One of the drawbacks of the conventional IPP occurs when the assets of the plan achieve higher than expected returns. Once the IPP is deemed to be in “excess surplus”, the tax authorities automatically require the corporate sponsor to cease all contributions, which effectively eliminates the corresponding tax deductions. Further compounding this problem, when an IPP accrues an additional year of service it triggers a mandatory pension adjustment that reduces the employee’s personal RRSP contribution room.
The PPP fixes this problem by allowing the employee to shift from the Defined Benefit component of the plan, into the Defined Contribution/Additional Voluntary Contribution portion of the pension plan. Under those rules, the employee would still entitled to make a personal contribution (up to 17% of salary/bonus). Best of all, that personal contribution would be fully tax deductible in the hands of the employee.