Defined Contribution Plans

Puhl Employee Benefits offers consultation on Employee Benefits and Insurance in Calgary. We also provide Defined Contribution Plans. Over a million Canadians are covered by these plans. Here’s a look at what they are.

What is a Defined Contribution Plan?

A Defined Contribution Plan (DCPP) is referred to as a money purchase plan where a fixed contribution is made to the employee or a percentage of the employee’s salary is deposited into their account.

The contribution may be made by the employer or by the employee, or as a combination of the two, depending on how the plan is set up. All contributions are tax deductible and the assets can accumulate on a tax-deferred basis.

Defined Contribution Plans are a type of Registered Pension Plans where there is no pre-determined payout at the time of retirement.  How much you get at retirement will depend on the value of the assets that have accumulated in the plan. The employee takes on all of the investment risk, and not the company they work for.

What that means is that as an employee, you are entirely responsible for how you invest the funds that have accumulated in your plan. You can choose from a range of investment options made available to you. The funds cannot be withdrawn before your retirement or termination from the company.

The ultimate benefit that you’re going to get from a Defined Contribution Plan cannot be calculated as that will depend on the investment returns of the plan – this can be high or low, depending on the market situation at that time.

Ways to Invest the Defined Contribution Plan

There are many ways to invest the contributions made out to the defined contribution plan. But first, it would really help if you could learn the basics of asset allocation, portfolio design & construction and rebalancing.

#1: Target date funds – This is the default investment option in a majority of defined contribution plans, where you can pick an approximate date of retirement and the fund adjusts the asset allocation automatically based on an algorithm. Basically, as you get closer to your retirement, the fund allocates more to fixed income and less to equities.

 #2: Balanced funds – In this option, the funds are allocated to equities and fixed income based on a fixed percentage. This doesn’t change as your retirement gets closer. You can decide whether you want the allocation to be conservative, moderate risk or aggressive.

#3: Simple index portfolio – In this option, the money from the plan is invested in an index fund or a low cost ETF. Index funds are a type of mutual funds where the portfolio is constructed to match a market index. They are very popular options these days because of low investment costs.

Your Next Step

If you have any questions on Defined Contribution Plans, call us at Puhl Employee Benefits on this Toll Free number: 1(888) 508-0077 or fill up this contact form. Our representatives will get back to you as soon as possible. You could also walk into our office at 209, 2577 Bridlecrest Way SW, Calgary, Alberta.