Defined Contribution Pension Plan (DCPP)

What Is a Defined Contribution Pension Plan?

A Defined Contribution Pension Plan (DCPP) is a type of workplace retirement plan where you and your employer contribute a set amount to your individual retirement account. Unlike a Defined Benefit plan, your retirement income is not guaranteed—it depends on how much is contributed and how well the investments perform over time.

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How Does It Work?

• Contributions: Both you and your employer contribute a percentage of your salary to the plan. These contributions are tax-deferred.
  
  
• Investments: You typically choose how to invest the funds from a list of options (e.g. mutual funds, bond funds, target-date funds).
  
  
• Growth: Your account grows over time based on the investment performance.
  
  

At retirement, the total amount in your DCPP account is what you’ll use to generate income—usually through an annuity, a Life Income Fund (LIF), or other withdrawal options.

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Key Features of a DCPP

• You Own the Account: The money is held in your name and follows you if you change jobs.
  
  
• Investment Risk is Yours: Your future retirement income depends on how the market performs.
  
  
• Tax Advantages: Contributions reduce your taxable income and grow tax-deferred until withdrawal.
  
  
• Locked-In Funds: The money is typically “locked in” and must be used for retirement income.
  
  

What Happens If You Leave Your Job?

When you leave your employer, the money in your DCPP account is still yours. You have a few options:

• Leave it in the plan (if permitted)
  
  
• Transfer it to a Locked-In Retirement Account (LIRA)
  
  
• Transfer it to another employer’s pension plan
  
  

Funds remain tax-sheltered until you begin withdrawing them in retirement.

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Is a DCPP Right for You?

DCPPs offer flexibility and ownership over your retirement savings, but they also come with investment risk. They’re common in the private sector and becoming more popular as an alternative to traditional defined benefit pensions.

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Key Takeaways

• DCPPs involve shared contributions from you and your employer
  
  
• Retirement income is based on how much you save and invest
  
  
• You choose how your money is invested
  
  
• The account is yours, even if you change jobs

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