Registered Retirement Savings Plan (RRSP) matching is when an employer adds to an employee's group RRSP by matching what the employee contributes, usually 3% to 5% of their salary. For the employer, it's a cost-effective way to attract and keep good people, strengthen their retirement savings, and earn tax deductions in the process.
Canadians have a lot on their minds.
When will I be able to retire? Will I have enough money to live comfortably? Am I saving enough right now?
As an employer, you can help untangle some of the real retirement concerns of your employees and boost their financial future by setting up a group registered retirement savings plan (GRRSP). These programs make it easier and more cost-effective for individuals to sock away funds for later while realizing present-day tax benefits.
You can take that benefit one step further by offering matching on employee contributions. These initiatives, typically administered by an insurance company, bank, or financial services provider, are increasingly becoming a valuable part of competitive compensation packages that attract and retain high-quality talent.
Curious about the impact of offering matching (or not)? This article is for you. We'll break down how GRRSP matching works, what makes it worthwhile for employers, and what to consider when creating a program tailored to your company's needs.
What is RRSP matching?
Like we mentioned above, RRSP matching is an arrangement in which an employer contributes to an employee's group RRSP, usually matching the employee's own contribution up to a set percentage of salary. It's a way to boost retirement savings on top of regular pay.
How does RRSP matching work?
Some employers also choose to layer on a matching program that parallels contributions made by employees. These employer RRSP matching contributions are usually between 3% and 5% of an employee's pre-tax salary. This percentage will vary depending on the employer size, industry, and other compensation factors, but over time, small matching programs can add up for employees.
If an employer offers a matching program, an employee can contribute beyond the matching rate with non-matched contributions, as long as they stay within their annual RRSP contribution limit. Both employers and employees should keep in mind that all contributions count toward this contribution limit.
How much is RRSP matching worth?
The value of a match depends on the match rate and salary, but a modest percentage adds up. Say an employee earns $60,000 a year and the employer matches 100% of contributions up to 4% of salary:
Item | Amount |
|---|---|
| Salary | $60,000 |
| Employee contributes (4%) | $2,400 |
| Employer matches (100%) | $2,400 |
| Total into the account (year one) | $4,800 |
A few points worth keeping in mind:
A higher match rate means more employer money, so contributing at least up to the match is usually worthwhile.
Both employee contributions and the employer match count toward the annual RRSP contribution limit.
Contributions left in the account grow tax-deferred until retirement, so smaller amounts compound over time.
What's in it for the employer?
Matching pays off for employers in six main ways — attracting talent, retaining staff, competing with pension-heavy rivals, encouraging saving, boosting productivity, and earning tax deductions. Beyond bolstering the financial health of the people they value, an RRSP matching program can build a strong workforce for the future by:
Attracting new talent: being able to offer competitive compensation packages that provide more than trendy benefits and flexible work options are key for bringing in good talent. If you can add 3% to 5% of their salary dedicated to setting them up for their retirement, that could give you the edge over other companies.
Retaining current employees: Give employees one more reason to stay loyal to you by providing the prospect of a more secure financial future — not to mention a tax-free salary bump and lower investing fees than are available through individual RRSPs.
Competing against public sector or multinational employers: businesses that can't afford to offer expansive (and expensive) pension programs and stock options can implement an employer RRSP matching program that provides many of the same benefits. If a competitive savings program is a deciding factor between two jobs, you could sway employees your way.
Incentivizing your employees to save: with employer matching RRSP contributions, you're giving employees a reason to invest in their own personal future. We all benefit when more Canadians are prepared for retirement.
Improving productivity and efficiency: when employees feel more financially secure, they are free to focus on their work, particularly when they feel the peace of mind that comes from their employer subsidizing their retirement savings.
Optimizing company financials by earning tax deductions: employers have the power to define contributions and get tax deductions via those contributions.
5 considerations when forming your RRSP matching program
There are plenty of ways to customize your matching program to align with things like your company values and overall compensation budget. When it comes to making employer contributions to an employee's GRRSP, it's up to you to define the terms. Here’s five things to consider:
1. Restricted or unrestricted?
There are two types of GRRSP options: restricted and unrestricted plans. Either way, the contributions you make to an employee's GRRSP are considered a taxable benefit to the employee.
In a restricted plan, the employee cannot transfer or withdraw their funds (except to use under the Home Buyers' Plan or Lifelong Learning Plan) before they retire or are no longer employed with the company. In an unrestricted plan, employees can transfer or withdraw their funds, usually under certain limitations such as once a year or after filling out a request form.
A common recommendation is to offer an unrestricted GRRSP, because it offers greater flexibility for employees by making their funds available to them in case of emergency or if they want to transfer contributions to a trading or other RRSP account.
2. Vesting schedule or no vesting schedule?
Some companies set up a vesting schedule for their employees. Vesting isn't permitted on GRRSP contributions themselves, so this comes up when a GRRSP is combined with adeferred profit sharing plan (DPSP): employee contributions go to the GRRSP, while matching employer contributions go to the DPSP, which can carry a vesting schedule.
If an employee leaves before the end of their vesting period, any unvested DPSP funds are returned to the employer.
Setting up a plan without a vesting schedule is generally the option that allows for the most benefit to employees.
3. Plan tiers or no plan tiers?
When you set up your GRRSP, you can offer different levels to employees based on things like:
Years of service: progressively higher contributions, e.g. match 0.5% per year up to 5 years and then add 1% for every year after.
Employee class: higher contributions for managers, executives, or certain roles that are more senior or competitive.
Location: higher contributions for areas with more competitive hiring and retention rates.
GRRSP tiers are generally worth approaching with caution, for a couple of reasons. For one, they add a layer of administrative complexity. They may feel unfair to employees, and most employers want their staff to feel equally valued no matter where they live or how their role contributes.
4. Enrolment right away or after a probationary period?
Employers have the option to provide new employees access to the GRRSP program upon being hired, after a brief probationary period (e.g. 3 months), or after a year or more of being with the company.
Similarly, an employer may allow new employees access to the GRRSP program but choose to delay the RRSP matching program until the employee has reached a predetermined employment milestone.
Although any of these options are perfectly acceptable, it's standard practice to offer your full GRRSP program, including RRSP matching, at the outset of employment. That way, the employee gets their full compensation right away.
5. Should the match depend on employee contributions?
Some employers choose to implement matching RRSP contributions only if the employee is also contributing the same amount to the GRRSP via deductions from every pay cheque. Others will make percentage-based contributions regardless of whether the employee contributes to the GRRSP.
Much like all the other decisions related to an RRSP matching program, employers are in the driver's seat. It's important to set up a plan that makes sense for your company's size, industry, workforce, compensation budget, and overall values.
There's a lot to consider, so before partnering with a GRRSP provider, it's helpful to be prepared with questions and a basic framework for how you'd like your company's GRRSP to look.
An RRSP matching program can be a strong employee attraction and retention tool and a cost-effective way for employers of all sizes to help prepare their workforce for retirement. Helping your employees prepare for a successful financial future can go a long way to easing their minds in the present.