Deferred Profit Sharing Plan (DPSP)

What Is a Deferred Profit Sharing Plan (DPSP)?

A deferred profit sharing plan (DPSP) is an employer-sponsored Canadian profit sharing plan that is registered with the Canadian Revenue Agency, which is basically the Canadian version of the Internal Revenue Service (IRS) in the United States.

Understanding Deferred Profit Sharing Plans

DPSPs are a type of pension fund. On a periodic basis, the employer shares the profits made from the business with all employees or a designated group of employees through the DPSP. Employees who receive a share of the profits paid out by the employer do not have to pay federal taxes on the money received from the DPSP until it is withdrawn.

An employer that chooses to participate in a DPSP with some or all of its employees is referred to as the sponsor of the plan. Employees who are granted a share of the profits have these funds managed by a trustee of the plan. Employees who participate in a deferred profit sharing plan see their contributions grow tax-free, which can lead to bigger investment gains over time, due to the compounding effect. They can access the funds prior to retirement; funds may be withdrawn partly or in their entirety within the first two years of membership. Taxes are then paid upon withdrawal.

Deferred Profit Sharing Plans: Key Points

Deferred Profit Sharing Plans and Employers

For employers, a deferred profit sharing plan paired with a group retirement savings plan can be a cheaper alternative to a defined-contribution plan. Some of the positive attributes of DPSPs include: