RRSP Matching Program: Top 5 Things Employers Should Consider
Thinking about these five considerations can make planning a RRSP Matching Program a little bit simpler.
Wealthsimple Work provides employers with a modern financial wellness benefit for employees.
Canadians have a lot on their minds. The lingering pandemic, continued economic instability, climate change, financial planning for the future—there’s a lot to keep the average person up at night. “When will I be able to retire?”, “Will I have enough money to live comfortably?”, “Am I saving enough for retirement right now?”, “Can I afford to save more?”.
This collective unease is showing up in national surveys. The Healthcare of Ontario Pension Plan (HOOPP) and Abacus Data report that 63% of Canadians say they did not set aside anything for retirement in the past year. And many (48%) report that they worry more about not having enough money to retire than they do about their physical and mental health, debt load, and job security.
The Canadian Institute of Actuaries have similar findings, including insight that more than half of Canadians do not have a financial plan for retirement.
As an employer, you can help untangle the real retirement concerns of your employees and boost their financial future by setting up a group retirement savings plan (GRSP). These programs make it easier and more cost-effective for individuals to sock away funds for later while realizing present-day tax benefits.
And you can take that benefit one step further by offering an RRSP matching program. These types of initiatives, typically administered by an insurance company, bank or modern online provider like Wealthsimple, are increasingly becoming a valuable part of competitive compensation packages that attract and retain high-quality talent.
Not sure if you’re prepared to roll out a GRSP matching program for your employees? This article is for you. We’ll break down how a GRSP with RRSP matching works, what makes it worthwhile for employers, and what to consider when creating a program tailored for your company’s needs.
What is employer RRSP matching?
First, it’s important to understand how a basic GRSP works: it enables employees to direct a portion of every pay cheque into a registered account, usually with pre-selected investments. These group RRSP accounts offer the same features and parameters as individual RRSP accounts, which means employees can:
Enjoy immediate income tax deductions, since contributions are pre-tax and come directly off each pay cheque
Defer the growth of their RRSP investment until they reach retirement age (when their tax bracket will be lower)
Contribute up to the same RRSP limits (18% of the previous year’s income, up to $27,830).
Once the money is in the GRSP, it’s tax-sheltered in the same way RRSP contributions are.
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, even small matching programs can really add up for employees.
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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.
RRSP matching: What’s in it for the employer?
There are lots of advantages for employers to match their employees’ RRSP contributions. 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: In light of labour shortages and the increasing numbers of employees looking for better jobs, it’s critical to offer competitive compensation packages that provide more than trendy benefits and flexible work options. 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: It’s an employee’s market right now and many professionals are looking at greener pastures. Give them 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 GRSP, it’s up to you to define the terms. The top five considerations include:
1. Restricted or unrestricted?
There are two types of GRSP options: restricted and unrestricted plans. Either way, the contributions you make to an employee’s GRSP are considered a taxable benefit to the employee.
However, in a restricted plan, the employee cannot transfer or withdraw their funds (except to use under the Home Buyer’s 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.
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Wealthsimple recommends offering an unrestricted GRSP 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. We mostly see this when the GRSP is combined with a deferred profit sharing plan (DPSP) under which employee contributions go to the GRSP while matching employer contributions go to the DPSP. (Vesting isn’t permitted with GRSPs.)
If an employee leaves before the predetermined date in the vesting schedule, unvested funds go back to the employer. So, if an employee leaves before they meet the end of their vesting period, their DPSP money is returned to the company.
Wealthsimple recommends offering a GRSP plan without a vesting schedule to allow for the most benefit to employees.
3. Plan tiers or no plan tiers?
When you set up your GRSP, you can offer different levels to employees based on things like:
Years of service: Progressively higher contributions, e.g. match 0.05% 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
Wealthsimple advises against GRSP tiers for a couple of reasons. One is that they add a layer of administrative complexity and, perhaps more importantly. The other is they may feel unfair to employees. Most employers want their staff to feel equally valued no matter where they live or how their role contributes.
4. Enrollment right away or after a probationary period?
Employers have the option to provide new employees access to the GRSP 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 GRSP 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 best practice to offer your full GRSP program, including RRSP matching, at the outset of employment. That way, the employee gets their full compensation right away.
5. Base contributions + matching
Some employers choose to implement matching RRSP contributions only if the employee is also contributing the same amount to the GRSP via deductions from every pay cheque. Others will make percentage-based contributions regardless of whether the employee contributes to the GRSP.
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 GRSP provider, it’s helpful to be prepared with questions and a basic framework for how you’d like your company’s GRSP to look.
In today’s employee market, an RRSP matching program can be a powerful employee attraction and retention tool and a positive and 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.
Emily works to create exceptional client experiences as a client success manager at Wealthsimple Work. Emily supports clients by rolling out GRSP programs and ensuring employers and employees have all the resources they need to be successful.
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