Many Canadian employers are still without a group savings or retirement program as part of their employee benefits package. As individuals we all know we need to save for retirement and with compounding returns, the early the better, but yet we delay. While the Provincial governments across Canada debate mandatory employee savings programs (PRPP) and larger employers manage existing pension plans, most small and medium size businesses are leaving their employers without. Is this imbalance a matter of benefit priorities or simply a case of a misunderstood benefit?
Let’s explore three myths associated with adding a group RRSP to your employee benefits package.
Group RRSPs are Expensive to Set-up
The costs associated with a Group RRSP are as simple as the contributions you are willing to make as an employer. While employee benefit plans can average 2-5% of payroll, depending on demographics, claims experience and plan design; a Group RRSP can start as low as 1% or less. Given the understanding that the majority of your hiring competitors don’t offer Group RRSP, even starting a small plan will bolster your offer at the hiring table and help your employees create the habit of saving. A small flat amount per employee per month is a great way to get started. If you choose matching, budget for 100% participation and that’s your total cost. But what about fees? Insurance companies who provide group RRSP programs typically take 3-5 years to recoup costs associated with setting up new programs as they don’t charge up front fees to the employer. Providers make money overtime on the fees deducted from individual returns each year. These fees vary based on the size and structure each group, but, as a result of that group buying power, are regularly more competitive than average fees in Canada on individual plans.
Group RRSPs are an Administrative Nightmare
Employers are essentially only responsible for collecting payroll deductions and sending the contributions to their provider. Most providers accept a report from your current payroll process or offer a simple template to show a breakdown of contributions by the employee. Once received, all administration is carried out by the provider, including communication back to each employee. Group RRSPs are also free of Provincial pension legislation and instead follow the much simpler Capital Accumulation Plan Guidelines (CAP). CAP Guideline responsibilities aren’t law, however, they are industry best practices in management that your provider and advisor will help you maintain.
I’m not comfortable investing my employee’s money.
Each individual employee maintains control of their investment decision at all times. Unlike some pension plans, a group RRSP is actually just a collection of individual RRSPs administered as a group. The employer’s responsibility is to simply set-up with their advisor and provider, a reasonable investment menu for employees to select from. Providers typically offer pre-set menus to ensure you offer an appropriate choice for your employees and your advisor can further customize details to meet specific needs of your group. In terms of investment advice, this should never be handled by the employer. With a combination of provider tools and a licensed advisor, employees will have plenty of help navigating through their plan options.
So, in conclusion, that’s three myths busted on setting up a new Group RRSP plan. While insurance providers and advisors have traditionally viewed group retirement as a separate topic to group benefits, it’s simply another part of the employee benefits package. From this advisor’s perspective, it’s important to understand your total compensation objectives, what your employee’s value, and how a simple group RRSP can fit your budget for employee benefits. If you are considering a group RRSP speak with a licensed advisor to help discuss your objectives and evaluate options in the marketplace.