What is an IPP?
An IPP is a registered defined benefit pension plan sponsored and funded by an employer. It is designed for the professional looking to maximize contribtuions towards their retirement.
Many business owners and executives consistently maximize their RRSP contributions. However, they may find that their personal RRSP limit will not be sufficient to fund their desired lifestyle through retirement.
How will the company benefit?
Many incorporated businesses that are looking to add a benefit for their owners and top executives may want to consider an IPP.
As the plan sponsor, the company would benefit from annual contributions, setup fees, and maintenance fees – all of which are fully tax-deductible to the corporation and non-taxable to the employee until the money is withdrawn at retirement.
This would allow the company to reduce their annual retained earnings while growing the employee’s retirement savings – at a significantly higher rate than with an RRSP.
Advantages of an IPP
Higher deductible contribution limits than RRSPs
Maximum funding available
Contribution limits increase with age
Contributions and expenses are tax-deductible to the corporation
Greater certainty over retirement income if the plan is properly funded
Optional past-service contribution
Opportunity to make lump-sum contribution at time of actual retirement or business exit
Ability to top-up plan for under-performance
Assets are creditor-protected
Disadvantages of an IPP
No access to funds while employed and a member of the plan
Plan assets must be used to provide pension, so benefits are locked in
Higher administration expenses and more legislation
Excess surplus may reduce future contributions
Who is an ideal candidate?
Key executive of a private or public company
Professional with a professional corporation
T4 earnings greater than $120,000 annually
$100,000 or greater in RRSPs
How does an IPP work?
Contributions are made up of three components:
Qualifying Transfer from RRSP
Actuarial valuations are done on a triennial basis to calculate annual contributions going
The Value of Probate Bypass
Example: A $100,000 investment can attract over $5,000 in probate and legal fees when you die. How can you easily avoid this expense?
How is an IPP set up?
The first step in establishing an IPP is to authorize the actuaries to create the documentation for
the new plan and complete an initial valuation report.
• In order to do this, they will request copies of actual T4 tax slips, RRSP statements and your
last Notice of Assessment showing unused RRSP contribution room.
• Once the plan is registered with CRA, an investment account will be opened and the current
service and past service amounts will be deposited. The member’s RRSP will be transferred to the
new IPP account.
• Going forward, annual contributions can be made up to 120 days after your corporate year-end
Actuarial valuations are performed every three years. These valuations reveal any plan deficiency or surplus so that adjustments can be made to future corporate contributions.