In addition to an increase in RRSP limits, the federal government is increasing the contribution limits for defined benefit and defined contribution pension plans.

The maximum benefit per year of service that can be paid out by DB plans has been increased to $1,833 in 2004 and $2,000 in 2005, from the previously frozen level of $1,722. After that, the yearly benefit will be indexed to average wage growth.

Not all DB plans increase payouts in lockstep with Tax Act changes, such as those announced Tuesday. Administrators of such plans have the liberty of looking at Tuesday’s announcement and deciding whether they wish to increase their payouts accordingly.

DB plans that do link pay-outs to Tax Act changes will have increased liability for the increased payouts, says David Vincent, head of the pension law group at Toronto-based law firm Torys.

Moreover, plans that are facing a deficit position because of the decline in the stock market will have more difficulty meeting their obligations.

Some companies have set up supplemental retirement plans for their higher-paid executives. These plans pay out benefits over and above RPPs. Many supplemental executive retirement plans are not funded, and are paid out of the company’s cash flow. Tuesday’s announcement allows companies to shift some of the retirement burden back to RPPs, which are funded and secure. Advisors with clients possessing SERPs should encourage those clients to check with their corporate pension people on the specific impact of Tuesday’s announcement.

Annual DC contribution limits have also been increased, to $15,500 in 2003 and $16,500 in 2004 from $14,500 and $15,500. The limit will be $18,000 In 2005. After that, the limits will be indexed.