The glossary: How to speak the language of group retirement plans

While navigating the world of group retirement is simpler than it seems, some of the terminology can be downright confusing. That confusion leads to frustration, which triggers avoidance — so employers and employees alike put off taking the necessary steps to achieving financial wellness.

Fortunately, you don’t need the Rosetta Stone to crack this code. You just need a trusted partner like Wealthsimple to walk you through it. In no time, you’ll be speaking the language of group retirement — and no more will time, energy, and savings be lost in translation.

Benefits Broker

A professional that specializes in employee benefits. This person would work with an employer to help them build out a benefits package. They know what benefits are available in today’s market and the vendors that provide them, and help to break down pricing. 

DBPP

Defined Benefits Pension Plan. A type of pension plan that involves your employer promising a specific pension amount. This is a specific amount of money an employee receives for retirement, and the amount in a DBPP can vary between employees. The amount is typically determined by a formula that takes into account earning history, how long they have been with the company, and age.

DCPP

Defined Contribution Pension Plan. A retirement savings plan that offers benefits to employees based on their contribution levels before retirement. The amount of money you put into a DCPP is defined, but the final amount you receive at retirement age is not. 

If you want to read more about DCPPs, you can click here. 

DPSP

Deferred Profit Sharing Plan. An employee-sponsored retirement plan needs to be registered with the Canadian Revenue Agency (CRA). An employer would use a DPSP to share company profits with employees — either the entire employee base or just a select group of employees. Employers are the only ones allowed to contribute to DPSPs. Contributions are paid into a trust fund established by a trustee (a bank, insurance company, or other financial service provider).

The max contribution limit for employers is 18%, and years where the company does not make a profit do not require any contributions to be made. Since a DPSP is an employee-only plan, company stakeholders, relatives or spouses of owners, or anyone with more than a 10% stake in the company cannot participate.

If you want to read more about DPSPs, you can click here. 

Employee contribution

The amount the employee chooses to contribute to a savings or retirement plan through a Group Retirement Savings Plan (GRSP). ​ 

An example: Imagine an employer offers a GRSP for their employees. The employee contributes $50 to the account each pay period. That $50 is the employee contribution.

Employer contribution

The amount the employer has to contribute or chooses to contribute to a savings or retirement plan for their employees. ​ 

Let’s look at that same example: Imagine an employer offers a GRSP for their employees. The employer contributes $50 to the account each pay period. That $50 is the employer contribution.

Fiduciary

A person or organization, who, acting in the best interests of another person or organization, is charged with managing assets on behalf of that individual or organizational client. A fiduciary is ethically, and likely legally, bound to make recommendations that are in the best interests of those to whom they have a fiduciary obligation. 

A fiduciary duty arises when a person or an organization places their trust in another to exercise its expertise and fulfill a certain obligation or mandate. In the example of Wealthsimple, our Portfolio Managers are licensed fiduciaries, meaning that our clients’ interest always precedes that of Wealthsimple. 

GRSP

Often also referred to as a Group RRSP (Registered Retirement Savings Plan). It’s nearly identical to an individual RRSP, but members receive benefits through being in a group plan. 

Employees are able to contribute to their GRSP with pre-tax dollars through payroll deductions — it comes right out of their pay cheque and goes directly into the account. Contributions are then invested into a basket of investments by the plan administrator. The administrator is typically an insurance company, bank, or financial services provider like Wealthsimple. ​ 

If you want to read more about GRSPs, you can click here.

Matching plan

A type of GRSP in which ​ employers match the contributions put in by employees. A typical matching plan means employers do not contribute unless employees do — but that means their contributions are like free money for employees! Employers typically only match up to a certain percentage of the employee’s salary.

Let’s continue with the previous example: Imagine an employer offers a matching plan as part of their GRSP. If an employee contributes $50 to their GRSP per pay period, the employer will also contribute $50. The employee’s account is now at $100 and they only contributed $50! 

MER fee

Management expense ratio fee. It’s the cost of investing in an investment vehicle, whether it’s a mutual fund or an exchange-traded fund (ETF).

If you want to learn more about MER fees and Wealthsimple, you can click here.

Provider

The secondary organization that provides the GRSP. This is typically an insurance company, bank, or other financial service provider.

PRPP

Pooled Registered Pension Plan. A group retirement option that is offered outside the traditional workplace. The Pooled Registered Pension Plan (PRPP) is a retirement plan available for individuals, including individuals who are self-employed. 

With a PRPP, contributions are put into a larger, pooled pension plan. Members of a PRPP get the benefits of a group retirement plan this way — including ​ lower administrative costs. A PRPP is also flexible and moves with members from job to job. 

RPP

Registered Pension Plan. An employer-established group retirement plan that is registered with the Canadian Revenue Agency (CRA). Employers are responsible for establishing the RPP with a financial institution and choosing how the money is invested. Employers are also required to contribute. 

There are two types of RPPs:

Read more about RPPs. 

Sponsor

The organization that promotes or brings in a retirement savings program to a workplace. In most cases, the sponsor is the employer or organization.