We all love the idea of a win-win-win, but how often do we see one in action? And to put an even more unlikely spin on the question, how often does that win-win-win start with a change to the tax code?
This isn’t a story about unicorns. It’s the tale of a proposed and entirely doable tax credit to help small businesses offset the cost of offering an employee retirement plan, help Canadians save for the future, and help the benefits industry create a path for further growth.
C. D. Howe makes the case in Spreading the Benefits: A Targeted Tax Credit Is Needed to Expand Retirement Plan Coverage in Canada’s Private Sector. The paper, published in February, estimates that currently only 19 per cent of small businesses (with five to 499 employees) offer any kind of workplace retirement plan.
Alex Mazer, co-author of the paper and co-founder and CEO of Common Wealth, ticks off the benefits of the tax credit: “It helps small employers to attract and retain staff and cover some of the costs of offering a plan. It helps everyday Canadians who are struggling to make ends meet and could use support in building their savings. It helps the industry as well. We think the best way of growing the group retirement industry is by offering plans to more employers who don’t have them today.”
The tax credit could also be a win for the federal government. “We have a government that, rightly so, is trying to be very focused on an economic agenda,” says Mazer. “This credit aligns very well by helping Canadian business, helping the middle class with affordability, and building a more competitive economy.”
The Smart Health Benefits Association (SHBA), a national advocacy group dedicated to protecting the sustainability of private employee benefit and retirement plans in Canada, is now mobilizing to make the tax credit a reality.
“We’re working to get support from business organizations and advocacy groups across the country,” says Jarrett Zavitz, chair of SHBA’s financial wellness working group and a benefits consultant at HUB International. “We’re hoping that will lead to meetings with the appropriate people in Ottawa.”
Public awareness and support are key. To that end, SHBA, Mazer and Benefits Alliance, a network of independent benefits advisory firms, launched a website, RetirementForAll.ca, that explains the proposed tax credit.
Employers will also find a tool that calculates the savings from the tax credit. For example, a company with 30 employees and an enrollment rate of 70 per cent will experience a net cost reduction of 43 per cent, or almost $54,000 over three years.
SHBA is also encouraging employers to spread the word by connecting with their local Member of Parliament (MP). The RetirementForAll website includes a tool to help employers write and email a letter to their MP.
That said, no need to wait
Zavitz emphasizes that small businesses don’t need to wait for a tax credit to reap the benefits of a group retirement savings plan. While the tax credit will generate savings, current offerings are already more affordable than most employers think.
Equally important, plan administration has become much easier.
“The product lineup has improved a lot to make administration simpler than it used to be,” says Zavitz. “Onboarding is the biggest, most intensive task, but all the carriers try to make onboarding simple and easy and offer plan administrator training.”
It’s not quite plug-and-play because the employer must make certain decisions that reflect employees’ needs and preferences. But this is where consultants and advisors can step in, using workforce demographic data to help determine the plan’s features. “A pension seems a little bit scary for a small business to introduce, but it doesn’t need to be,” Zavitz says. “A group retirement plan can be simple, easy, and low in administrative costs.”