Such plans may also require employees to make regular member contributions (as provided in the plan text).
• The employer decides (in some cases jointly with the union) the main characteristics of the plan. Once that has been done, the plan text must be registered with the Régie des rentes du Québec and the Canada Revenue Agency.
• The employer has the power (in some cases jointly with the union) to make amendments to the plan or to terminate it.
• The employer's contributions to the pension fund are tax deductible.

Some more arguments

For a defined contribution plan

• The amount of the contributions paid into the pension fund is set in advance.
• The amount of a member's retirement income depends, among other factors, on:
  • contributions made to the plan
  • income generated from the investment of contributions
  • interest rates in effect
• The risks related to fluctuations in the pension funds rate of return are borne by the members and beneficiaries.
• The employer's participation is limited to the employer contributions required under the plan provisions.

For a defined benefit plan

• The cost of benefits and the contributions to be made to the pension fund are determined by an actuary
• The amount of a member's retirement pension generally corresponds to a percentage of his or her salary, multiplied by the number of years of credited service under the plan.
• The employer is responsible for funding the plan.

Tell him how easy it is to set up a pension plan

The employer can get help from his financial or legal counselor, an actuary or any other person with the competence to set up a pension plan. That could include you!

For more information, contact the Régie des rentes du Québec 

And finally...ask the employer to find out for himself

Invite the employer to visit the section Employer on the Régie des rentes du Québec's Web site. He will be able to appreciate for himself all the advantages that he could have by setting up a pension plan in his company.

Other useful links...