A Group RRSP is a great way for businesses to offer their employees a retirement savings plan. It’s quick and easy to set up, and when you match employee contributions, it can be an effective means of improving employee well-being while helping you attract and retain key talent. In this blog post, we’ll discuss the benefits of setting up a Group RRSP for your business, and we’ll provide some tips on how to get started.
What Is a Group RRSP?
A group RRSP (Registered Retirement Savings Plan) is a company-sponsored retirement savings plan for all eligible employees. The chief difference between an individual RRSP and group RRSP is that the latter is administered on behalf of each member of the group by the sponsoring employer.
A group RRSP administrator will manage all contributions by deducting a fixed amount from the employee’s payroll pre-tax. The employer matches the employee contributions to the plan up to a maximum of 3-5% of their earnings. As an employer, however, you may not choose to contribute. Any contribution made by the employer becomes taxable as employee income.
How Does a Group RRSP Work?
You can think of a group RRSP as owning a common investment. As their employer, you can match the small contributions that your employee makes to the plan. The greatest benefit of a group RRSP is that it is easily set up while strengthening the ability of your employees to save by directly deducting the amount from the payroll.
All of the contributions that you or your employee make are tax-deductible and the investment earnings are tax-sheltered.
What Are the Benefits of a Group RRSP?
There are multiple ways a group RRSP will benefit you and your employee both in the short and long term.
1. Employers Can Ensure Employee Wellbeing and Retention
A study by Glassdoor indicated that a great percentage of employees prefer a retirement benefit to a salary increase. For many employees, working in an organization that offers a group RRSP is like hitting the jackpot. Not only will your employees work with increased mental peace but this will also ensure low turnover rates for your firm.
2. A Cost-Effective Alternative for Managing Funds
Investing in a group RRSP or group retirement plans will cut you a better deal because you’re essentially buying in bulk. Because a cohort of organization members are choosing from the same investment funds, employers can negotiate for comparatively more relaxed management fees. In the end, both employers and group members end up paying less for the plan in comparison to individual RRSP.
3. It Helps Your Employees Save without Sweat
It is a good idea to encourage your employees to sign up for an automatic payroll deduction. For employees who are given the option by their employers, it is a chance to increase their savings manifold. At the same time you, as their employer, ensure that they are making regular investments and basically securing their future for them.
This is especially handy for people who lack the discipline to set aside money for savings regularly. There is a marked proclivity amongst people to postpone saving for retirement until much later. Numerous employees have admitted that if it weren’t for the automatic deductions, they wouldn’t have been able to make any significant investment in their future. In fact, studies have backed significantly higher rates of savings for members of group savings plans.
As an employer, not only do you ensure your employee’s well-being, but increase their sense of loyalty to you and your organization.
4. Group RRSPs Help Employees Save Taxes
Contributing to a group RRSP is an effective way to reduce taxes for both employers as well as employees. In fact, contributions made via payroll deductions are pre-tax; i.e. the amount is invested before any tax deduction is made. This way you’re able to save a little on taxes.
Let us take an example. Suppose an employee is in a 35% tax bracket. The tax break effect will bring down your $20 contribution cost to a $10 net at the time of investment. Taxes levied on your investment earnings in a group RRSP are deferred until the time you withdraw them which is usually after you retire. Interestingly, that is the time when you’re typically in a lower tax bracket.
How to Get Started with a Group RRSP?
Before getting started, you must take a few things into account.
The first thing you’d want to consider is whether to offer a mandatory or an optional registered retirement income fund plan. As your organization’s head, you’re the best judge of which kind of plan will benefit you the most.
When do you want your employees to enroll in the plan? Are you offering the plan to full-time or part-time employees?
Are you planning on making contributions yourself to incentivize retirement savings and retention amongst your members? If so, then your contributions can happen in various forms, such as contributions based on your employee classes, seniority, etc.
Employee Investment Options
Employees only need a small contribution to get going. They can make a one-time contribution or choose from any of the following alternatives
- Money transfer from other financial institutions
- Register for automatic/regular payroll deductions
When opting for a group RRSP, the employee reserves the right to choose the portion of the income they would like to invest. The options are similar to an individual RRSP, however, unlike the individual RRSP, members of a group RRSP are devoid of the ability to purchase individual securities. When it comes to investing contributions, employees can choose between:
- GICs and GIAs (Guaranteed Interest Annuities)
- Investment Funds
The current legislation allows up to 18% contribution from the employee’s income earned in the previous year that you can deduct directly from their payroll. This percentage is fixed for employees who are not members of the DPSP (Deferred Profit Sharing Plan) or a registered pension plan. However, the amount generated as a result of the 18% contribution cannot surpass the contribution limit set for the RRSP.
If the employee happens to be part of the DPSP or a pension plan, his total maximum contribution percentage will be reduced by a pension adjustment.
Choosing an Advisor
Setting up a Group RRS is fast and easy when working with a competent and experienced financial advisor. It is your advisor’s responsibility to prepare fee estimates by taking the record of your employees’ contributions and transferred assets into account as well as solicit proposals and bids for your plan. Your advisor must lend you sound business advice along with all necessary details of the applicable withholding taxes.
Complete all the forms required by your advisor. Next, you must negotiate a contract with a service and fee agreement. Once the agreement is drawn, work with a payroll service provider to set up the payroll deductions and communicate the plan to your employees. Your advisor will also prepare a member enrolment package that includes a beneficiary designation form, a description of the terms of your plan, a description of the investment fund choices, and an investment instruction form.
In our experience, many financial advisor’s see a Group RRSP as a set it and forget it account, only offering very general advice or deferring to a robo advisor set up by the investment company. When you sign up with Advantage Pacific Benefit Consultants, we automatically enroll you in our active management program where we offer you and all your plan members one on one meetings with our investment advisors where we will assess your plan members risk tolerance and investing preferences to help us make an appropriate fund recommendation.
We will also send every member a personalized email every 6 months with a copy of their semi-annual statement, an outline of their plans performance, and new fund recommendations if there are any. Big or Small, every person contributing to a Group RRSP deserves platinum level service.
Want to Set Up a Group RRSP for Your Business?
To easily set up a group RRSP contact us at [email protected] or by calling at 778-349-8774. We are available 6 days a week, during and outside of normal business hours to take your call and review Group RRSP options with you.