# Optional Pension Plan at work, please advise a newbie?



## behappytoday (Sep 16, 2011)

I am thinking of joining the company OPP, and could use some advice.

This is additional option to save money for retirement, besides the core pension plan at work.

I can chose how much do I contribute, starting from .5% of earnings up to 8%, to a max of $8k a year. Company subtracts my contribution before calculating my income tax. This is great for me as I have no other tax inceintives and gross over 85k, single no kids. 

Now I think what amount do I contribute in order to balance a maximal employer's contribution, and achieve the maximum tax savings. For every 1 dollar that I contribute on my earnings (up to a max of 3.5% of earnings) above the year's maximum pensionable income, the employer will contribute 75 cents. I will not receive a company contribution on the portion of my own contribution that is above 3.5%. Also the total of my contribution cannot exceed the maximum tax deductible employee / employer contribution allowed under Revenue Canada tax rules, in conjunction to the value of my core pension plan.

How do I calculate this please? Thank you very much in advance!


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## Four Pillars (Apr 5, 2009)

Doesn't your company have some resources to help you figure this out?

What is the core pension plan? Is that a defined benefit pension plan? If so, those contributions (yours + employers) will reduce the amount you can contribute to the optional pension plans, which sounds like a group rrsp or defined contribution plan.

Offhand, I'd say try to contribute 3.5% in order to get the 75% employer match - that is a great deal. This is assuming you have enough RRSP room to do this.

Call your plan administrator and ask for some help. You need to figure out how much you can contribute first.


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## LBCfan (Jan 13, 2011)

Someone must manage the money you contribute. What fees do they charge? It's likely that contributing enough for the maximum company match is a good idea but fees matter. If they are really high even the amount required for max company match may be a bad deal. If they are really low it's possible that the maximum is a good deal.

As 4-pillars said, the company should be able to provide all these numbers. Ask.


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## the-royal-mail (Dec 11, 2009)

If you leave, do you get to take both their and your contributions with you? Or do they only pay out what you contributed?


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## behappytoday (Sep 16, 2011)

The description says: 'if you leave the company before retirement, under the optional pension plan, you receive your contributions and the company's contributions, including investment earnings, provided you have been a member for two years. If less than 2 yrs, you receive your contributions only + investment income'.

The core pension is earnings and lenght of service based, 1% of our final five year average earnings times the credited service. The entire cost of the core plan is paid by the company. This pension may be received on the 1st of the month following the 65th birthday.

The administration fees for the optional plan are paid by the employer. 

Actually, I think that for tax minimization I'd better maximize my RRSP at work. We are allowed to contribute up to eight percent of our annual pay. The employer's contribution however stays the same with 75% of our 3.5%. But nevertheless, I think that it is good for my taxes overall.


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## behappytoday (Sep 16, 2011)

Four Pillars said:


> What is the core pension plan? Is that a defined benefit pension plan? If so, those contributions (yours + employers) will reduce the amount you can contribute to the optional pension plans, which sounds like a group rrsp or defined contribution plan.
> 
> Offhand, I'd say try to contribute 3.5% in order to get the 75% employer match - that is a great deal. This is assuming you have enough RRSP room to do this.


I feel like going for the most free money, without making my own contributions to allowable maximum, and will set up another RRSP besides work, if it is allowed. There is still enough room for my contributions. And I believe that with this extra RRSP, I can request CRA to reduce my tax deductions at source, that is, at work.

They said that we have a defined benefit pension plan. I found a great reading about it here:
http://www.theglobeandmail.com/glob...r-retirement-start-here/article1776091/page7/

Thanks for your guidance everyone!


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## Daniel A. (Mar 20, 2011)

Yes CRA will reduce based on regular contributions to an RRSP.
Chances are you will have room left over on top of the DB plan.


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