How Much Does it Cost to Offer a GRSP to Employees?
Wanting to do the right thing and help your employees save for the future with a group registered retirement savings program (GRSP) is wonderful, but the plan you choose has to make sense for your business’ bottom line.
Wealthsimple Work provides employers with a modern financial wellness benefit for employees.
Shopping for a financial wellness program?
While it might not be as fun and exciting as shopping for a new bike or a puppy, it’s still an incredibly important purchase, and one your employees will greatly appreciate — if you find the right provider.
But making your employees happy isn’t the only factor here. Wanting to do the right thing and help your employees save for the future with a group registered retirement savings program (GRSP) is wonderful, but at the end of the day, the plan you choose has to make sense for your business’ bottom line.
This article will help you navigate the cost of offering a GRSP to your employees by outlining the various fees. It will also provide the information you need to estimate how much a GRSP will cost to implement.
But remember, cost isn’t everything. To make sure you’re getting the most out of your group retirement savings program, you also want to look for a plan that has a simple selection process, diverse and inclusive investment options, and amazing customer service.
Now let’s dig into the different GRSP costs and fees that you can expect to encounter on your journey to choosing the right group retirement program.
Top 5 considerations for employers: What are the costs associated with a GRSP?
There is no one-size-fits-all when it comes to GRSPs. When comparing GRSP providers, you’ll notice each one structures their fees in a slightly different way. Many employers will pay very little for their group plan because it’s the employees that absorb the majority of fees through their management payments.
However, some group plans help employers keep those management fees low for their employees (helping them keep more of every contribution) and instead separate the administrative or software fees out, charging these directly to the employer. As an employer you might choose to take on more of the fees to make your GRSP more attractive to current and future talent. Offering an amazing GRSP is something many employees look for when seeking a new job opportunity.
As you shop for a group retirement plan, here are the costs you’ll need to consider. Make sure you ask direct questions about how providers handle (or help you handle) each one.
1. Administration fees
Plan administration fees are annual or monthly fees charged to cover the cost of maintaining your group plan and recordkeeping for your account. The account administration fees are often covered in the management fees, typically paid for by your employees.
These fees are usually charged one of three different ways: asset-based, per employee or as a flat rate.
Asset based fee structure
The fund management fee (cost associated with having a GRSP professionally managed) is usually structured as an asset-based fee. It’s charged to the employee according to the amount of assets managed within their GRSP. For instance, an actively managed account will typically charge somewhere in the 1.5% to 2.5% range, whereas a passively managed account will be more in the 0.5% to 1% range.
As an example, let's say your employee has a GRSP account with $5,000 in assets and the asset-based management fee is 1.5%. To cover this fee, $75 will come out of the employee GRSP account. Typically the more money under management, the lower the asset-based fees will be.
Side note: One issue with providers rolling up other administrative fees into one, catch-all “management fee” is it can make it difficult to decipher exactly how much each employee pays in fees and what those fees are for. Many traditional providers also present their overall fund performance as a gross amount (meaning before they subtract fees), making it even harder to identify the plan fees, even if you specifically go looking for this information (e.g. to compare it with other plan providers).
Per employee fee structure
Administration fees may also include a per member or per employee fee structure. In this case, the employer is charged a dollar amount for each person who participates in the GRSP, instead of rolling this into the employee management fees. Let’s say the per member fee is $10 per employee, per month. If you have 100 employees, your annual fee will be ($10 x 100 x 12) = $12,000 per year.
Wealthsimple offers a per employee, per month flat-rate fee of $8 to $12. However, if you pay on an annual basis, you can lower the total cost per employee. This flat fee includes access to Wealthsimples easy-to-use admin platform, a dedicated rep who can help with admin set-up, ongoing support for your admins and employees, and even customized financial education webinars.
Flat rate fee structure
A flat-rate fee is yet another way that the administration fees can be structured. A flat rate fee is when the same dollar amount is charged monthly or annually for GRSP services, regardless of the number of plan members or total asset amount. This fee structure provides a simple way to keep track of how much your plan will cost. For example, your GRSP might charge a flat fee of $200 per year for employer software or administrative costs.
Some providers charge an extra flat rate fee once employees have exceeded a certain amount in their account. For instance, once employees have exceeded $15,000 in their GRSP they will be slapped with an extra $15 per month in admin fees. Many providers also charge a flat fee for things like tax receipts, which you may need at some point for compliance or audit reasons.
Tip for Wealthsimple clients: All tax receipts are available any time for free on the Wealthsimple app or desktop platform.
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2. Transaction-based fees
Many traditional GRSPs charge transaction-based fees, applicable to both employees and employers. Transactions can include everything from training and advice sessions to performing a transfer or making a change to the group plan.
