DB or DC which pension do you have

The two major pension types

One plan promises a pension. The other promises a contribution.

Defined benefit (DB): a formula, not an account

A defined benefit plan sets out a formula, and the formula decides your pension. Alberta's pension law defines a DB provision in exactly those terms: a formula that determines the amount of pension paid to a member. The inputs are usually your years of service and your earnings. You do not own a pot of money; you own a promise of income for life.

Your statement shows a pension amount, such as "$2,150 a month from age 65", rather than an account balance. The employer, and sometimes the members too, pay into one pooled fund. In a single-employer plan, pension law generally requires the employer to pay whatever the funding tests say is needed to cover a shortfall.

Defined contribution (DC): the balance is what you get

A defined contribution plan fixes what goes in, not what comes out. You and your employer each contribute a set percentage of pay into an account in your name. You choose among the plan's investment options, and the balance grows or shrinks with those investments. At retirement, the account balance is your pension.

The federal Pension Benefits Standards Act, 1985 defines the two types against each other. A defined contribution plan is one built from defined contribution provisions, and a defined benefit plan is any pension plan that is not a defined contribution plan.

Who carries the investment and longevity risk

Two risks sit underneath every pension. Investment risk is the chance that markets deliver less than planned. Longevity risk is the chance that you live longer than your money lasts. The two plan types hand these risks to different people.

• In a DB plan, the plan carries both. If returns disappoint, the employer in a single-employer plan generally must contribute more to close the gap. Because the fund pools many members, it can pay each one for life, however long that turns out to be.
• In a DC plan, you carry both. A weak decade of returns, or high fees, shows up directly in your balance. At retirement you decide how fast to draw it down, or you buy an annuity to hand the longevity risk to an insurer.

That trade is the heart of the comparison. A DB pension is less flexible and rewards long service with one employer. A DC account is portable and easy to read, but the result depends on your contribution rate, your investment choices and your drawdown plan.

The four common DB formulas

If you learn that you are in a DB plan, the next question is which formula it uses. One line in your plan booklet sets the rhythm for your whole retirement income. Four families cover almost every plan.

• Best or final average earnings. A rate, often up to 2 per cent, times your years of service, times the average of your best (or final) three or five years of pay. Most public-sector plans work this way.
• Career average earnings. The same idea, but every year of pay counts, so early low-paid years pull the pension down.
• Flat benefit. A set dollar amount for each year of service, common in union and multi-employer plans.
• Integrated with CPP. A lower rate on earnings up to the CPP ceiling (the YMPE, $74,600 in 2026) and a higher rate above it, because CPP already covers the first slice.

The tax rules cap the formula. For each year of service, a registered plan can pay at most the lesser of 2 per cent of your highest three-year average pay and a dollar limit, $3,932.22 for 2026. Your plan text defines "pensionable earnings", the averaging period and any early-retirement reduction, so check it rather than assuming.

Want to see your own formula in motion? The DB pension calculator runs any of these four shapes with your numbers.

Hybrids, and plans that only look like pensions

Some plans blend the two types, and some savings plans at work are not pension plans at all. Here is the short version.

• Target benefit plans. There is a formula, but the benefit can be reduced below the target if the fund falls short. The formula is an aim, not a guarantee.
• Negotiated contribution plans. Multi-employer plans where the employers' contributions are fixed by agreement. The benefit is whatever those contributions can support.
• DB plans with a DC component. Also called combination plans: a DB formula for part of your pension plus a DC account for the rest, or a DC account for optional extra contributions.
• Group RRSPs and DPSPs. A group RRSP or a deferred profit sharing plan is a workplace savings plan, not a registered pension plan. Pension standards legislation generally does not govern it, so the locking-in and member rights of a pension plan may not apply.

How to tell which one you have

Your paperwork already knows. You just need to read the right lines.

Work through these clues with your latest statement, your T4 and your plan booklet on the table. Two or three matching clues usually settle it.

1. Your annual pension statement. Look at the headline number. DB: an accrued or projected pension, such as a monthly amount at 65.
   DC: an account balance, with returns and investment choices.
2. Your T4, box 52 (pension adjustment). A figure here means you are in a registered pension plan or a DPSP. As a rough clue, a DC plan's adjustment roughly equals the year's total contributions, while a DB plan's is nine times the pension earned, minus $600, which is often far larger than what you paid in. Blank box 52: likely a group RRSP only, or no workplace plan at all.
3. Your T4, box 20 (RPP contributions). An amount here is what you paid into a registered pension plan through payroll. It confirms an RPP but not its type, and a plan with no member contributions leaves box 20 empty. Box 50 carries the plan's registration number, which you can quote when you ask the administrator about it.
4. The formula line in your plan booklet. Look for a sentence shaped like a rate times service times earnings. DB: "2% of your best average earnings for each year of pensionable service."
   DC: "The company contributes 5% of your salary to your account."
5. The words the plan uses. Vocabulary gives the type away quickly. DB: pensionable service, best average earnings, accrued pension, early retirement reduction.
   DC: investment options, account, fund allocation, member and employer contributions.
6. The plan's name. "Pension Plan for Employees of…" points to a registered pension plan. "Group RRSP" or "Profit Sharing Plan" points to a savings plan that is not one.
7. Ask. If the clues disagree, write to HR or your plan administrator and ask: "Is my plan a defined benefit or defined contribution plan, and which pension law governs it?"

That last question matters more than it looks. Which statute governs your plan decides what information you are entitled to. Our companion piece, your right to pension information, walks through what you can ask for and how.

Sources

• Pension Benefits Standards Act, 1985 (Canada), s. 2(1) definitions of defined benefit, defined contribution and negotiated contribution plans; s. 9 on employer funding; s. 26 on transferring a pension benefit credit.
• Employment Pension Plans Act (Alberta), s. 1(1)(o) and (nnn) definitions of defined benefit and target benefit provisions.
• Income Tax Act (Canada), s. 146 (RRSPs), s. 147 (DPSPs), s. 147.1 (registered pension plans and the money purchase limit).
• Income Tax Regulations (Canada), s. 8301 (pension credits), s. 8500(1) (defined benefit limit), s. 8504 (maximum pension rules).
• Canada Revenue Agency, Guide T4084, Pension Adjustment Guide.
• Canada Revenue Agency, Guide T4040, RRSPs and Other Registered Plans for Retirement.
• Canada Revenue Agency, "MP, DB, RRSP, DPSP, ALDA, TFSA limits and the YMPE" (2026 figures).