The 2023 deadline for registered retirement savings plans (RRSPs) has just passed and “water-cooler talk” between employees may have included questions about an RRSP plan available through work—or the lack of one. If the latter case applies to you, there’s no better time to set up a group RRSP plan and get employees going on their contributions.
It’s easy to set up and can go a long way in keeping employees happy—and less likely to leave.
About a year ago, Brenda Mullen, senior consultant at Belay Advisory in Calgary, Alberta, a member firm of Benefits Alliance, noticed that more small- to mid-sized employers were contacting her “to get details about ‘that retirement plan you were talking about’.” They had become more likely to consider group RRSPs as a way to help keep employees at a time when retention is a growing concern. And they were relieved to find out there’s no cost for set-up, it’s easy to do and they have full control over their contributions.
Smaller employers were often surprised to discover that a company needs only two employees to set up a group RRSP, adds Mullen. That’s usually all they needed to hear to move ahead.
The impact of a group RRSP can be dramatic among employees, especially in today’s economy. Thirty-seven percent of working Canadians aged 50 and older reported they could not financially afford to retire when they wanted (37%) and 25 percent were unclear about their financial position, according to 2022 research by the National Institute on Ageing and the Environics Institute.
With these results in mind, it’s likely that many employees are eager to save tax-free for retirement and appreciate the lower fees of a group plan compared to a personal RRSP. They’re also more likely to be grateful for employers’ contributions, whatever the matching rate may be.
On the employer end, a group RRSP raises a company’s profile. “Sometimes it needs to be about the optics,” says Mullen. “That, in and of itself, is often enough.”
Easy to launch
Many insurers offer off-the-shelf group RRSP packages as well as instructional materials and seminars for employees. “It can be super hands-off,” says Mullen. “It’s fairly straightforward.”
A plan can typically launch within a few weeks, though more customized offerings will take a bit longer.
Benefits advisors can also help with the rollout and employee education. “There are also lots of resources and planning tools online that employees are able to access once they join the plan,” says Mullen.
The first step is to appoint a staff person to oversee the plan. Depending on the size of the company, it may be an employee who works in payroll, finance or HR. This person will internally distribute enrolment material and set up automatic payroll deductions for those who decide to participate, tasks that take approximately 10 hours but could be less for smaller companies. This individual should be aware of the company’s matching rate and when employees will be eligible to join.
Eligibility, contributions, education
If an employer is particularly worried about retention or is looking to enhance an offer of employment, they can waive the eligibility period and allow employees to join as soon as they as they are hired, suggests Mullen.
In terms of contributions, the employer can match employee contributions at a rate that is financially feasible for them. Mullen says that if a firm doesn’t have a lot of money to spare, it can start with a lower matching rate to launch the plan. Typically, organizations opt to fully match three to five percent of employee contributions.
“Sometimes the financial commitment is a barrier,” says Mullen, adding that a good advisor will help employers select a contribution rate that works with their budget yet keeps them competitive with other employers. If the matching percentage is low, dialogue with employees can help mitigate negative feedback on the new plan. Some employers are very open with staff members and simply explain they are committed to reviewing the plan, including their contribution, and adjusting it when they are able.
A benefits advisor or insurance company representative can provide information to employees during meetings at the employer’s workplace, with virtual attendance as an option. These meetings should occur at a frequency that makes sense for the employer and at least every 15 to 18 months, recommends Mullen.
As part of the rollout, information to employees should include the benefits of saving for retirement, the tax benefits of contributing to an RRSP, when they can join, the fees charged, where they can get more information and the penalties if they withdraw from the plan, says Mullen. They should also know about situations where they can withdraw without penalty, such as through the federal Home Buyers’ Plan and the Lifelong Learning Plan.
Despite the uncertain economic climate, employers and employees only stand to benefit from the launch of a group RRSP, which can provide security for both parties, says Mullen. “There is no better time than now.”