Everything you need to know about group savings solutions: The RRSP, VRSP, DPSP, and more
As an employer, are you familiar with the different retirement savings plans available? The group RRSP, VRSP, DPSP and more.
By Fonds de solidarité FTQ
Setting up a retirement savings plan allows you to comply with the Voluntary Retirement Savings Plans (VRSP) Act, which applies to companies with 10 or more employees.
Offering a group savings option through your business is a good way to attract and retain talent. According to the ÉducÉpargne annual survey (French only), 95 percent of respondents think it's important to have enough savings to lead an active and comfortable life in retirement.
What's more, personal finance specialists generally agree that group savings tend to earn better returns than personal savings, in part because the management fees are generally lower or nonexistent due to the higher value of the managed portfolio. Group savings are usually easy for an employer to set up and manage.
Did you know?
Employer contributions to many group savings solutions are not subject to payroll taxes or social security charges, reducing your tax burden when you make contributions.
At a glance
To help you make an informed decision, here are the most common group savings options and their main features.
|Tax treatment of employee contributions||Tax treatment of employer contributions||Employer contributions||Employee contributions||Savings only for retirement|
|Group RRSP||Tax-deductible||Under special circumstances, exempt from certain social security charges||Optional||Optional||No|
|RRSP+ at the Fonds de solidarité FTQ||Tax-deductible (RRSP)
Additional 30 percent in tax savings1
|Exempt from social security charges||Optional||Optional||No|
|VRSP||Tax-deductible||Exempt from payroll taxes||Optional||Optional||Yes|
|DPSP||N/A||Exempt from social security charges||Mandatory||None||No|
Included in RRSP contribution room
Exempt from payroll taxes
|Mandatory||Depends on the plan||Yes|
|DCPP||Tax-deductible||Exempt from payroll taxes||Mandatory||Depends on the plan||Yes|
Main features of each group savings plan
Group registered retirement savings plan (RRSP)
The group RRSP allows each employee to have their own account and choose their own investments. The contributions, however, are managed collectively. If an employee leaves the company, they keep their money and the amounts contributed by the employer, if applicable.
Group RRSP for employers:
- Most financial institutions do not charge the employer any management fees.
- The employer is free to contribute (or not) to their employees' RRSP. If you do contribute, you get to determine the contribution terms and amount.
Group RRSP for employees:
- Employees benefit from tax deductions taken directly from their payroll.
- The amounts placed in a group RRSP are eligible for the Home Buyers' Plan (HBP) and the Lifelong Learning Plan (LLP).
- In general, employees choose investments based on their savings strategy and financial goals.
- he contribution amount can be adjusted at an employee's request. They can also transfer additional sums to supplement their usual contributions.
Offer your employees the RRSP+ via payroll deduction with the Fonds de solidarité FTQ
The RRSP+ with the Fonds is more than just a traditional RRSP. It lets you give your employees more with its additional 30 percent in tax savings.1 In other words, without employer contributions, an RRSP+ of $1,000 only costs an employee $425 a year, or $8.17 a week.2 It's a turnkey solution that's quick and easy to set up and free for employers and their employees.
Your employees can contribute by payroll deduction and benefit from the tax savings on each pay, allowing them to save for the future while enjoying the present.
By opting for the RRSP+, you're also supporting thousands of local businesses. The Fonds invests in more than 3,400 businesses that create, maintain, and safeguard jobs in all regions of Québec.3
Choosing the RRSP+ with the Fonds is a win-win solution!
Voluntary retirement savings plan (VRSP)
A business with 10 or more employees is required to set up a VRSP, unless it gives its employees the option of contributing to an RRSP or TFSA by payroll deduction or offers them a registered pension plan. The provincial government made this a legal requirement to help Québecers save for retirement.
VRSP for employers:
- You are required to register all your employees and cancel the registration of those who request it.
- You can contribute to your employees' VRSP, but are not obliged to. If you decide to do so, you won't pay social security charges on your contributions.
- The process for setting up a VRSP is relatively long.
VRSP for employees:
- Your employees are automatically registered in a VRSP and can make contributions of up to 4 percent of their gross salary. Those who wish can request to adjust the amount of their contributions.
- The contribution is deducted directly from the employee's pay, so they can enjoy immediate tax savings.
- Management fees are low and regulated under the Act, varying between 1.25 and 1.50 percent, which can have a positive impact over the long term.
- Although their options are limited by management fee caps, employees can choose their own investments.
Deferred profit sharing plan (DPSP)
The DPSP lets you share a portion of your company's profits with your employees. Contributions may vary from year to year and are discretionary.
DPSP for employers:
- Only you can contribute.
- You pay no social security charges on your contributions.
- You can impose a minimum period of employment before the amounts paid into the account become available, and defer the vesting period for your employees by a maximum of two years.
- You cannot contribute more than the equivalent of 18 percent of an employee's annual salary or more than 50 percent of the applicable eligible contribution limit from registered pension plans. The contribution room is not cumulative.
DPSP for employees:
- The deferred income is taxable only upon withdrawal. Unlike an RRSP, it is not an investment that can grow over the years. Depending on the plan, however, employees can use the amounts in a DPSP for the LLP or HBP.
Did you know?
Since employees cannot contribute to the plan themselves, you can only offer them a DPSP under the VRSP Act. That's why many companies offer it in conjunction with a group RRSP.
Pooled registered pension plan (PRPP)
The PRPP is a group plan available to employees and self-employed individuals. Participants who change jobs can continue to contribute.
PRPP for employers:
- Unlike a pension plan, you do not manage the PRPP for your employees—the plan's administrator does.
- If you decide to participate in your employees' plan, you can enroll your employees yourself. Otherwise, each employee can register for the PRPP of their choice.
- Unlike the group RRSP, contributions to a PRPP are pooled with the other funds in the plan and you receive a corresponding tax deduction. The contributions you make are not considered taxable income for your employees.
PRPP for employees:
- PRPP contributions are included in the same way as contribution room in an RRSP.
Simplified pension plan (SPP)
Offered only in Québec, the SPP is a defined contribution plan established by the company and administered by a financial institution.
SPP for employers:
- Unlike the group RRSP, the minimum employer contribution to the SPP is 1 percent of payroll.
- You can also decide if this money should be locked away for the employee's retirement.
- Contributions and plan administration fees are tax deductible for the employer.
SPP for employees:
- Contributions are deducted directly from the employee's pay, helping them enjoy tax savings.
Defined contribution pension plan (DCPP)
With the DCPP, a set contribution amount is determined in advance for the employer and for the employee.
In general, it is the plan administrator who decides which investments to make with the available assets.
DCPP for employers:
- A DCPP functions like an RRSP.
- The employer's contribution, however, is mandatory.
DCPP for employees:
- The employee's contribution is also mandatory.
Ultimately, the goal is to find a win-win solution for you and your employees!
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