Deferred Profit-Sharing Plan (DPSP)

A DPSP is a retirement plan that allows an employer to distribute part of the company’s profits to some or all of its employees.

Thanks to this highly flexible plan, which is not permanent, an employer may choose to contribute to the DPSP only if the company generates a profit. A DPSP may also be used to pay out bonuses, overtime work and sick days.

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What’s a DPSP?

A DPSP is a deferred profit-sharing plan.

Who can contribute to a DPSP?

Only the employer can contribute to a DPSP. The DPSP is often combined with a group RRSP to motivate employees to contribute to an employer plan, and thereby assist with retirement planning efforts. 

The benefits of a DPSP for the employer

  • A DPSP is a very affordable plan, which can lead to substantial savings
  • Contributions come from pre-tax profits, and are deductible for the employer
  • Contributions made to a DPSP become fully vested after two years of membership. If a participant leaves the company before that period, contributions are returned to the employer.
  • The DPSP may stipulate that the amounts invested in the plan may not be withdrawn during the term of employment. The employer ensures that the amounts are made available when the employee leaves the company. 

The benefits of a DPSP for the employee

  • Contributions made in the name of the participant are not taxable, and are tax-sheltered in an individual account.
  • Accumulated amounts are not locked in. If the plan allows it, they may be withdrawn in part or in whole after two years of membership or less, depending on the vesting schedule provided under the plan. 
  • When a participant leaves the company, they may withdraw the contributions cumulated in their account (taxes will then be withheld), or transfer them tax-free into an RRSP, a pension plan or any other DPSP.