Offering employees group RRSPs and pension plans help make your company an attractive place to work. Group RRSPs and pension plans signal to potential employees that your business is willing to help them financially plan for their future and their retirement.
Employer contributions to group RRSPs are generally based on how much the employee is contributing to the plan. An employer can match what the employee is adding to the plan on a dollar for dollar basis or management can kick in a percentage.
Employer group RRSPs and pension plans can be contributory (employees contribute to the plan) or non-contributory (employer contributes to the plan).
Both group RRSPs and pension plans have multifaceted aspects that make them more attractive to a company and its employees.
What is a Group RRSP?
A group RRSP is similar to an individual RRSP but is sponsored and administered by the employer. Group RRSPs help members of the plan save for retirement by deferring income tax on contributions. Interest collected on these funds, or dividends (or capital gains) are not taxable until withdrawn.
Many group RRSPs become part of payroll deduction, making it less financially stressful for employees to contribute on a yearly basis. Tax savings in these circumstances are realized immediately by the employee, not the end of the year, which is usually when employees paying individually into RRSPs would realize any tax advantages.
What is a Group Pension Plan?
There is a broad range of group pension plans available, but they all have the same goal in mind, helping the employee save for retirement. While an employee sponsored pension plan can be complicated to understand, there are two basic structures used:
Defined Benefit Pension Plan:
This type of pension plan is based on factors such as salary earned and years of service with the employer. Both factors are calculated to determine your retirement income.
Defined Contribution Pension Plan:
This plan provides each member with an investment account and along with employer contributions, lets members make decisions on the options they want to choose. The Level of retirement income depends on the performance of the investments selected.
Sometimes these group pension plans are managed by the business but it is more common to have a range of professional organizations such as life insurance companies, investment managers, or employee benefits consultants like Benefit Strategies handle these types of plans.
Which Plan is Best for Your Business?
There is no correct answer to this question. The most efficient way to determine the style of RRSP or pension plan that would best suit the needs of your company and your employees would be to speak with one of our employee benefits plan representatives. A highly qualified employee benefits broker can walk you through the details of each offering, and based on the goals your you provide, help you arrive at the most beneficial solution for your business and your employees.
For more information on group RRSPs and Pension plans, or if you have any questions, contact Benefit Strategies today.