A DPSP, or Deferred Profit Sharing Plan, is a registered employer-sponsored retirement plan in Canada that allows a company to share its profits with employees. Unlike an RRSP, where you save your own money, a DPSP is funded entirely by your employer. The contributions go into a trust, grow tax-deferred, and become yours after a vesting period.
How a DPSP Works
Your employer decides how much of the company’s profits to contribute to the plan each year. That amount gets deposited into a trust managed on behalf of eligible employees. You don’t contribute anything from your own paycheck. The contribution your employer makes is typically tied to how profitable the business was that year, which means the amount can fluctuate. In a bad year, your employer could contribute less or nothing at all.
Once the money is in the plan, it grows tax-free until you withdraw it. You won’t pay any tax on employer contributions as they’re made. Instead, the full amount is taxed as income when you eventually take the money out, usually at retirement or when you leave the company. This tax deferral is the core benefit: contributions compound without being reduced by annual taxes along the way.
Contribution Limits
The Canada Revenue Agency sets an annual cap on how much your employer can contribute to your DPSP. For 2025, the limit is $16,905. For 2026, it rises to $17,695. The DPSP limit is always exactly half of the money purchase pension plan limit for the same year.
These contributions also create what’s called a pension adjustment, which directly reduces your RRSP contribution room for the following year. So if your employer puts $10,000 into your DPSP this year, you’ll have $10,000 less RRSP room next year. The system is designed to keep total tax-sheltered retirement savings roughly equal whether you have an employer plan or not.
Vesting: When the Money Becomes Yours
Employer contributions don’t become fully yours the moment they’re deposited. CRA rules allow a vesting period of up to two years of plan membership. Some employers set a shorter vesting schedule, but two years is the maximum. Once you’re vested, the money belongs to you regardless of whether you stay with the company.
If you leave your job before you’re vested, any unvested amounts are forfeited. That forfeited money either gets redistributed to other plan members or refunded to the employer by the end of the following year. This vesting requirement gives employers a retention tool: employees who stick around at least two years walk away with the full value of what’s been contributed on their behalf.
DPSP vs. RRSP
The biggest distinction is who puts money in. An RRSP is your personal plan. You choose how much to contribute (within your limit), you pick the investments, and you control when to withdraw. A DPSP is established and administered by your employer. You have no say in the contribution amount, and you can’t top it up yourself.
RRSPs offer a tax deduction for every dollar you contribute, lowering your taxable income that year. With a DPSP, there’s no deduction on your end because you’re not the one contributing. Your employer, however, can deduct the contributions as a business expense. Both plans defer tax on investment growth until withdrawal.
Many employers pair a DPSP with a group RRSP as part of a combined benefits package. The employer’s contributions go into the DPSP while the employee’s contributions go into the group RRSP. This structure can be simpler for companies to administer than a traditional pension plan while still offering meaningful retirement benefits.
What Happens When You Leave or Retire
When you leave your employer or retire, your vested DPSP balance needs to be dealt with. You generally have a few options: transfer the funds to your personal RRSP (which preserves the tax deferral), transfer to another registered plan, use the funds to purchase an annuity, or take the money as a cash lump sum. If you take cash, the full amount is added to your taxable income for that year, which could push you into a higher tax bracket.
Rolling the balance into your RRSP is the most common choice for people who aren’t yet retired. It keeps the money sheltered and growing, and you avoid an immediate tax hit. If you’re close to retirement, an annuity or gradual withdrawals through a registered retirement income fund may make more sense depending on your income needs.
Who Can Participate
Employers decide which employees are eligible for their DPSP. A plan can cover all employees or a designated group, such as full-time staff or those in certain roles. One important restriction: people who are not at arm’s length from the employer, such as business owners and their close family members, face significant limitations on participation. The rules are designed to prevent business owners from using a DPSP primarily to shelter their own income.
For employees who do qualify, a DPSP is essentially free retirement money. You don’t need to do anything other than meet the eligibility criteria and stay long enough to vest. If your employer offers one, it’s worth understanding the vesting timeline and how the contributions affect your RRSP room so you can plan the rest of your retirement savings accordingly.