A group RRSP benefits employers by giving them a low-cost, tax-deductible perk to attract and keep staff, and it benefits employees by turning regular payroll into automatic, tax-deferred retirement savings — often topped up by an employer match of 3% to 6% of salary. Now, the backstory. The year was 1957. Elvis entertained a crowd of screaming teenagers in Ottawa. The Montreal Canadiens won their ninth Stanley Cup. And, as part of the Canadian Income Tax Act, the federal government introduced the registered retirement savings plan (RRSP) as a tax-sheltered way for Canadians to save for the future.
One of the ways the RRSP has become accessible to a wider swath of people is the group registered retirement savings plan (RRSP), a collection of individual RRSP accounts that a company sponsors for its employees. The plan is usually administered by a third-party insurance company, bank, mutual fund company, self-directed trustee, and online financial services provider or brokerage. Employees choose their individual contributions and have them deducted straight from their pay cheque into a range of pre-selected investments, often with the employer matching RRSP contributions.
Group RRSPs have become a valuable perk that employers use to attract, retain, and compensate their employees. And employees benefit by getting a leg up on saving for retirement (or other milestones like buying a house or going back to school) in a convenient and financially rewarding way.
Let's break down how group RRSPs work and what employers and employees stand to gain from them.
What is a group RRSP?
A group registered retirement savings plan (group RRSP, sometimes written GRSP) is a collection of individual RRSP accounts that an employer sets up for its employees. It works like a personal RRSP, but you join it through your workplace and contribute automatically from your pay.
Each employee owns their own account and chooses how much to contribute and how the money is invested from a menu of options. Employers often add to the plan too, either by matching a portion of what employees put in or by covering the plan's administration so members pay lower fees.
How does group RRSP employer matching work?
Some group RRSP plans involve employer RRSP matching contributions, usually between 3% to 6% of an employee's salary. (In non-matching plans, an employer sets up a convenient, lower-fee way for employees to save with their own contributions.) Employer deposits are considered part of an employee's salary, so they will be taxed. But once the money is in the group RRSP, it's tax-sheltered in the same way RRSP contributions are.
If an employee earns $120,000 and contributes $12,000 (10%) a year, the employer's match depends on the plan's rate. For example:
Employer match rate | Match on a $120,000 salary |
|---|---|
| 3% | $3,600 |
| 5% | $6,000 |
| 6% | $7,200 |
Some companies use RRSP employer matching contributions as a retention or incentive program, increasing the percentage of matched contributions depending on factors like an employee's length of service, performance, or position in the company. For example, an employer could match 0.5% per year up to 5 years and then add 1% for every year beyond that.
Group RRSPs: what's in it for employers?
Employers get four things from a group RRSP: an edge in attracting and retaining talent, more productive staff, a stronger employer brand, and a potential tax deduction. What does a company get for employer RRSP matching contributions? A lot, actually.
In a competitive job market, employers are increasingly challenged to offer even more meaningful and valuable perks to appeal to high-quality employees. And the group RRSP has long been part of a strong compensation package.
Here are some of the possible benefits of offering a group RRSP.
1. Attract and retain talent
Many Canadians worry they're falling behind on retirement, and that anxiety spikes whenever the economy wobbles. An employer that helps workers save for the future — especially with a match — is an attractive option for talent that has its pick of jobs.
An employer that offers a way to help these workers save for the future as part of its compensation package, particularly if they offer a matching program, will be an attractive option for talent that has their pick of jobs in the current market.
2. Increase employee productivity
Few things are more worrying in life than concerns about whether or not you'll have enough money to live in retirement..
Employers can help reduce this distracting unease by offering a group RRSP program so employees can feel confident that funds are being set aside for their future every time they get paid.
With a diminished fear of the future comes the opportunity for employees to focus on the present, including looking for ways to advance themselves in their careers. Employers that offer increased matching contributions for years of service and/or performance could further incentivize increased productivity and long-term relationships with staff.
3. Better brand perception
What company doesn't want to have a reputation for being fair and even generous to its employees? When workers feel that they're compensated fairly, they are valuable ambassadors for the organization.
Lists like Canada's Top 100 Employers rate compensation, including group RRSPs, as part of its criteria. Companies that make the list may even see benefits from positive publicity and branding that could help boost sales and attract customers and employees alike.
4. Tax deduction
Did you know that there's a financial benefit to offering a group RRSP? Many businesses can claim a deduction, which can lower your tax burden.
When employers contribute to a group RRSP (especially as a lump-sum bonus at the end of the fiscal year), you're using profits to invest into your employees. The profit you choose to invest into your employee group RRSPs would otherwise be taxed.
Group RRSPs: what's in it for employees?
Employees also have a lot to gain from participating in a group RRSP. Allocating a percentage of income to investing vehicles designed for long-term growth is a wise way to prepare for the future.
Benefits for them include:
1. Free money from employers who match contributions
Socking away a percentage of your income into a group RRSP can be a meaningful bonus in a compensation package, and that goes directly into investments built for growth.
2. A hassle-free way to save
Retirement planning can be stressful, and putting away money for the future is hard when you've got other priorities in the present. A group RRSP allows employees to set their savings on autopilot by assigning a portion of their income before it even hits their bank account. Saving in smaller amounts, as a line item on a pay stub, is a lot easier to stomach than transferring larger sums at the end of every year. It also helps employees reduce income tax on every pay cheque vs. waiting for a tax time reimbursement.
3. Access to investing at lower fees
Group RRSPs take advantage of economies of scale by offering lower management fees than what you may find through individual RRSPs. Fees in a group plan vary widely by fund type — actively managed funds may run higher, while index or ETF options can be fairly minimal. Portfolios that are heavily concentrated in mutual funds will carry the most fees; those with ETFs will be lower.
4. Access to a digital platform, expert advisors, and financial education
Depending on the group RRSP provider you choose, employees can benefit from a number of helpful services. For example, many providers offer a digital platform that allows employees to manage their account online — from choosing their portfolio to setting their contribution amounts to checking on how their group RRSP is performing.