As an example, a transaction such as an interfund transfer (within the same financial institution) will typically cost employees around $25, while transfers between institutions will be in the $50 to $100 range. On the employer side, some providers charge for payroll mistakes or corrections that need to be adjusted by their team, which can cost you either a flat rate or upwards of $125 per hour.
3. Transfer out fees
A transfer out fee is charged by most financial institutions when transferring an existing GRSP plan to a new financial institution. However, some receiving institutions will cover the transfer out fee if the amount being transferred meets their minimum threshold. Transfer out fees vary between financial institutions but are around $50 to $100.
Here at Wealthsimple, we don’t charge a transfer out fee when employers or individual clients want to move their money out of their accounts. In fact, when transferring money in from another financial institution, Wealthsimple will reimburse any transfer fees when those accounts meet the minimum threshold of $5,000 in assets.
4. Matching contributions
While matching is not a mandatory part of the GRSP, it is a pretty awesome gesture to provide to your employees — and it helps boost enrollment rates!
If you decide to provide a matching plan, this will likely be your most significant cost. Most employers match a percentage of contributions, often in the 3% to 5% range. It’s good to consider this additional cost going into any annual or semi-annual compensation review processes, so your HR or total rewards team can look at this cost holistically. Can your company afford to offer a 3% salary increase across the board? What about 5%?
With Wealthsimple, you can set up a matching plan based on full dollar-for-dollar matching amounts (e.g. you contribute $1 for every $1 contributed by the employee) or fractional amounts (e.g. group RRSP employer contribution is $0.50 for every $1 the employee contributes.) Or, you can also set up a flat contribution where you contribute a certain amount of money regardless of whether the employee contributes or not.
5. Tax considerations (CPP, EI, Health tax, etc.)
You also want to be aware of payroll fees. These can include Canada Pension Plan (CPP), Employment Insurance (EI), as well as the Employer Health Tax. If you set up a GRSP that includes employer matching, your match must be added to the employee's taxable income. How this is taxed will depend on how the GRSP plan is structured.
In a restricted plan, where funds cannot be transferred or withdrawn, you will have to add CPP, but there is no additional EI obligation. With an unrestricted plan, where employees can transfer and withdraw funds, you will have to add additional CPP, EI, and possibly health tax payments up to the applicable maximums.
If most of your employees are high earners (over $65,000) then you likely won’t encounter an increase to CPP and EI costs because your employees will have already hit the maximum contribution at some point during the year. In this case, adding matching contributions will just change when in the year your employees reach that maximum. You can visit the CRA for more information on Group RRSP tax implications.
Employee considerations: Why you should care what your employees are paying too
If your goal in setting up a GRSP is to do right by your employees and help them achieve their financial goals faster, then it’s also important to consider the fees they have to pay. The higher the fees, the more employees lose of every contribution, possibly making your GRSP offering seem less attractive.
One of the great things about a GRSP compared to an individual RRSP is that it tends to have lower management fees due to the pooling of all employee assets. For example, an actively managed mutual fund may have a 2.5% fee outside a group plan but a 1.5% fee inside.
Keep in mind that while a management fee of 1.5% or even 2.5% might seem like a small number, it can really cut into your employees’ bottom line. And, many providers will bury those fees in the returns, making a fund’s performance harder to gauge. For instance, let’s say your GRSP is producing a 5.5% rate of return, but the management fee is 1.5%. The actual rate of return for employees is only 4%.
When you're shopping for GRSP providers, be aware that some choose to highlight their gross performance rate without adjusting for fees (i.e. gross of fees vs. net of fees). Asking providers to show you their fund performances net of fees will help you better compare different plans and choose the one that’s best for your employees.
Wealthsimple charges a management fee of only 0.5% for employee portfolios under $100,000 and 0.4% for portfolios over 100,000. Wealthsimple can offer substantially lower management fees because of its passive approach to investing. More traditional, actively managed funds typically charge higher group RRSP management fees which eat into your employees’ overall returns yet rarely outperform a passive fund like the S&P/TSX Composite.
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GRSP cost: It’s important, but it’s not the only consideration
Financial wellness benefits, like the GRSP, offer amazing perks for you and your employees. For you, a GRSP is a great tool to attract and retain talent. For your employees, a GRSP can help them to achieve their savings goals faster, whether for retirement to buy their first home or to continue their education.
When choosing a GRSP, remember that cost is an important factor but it's not the only factor. If you really want to engage your employees, look for a plan that offers the types of investments that match their wants and values and provides them with the support they need to understand and grow their investments.
Katie oversees all things content for the Wealthsimple Work team, creating resources that helps employers big and small encourage financial wellness within their own teams.
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