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 Individual
Pension Plan FAQ's
What is an IPP?
An IPP is a registered pension plan which provides the maximum defined
benefits permitted by Revenue Canada. As a retirement savings alternative
to an RRSP, the IPP permits employees, including connected persons
(10% + share ownership) to accumulate a larger retirement fund.
This is due to the fact that annual tax-sheltered contributions
are greater than those permitted by an RRSP.
The IPP
An IPP is a registered defined benefit pension plan sponsored by
the employer with membership limited to an individual and spouse.
Special rules govern contributions and investments and each IPP
must be registered with Revenue Canada and the appropriate provincial
authority.
Advantages of IPP Contributions
Maximum annual tax deductible employer contributions to the IPP/RRSP
combination are substantially, 25% to 70%, higher than maximum RRSP
contributions alone.
Creditor-proofing
The IPP is regulated by both Revenue Canada and Provincial Law so
as to be creditor-proof. Recent RRSP court decisions have cast doubt
regarding the creditor-proof status of RRSPs.
Surplus
In an employer sponsored group pension plan, any surplus remaining
after the termination of the member by death, retirement, etc. stays
in the general pension pool. On termination of an IPP, however,
all plan assets, including surplus, are returned to the plan member,
spouse or estate.
Expenses
All contributions made and expenses incurred to establish and maintain
the IPP are tax deductible to the employer. The expenses may also
be paid from the IPP fund.
Top-ups
The IPP guarantees a certain level of pension benefits at retirement.
Because of this, the IPP, unlike the RRSP, permits additional contributions
if the plan assets earn less than 7.5%. In addition, should the
plan member retire before age 65, an additional contribution to
the IPP is available, this can amount up to 50% of the then accumulated
IPP assets.
Past Service before 1991
Pre-1991 benefits for connected employees may only be provided where
corresponding benefits were provided to non-connected employees
through an employee pension plan, contributions to a Union plan
or purchase of pre-91 pension benefits for non-connected employees.
When permitted, pre-91 benefits may create significant extra contributions
in the range of $10,000 for each year of pre-1991 service.
Past Service after 1990
Past Service may be established for years after 1990 without a corresponding
plan for non-connected employees. This feature can provide additional
tax sheltered contributions.
RRSP Transfer
When post-90 past service benefits are provided, the value of these
benefits, called a Past Service Pension Adjustment (PSPA), is imposed
upon the member's RRSP by Canada Customs and Revenue Agency (CCRA).
The PSPA is then eliminated by transferring RRSP assets to the IPP.
Investments
Allowable investments for an IPP are similar to those permitted
for RRSPs. The IPP "fundholder" may be a Life Insurance
Company or a Trust administered by three individual Trustees. As
with RRSPs, the plan member, through the Trustees or Life Insurance
Company, may make the investment decisions or delegate them to a
professional fund manager.
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 IPP
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