Retirement Compensation Arrangement
Under a Retirement Compensation Arrangement (RCA), an employer, former employer, or in some cases an employee, makes contributions to a custodian. The custodian holds the funds in trust with the intent of eventually distributing them to the employee (beneficiary) on, after, or in view of retirement, other severance from employment, or any substantial change in the services the employee provides.
The advantages of an RCA include:
- significantly higher contribution limits than registered plans
- immediate deduction to the employer and no taxation for the employee until paid out
- flexible investment options
- deduction at current high tax rates and deferral of the recognition of income by the
employee to future years, potentially at lower tax rates - high benefit security because funds are held by a custodian in trust
- flexible settlement options allowing member control over the timing of income recognition
- no effect on RRSP or RPP (Registered Pension Plan) contribution limits
Setting up an RCA requires a specialist in areas such as accounting, legal, employment, and tax law, and employee benefit plan construction. Many employers and their accounting professionals will need to bring in outside experts to help with the RCA setup, maintenance, and wind-up stages. It is worth the time and money to hire an employee benefit consultant to assist in the design, implementation, maintenance, and wind-up of an RCA solution. IRONSHIELD Financial Planning can assist you with the entire process.
