A Deferred Profit Sharing Plan (DPSP) is a savings plan in which an employer distributes a portion of company profits to some or all of his or her employees. Employees cannot contribute to the plan, but they can combine it with other plans offered by the employer that are eligible for salary contributions. Employer contributions are not locked-in until retirement, which means that employees can withdraw all or a portion of the contributions after two years of participation or less, depending on the employer's specifications. Most of the time, employees make their own investment decisions for the amounts that are deposited on their behalf.
This is a very flexible plan for the employer, since it does not involve a permanent financial commitment and the employer does not have to contribute during a financial year in which the business suffers a loss. The advantage of a Deferred Profit Sharing Plan is that it provides incentive for employees to work towards the goals and the success of the company. It is directly linked to a company's profit, and money is put towards employee pensions.
In addition, deposits and fees are tax-deductible as operating costs and, like RRSPs, deposits and investment income are tax-sheltered.