Group Retirement Products
The vast majority of employers know that supplementing your benefits plan with a retirement program is a great way to provide your employees and their families with long term financial security and peace of mind. Despite this knowledge, many employers are still hesitant about these products; concerned with additional plan costs, higher administration fees and increased risk. Many of these concerns, although warranted in the past, are becoming less of an issue today. Through the introduction and use of employee participation software, literacy programs and defined contribution plans, it has never been easier to implement, maintain and join a retirement program.
Alberta is known for it’s hardworking and dedicated workforce. Employers have done a great job through the use of wellness programs, health spending accounts and traditional benefits, to ensure that their employees are taken care of in the present. There has now been a shift, however, towards the financial concerns of tomorrow. A recent retirement study determined that only 27% of Canadians believe that they will be fully retired by 66, as opposed to 51% in 2008. Some may attribute this to the continuous growth in life expectancy and the savings that this requires, but many Canadians will be forced into a later retirement, simply because they did not save enough money during their most profitable years of employment.
Most of us are familiar with Group RRSP’s and pension plans, but there are other vehicles and options that can be used in conjunction, to acquire long term savings for your employees. Many of these options may also benefit the financial health of your business through potential tax saving opportunities.
Some of the main vehicles and options include:
Group RRSP:
A Group Registered Retirement Savings Plan or RRSP is a collection of individual RRSPs centralized by an employer and registered with the Canadian Revenue Agency (CRA). It allows payroll deductions (pre-tax) for employee contributions.
Who offers a Group RRSP:
- Typically businesses from 1-199 employees
Why offer a Group RRSP:
- Flexible plan design / Simple administration for employers
- Convenient, disciplined saving program through defined payroll deduction with immediate tax reduction
- Easy for employees to understand and use
- No requirements for employer contributions / Administration expenses are tax deductible
- Employees can also put RRSP funds towards home buying and education
- Allows members special benefits like favorable interest rates and lower investment management fees than they would receive individually
Defined Contribution Pension Plan:
A Defined Contribution Pension Plan or DCPP is a pension plan, sponsored by an employer and awarded to an employee upon retirement. It is also registered with the CRA and the contributions to the plan are predetermined. The retirement income received, depends on the amount contributed to the plan, as well as factors such as investment earnings, the age of the retiring member and the pension plan chosen.
Who offers a DCPP:
- Typically, larger businesses of over 200 employees
Why offer a DCPP:
- Gives employees a level of security relating to their future after work
- Contribution levels can be tied to the amount of years in service, rewarding long-term employees
- The money is locked in, ensuring employees do in fact use this money for their retirement
- Employer contributions are not a taxable benefit to employees
- Employee contributions are tax deductible by employees and not subject to payroll taxes
- Cost control – contributions may be set as a percentage of the payroll
Deferred Profit Sharing Plan:
A Deferred Profit Sharing Plan (DPSP) is a simple and flexible arrangement where an employer distributes a portion of their companies pre-tax profits to provide income at retirement to their employees.
Who offers a DPSP:
- Typically, used in conjunction with a Group RRSP
Why offer a DPSP:
- Contributions can vary year to year and are not required in unprofitable years
- Rewards employees for their role in the financial success of your business (sponsor has freedom to reward member according to performance)
- All contributions and administration expenses are tax deductible
- Employer contributions may be vested up to a period of two years to ensure employee retention is a focal point of the plan
- Deferred and tax sheltered compensation
Group TFSA
A Group TFSA allows members to accumulate after tax money, without paying tax on income earned within the account. TFSA’s are not deductible for income tax purposes. Group TFSA members can withdraw money at any time with no restrictions on how they choose to spend it.
Who offers a Group TFSA:
- Excellent add-on to other retirement products, especially for those seeking a flexible savings vehicle, with non penalized short term use.
Why offer a Group TFSA:
- Provides a vehicle for potential tax free savings
- Available on a no fee basis to employer, also no requirement for employer contribution
- No government reporting for plan sponsor
- Ability to re-contribute any withdrawn amount in the future (otherwise, $5,500 annually)
- Group buying power allows for higher interest rates and lower management fees
- Complements RRSP for high income earners, especially members who may exceed RRSP limit