VRSP vs. RRSP+ via payroll deduction: differences and specifics

According to Retraite Québec, almost half of Québecers don't have a group retirement savings plan at work. To ensure that all Québecers can enjoy a more secure retirement, in 2013 the government of Québec enacted the Law creating Voluntary Retirement Savings Plans (VRSPs).

As of December 31, 2017, all companies with 10 or more employees are subject to this law and are required to offer their employees a means of saving for retirement. Each employer can determine which products are best suited to his or her company's needs and can seek guidance to facilitate implementation of the chosen solution, whether a pension plan, a group RRSP or a Group TFSA via payroll deduction.

Among the retirement savings solutions an employer can offer his or her staff, and that meet the law's requirements, there's the VRSP itself as well as the Fonds de solidarité FTQ's RRSP+ via payroll deduction. This turnkey alternative is fast and easy to set up.

Setup time

RRSP+ via payroll deduction: sets up in only a couple of days

Enrolment is directly online and the following day the employer receives a call from a Fonds agent who will open a business account with the employer and help guide him or her through the implementation of the payroll deduction system. In addition to Extranet access to the plan, employers benefit from any support they may need from a Fonds agent to help implement payroll deduction in cases where the payroll is prepared internally.

It was this simple, fast approach that helped guide Jessie Carpenter, a human resources director at a digital marketing agency, in her choice when her company decided to offer a group retirement savings plan to its staff. "We opted for the RRSP+ via payroll deduction a few years ago as it's an economical way for our employees to save for retirement, with the additional 30% tax savings from the Fonds de solidarité FTQ. As a manager, I found the implementation process quite simple, on the Fonds side as well as for our payroll department. The Fonds' Extranet lets us manage deductions at source and remittances, and that saves us a lot of time."

VRSP: a process spread out over a minimum of 91 days

The process involved for setting up a VRSP varies depending on the administrator selected by the employer. It involves a regulatory component including, notably:

• Choosing the VRSP administrator, who needs to be accredited by the Autorité des marchés financiers to act as such.
• Introducing staff to the business relationship the company is undertaking with the administrator.
• Advising staff in writing of your company's intent to set up a VRSP and detailing the process and the  registration procedure
• Waiting 30 days before subscribing a VRSP with a plan administrator and registering staff.
• The employer itself needs to collect and remit employee contributions from each individual's pay to the VRSP administrator after giving staff 61 days' notice.

All details related to the implementation of a VRSP may be found on the Retraite Québec portal. It is also important to note that the level of administrative support offered varies from one VRSP administrator to another.

Fees

The RRSP+ via payroll deduction: no fees for employers

The Fonds RRSP+ via payroll deduction lets employees benefit from a total management fee ratio of 1.4%. By way of comparison, the average Canadian balanced fund charges management fees of 2.2%. With RRSP+, no fees are charged to the employer.

VRSP: variable fees for employer and employee

With a VRSP, management fees that may be charged to you vary from one administrator to another, and also with the different investment products available. So it's important to properly understand each administrator's fee structure so you can foresee the kind of management fees you will be paying over the long term.

Registering staff

RRSP+ via payroll deduction: voluntary consent (opt-in)

Registration for a Fonds RRSP+ via payroll deduction is done on a voluntary basis, where only those employees who wish to contribute register. Staff can also modify their contribution amount or withdraw at any time.

VRSP: right of cancellation (opt-out)

For a VRSP, all employees are automatically registered, unless they do not wish to participate. If they want to cancel their registration or modify their contributions, they will need to request this of you. Automatic registration has the advantage of promoting saving for retirement by maximizing employee conversion right from the start, which was one of the government's principle objectives when it adopted Bill 39 creating the VRSP.

Employer contributions

RRSP+ via payroll deduction vs. VRSP: no difference

Employers are not obligated to contribute to their employees' VRSPs or Fonds RRSP+ via payroll deduction. However, if they decide to do so, they can deduct these contributions from the business's taxable income, which will lower their payroll tax payable.

Employee contributions

RRSP+ via payroll deduction: flexibility and 30% more tax savings

With the RRSP+ via payroll dedution, it's up to each employee to determine the amount of their contributions.  There is no minimum requirement. In addition, their contributions let them benefit from the 30% additional tax credit¹ which can be applied directly to their pay.

This additional tax advantage of the RRSP+ via payroll deduction also caught Jessie Carpenter's eye. "We liked the idea of offering our employees a savings solution that would let them benefit from the tax savings on each pay," she said.

VRSP: a 4% contribution at subscription which can be modified

A VRSP includes a starting contribution of 4% when each employee is automatically registered, which he or she can change or cancel. The VRSP does not, however, give the employee the right to an additional tax credit.

It is important to note that while both the VRSP and the RRSP+ via payroll deduction are tax deductible and that in both cases these savings may be applied directly to an employee's pay, the VRSP can only be used in retirement and cannot be used towards the purchase of a first home (Régime d'accession à la propriété, or RAP) or for going back to school (Lifelong Learning Plan, or LLP), unlike the Fonds RRSP+.

The RRSP+ via payroll deduction therefore becomes a fast, simple, turnkey solution for the employer that wants to provide a retirement savings vehicle for its staff. Offering simple, flexible retirement savings enhanced by a tax refund is an additional asset when it comes to recruiting and retaining highly valued staff.  What's more, given how simple it is, the RRSP+ can be complementary to and easily combined with a VRSP an employer has already put into place.