Group RRSP vs. DPSP: what’s the difference, and which should you offer?

This is the comparison business owners ask me about most. Both are group retirement plans. They behave very differently once money goes in.

Side by side

The Group RRSP in plain terms

It’s the employee’s RRSP, opened through work. They choose how much of each paycheque goes in. Because the deduction happens at source, payroll can reduce their income tax withholding, so they feel the tax saving immediately. If you add a match to a Group RRSP, that money is treated as part of their pay: it shows up on their T4, it attracts CPP, and it attracts EI unless the plan locks withdrawals while they work for you. It belongs to them the day it lands.

The DPSP in plain terms

It’s a profit sharing plan only the employer pays into registered with the CRA. You contribute, you deduct it, and the employee pays no tax until they take it out. There’s no CPP and no EI on it, ever. You can attach a vesting period of up to 24 months from the date the employee joined the plan. The limits are a little tighter than an RRSP: each year’s contribution can’t exceed 18% of the employee’s pay or half of the money purchase limit, whichever is lower. And because it’s a profit sharing plan, your contributions have to be tied to the company’s current or accumulated profits.

Why using both usually wins

Put them together and each does one job. The employee’s own money goes into the Group RRSP, where they get the deduction and full ownership from day one. Your match goes into the DPSP, where it skips payroll taxes and comes with a retention clock. Same platform, one login, two clean buckets. I walk through the payroll tax difference with real numbers in CPP and EI on group plan contributions, and the retention clock in how DPSP vesting works.

The question every owner asks: does this double their RRSP room?

No. It nets out. DPSP contributions create a Pension Adjustment that lowers the employee’s RRSP room the following year by the same amount. If your DPSP puts $3,000 into an employee’s account in 2026, their RRSP deduction limit for 2027 is $3,000 lower. Their total tax sheltered room is unchanged. Your dollars simply sit in their own bucket, with the vesting clock running.

When a Group RRSP alone makes more sense

A DPSP isn’t always the right fit. Skip it, or wait, if any of these apply:

• The company doesn’t reliably show profits, current or retained. No profits means no DPSP contributions that year.
• You want one plan that everyone, including you as a 10%+ shareholder, belongs to on identical terms.
• You want employees to have full access to every dollar from the start, and you’re comfortable paying CPP and EI on the match.

Sources: Income Tax Act (Canada), sections 146, 147 and 147.1; Canada Revenue Agency guidance on DPSPs and Pension Adjustments. Limits are indexed annually. General information, not tax advice; confirm details for your plan with your accountant.

Common questions

What is the main difference between a Group RRSP and a DPSP?
Employees and employers can both contribute to a Group RRSP, and the money belongs to the employee immediately. Only the employer can contribute to a DPSP, the contributions are exempt from CPP and EI, and they can vest over up to 24 months of plan membership.

Can employees contribute to a DPSP?
No. Only the employer can contribute to a DPSP. Employees who want to save their own money do it through a Group RRSP or Group TFSA, which is why the two plans are often paired.

Does a DPSP reduce an employee’s RRSP room?
Yes. DPSP contributions create a Pension Adjustment that reduces the employee’s RRSP deduction limit the following year by the same amount, so total tax sheltered room stays the same.

Can a business owner be a member of a DPSP?
Not if they own 10% or more of any class of the company’s shares. Their family members are excluded too. Owners can join the Group RRSP instead.

Is a Group RRSP match subject to CPP and EI?
CPP always applies to an employer match in a Group RRSP. EI also applies unless the plan restricts employees from withdrawing the employer contributions while they are still employed.

Which is better for a small business, a Group RRSP or a DPSP?
For most small businesses with steady profits, using both together works best: employee contributions go into the Group RRSP and the employer match goes into the DPSP.