As the name suggests, the benefits of a DBPPs are defined in the plan agreement. The benefit is usually a formula based on the number of years an employee has worked or contributed, their average salary (or final year's salary), and a set percentage that may be tied to CPP. In a DBPP, the retirement benefit is defined, but the contributions are not.

A simple benefit formula for a DBPP might be as follows: 1.5% x NUMBER OF YEARS EMPLOYED x AVERAGE SALARY FOR FINAL FIVE YEARS.

Under this formula, an employee with 20 years of service and an average salary of $50,000 over the final five years of employment prior to retirement would have earned an annual retirement benefit of $15,000 or $1,250 per month.

Note to employers: Defined Benefit Pension Plans are generally for larger companies with many long-time and older employees. They have more complex administrative requirements and high associated costs. Further, if benefit forecasts are too liberal or investment performance is too low, the employer will be responsible to fund the possible deficit. In all cases, DBPPs should be considered carefully with a financial advisor.

Note: Mackenzie and MRS do not administer Defined Benefit Pension Plans.