Better understanding employee group savings plans

Everything you need to know regarding group RRSPs like the RRSP+ through payroll deduction from the Fonds de solidarité FTQ, the group TFSA and the VRSP.

Fonds de solidarité FTQ

in collaboration with blogger Dominique J. Favreau

Employees discussing group savings plans around a table. 

If your company employs 10 people or more, you are required to offer them a retirement savings plan under the Voluntary Retirement Savings Plans Act (VRSP). But this requirement is not just another administrative load as many employers view retirement savings as an employment benefit that is very much appreciated by their staff, one that helps them attract talent and improve staff loyalty. Not to mention that retirement savings not only ensure a comfortable retirement, they can also make buying a first home easier or even help with the cost if a person wants to go back to school.

To help you make a well-informed choice when it comes to offering your staff a group savings plan, here are some of the more common options and their main features.

Group savings for better returns and a better retirement

Experts generally agree that group savings can produce better returns than individual savings, in part because of preferential management fees that can be negotiated. Likewise, group savings have the advantage of enabling staff members to make contributions right off their pay, which helps them develop good saving habits without having to worry about their future budget planning. And amounts withheld at source help savers benefit from the tax advantages immediately.

In addition, the data shows that employees who get into the habit of making contributions using payroll deductions are more likely to keep up the habit over their entire working lives versus those who make occasional lump sum contributions. So making a group savings vehicle available not only meets legal requirements, but it also lets you offer your employees the potential of a better retirement.

The group RRSP

The group Registered Retirement Savings Plan (RRSP) is an assemblage of individual RRSPs offered to a group of company employees. As such, each individual staff member has his or her own account and can make investment choices independently, and hence build his or her own portfolio of products. If ever they leave the company, they get to keep their money as well as the employer contributions.

Here are the key elements to keep in mind about a group RRSP from your employees’ perspective:

  • They benefit from tax credits directly on their pay.
  • The amounts in their group RRSP are eligible for the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP).
  • They can choose how to invest in line with their savings strategy and their financial goals.
  • It’s a flexible plan that lets your employees decide whether or not to contribute and choose the means of making contributions that suits them best, whether payroll deductions or lump sum payments.
  • Management fees are usually lower than for individual RRSPs, which can have a positive impact on the value of the portfolio over the long term.

On the employer side, here are some elements worth noting:

  • Most financial institutions charge the employer no management fees.
  • You can contribute to your employees’ RRSPs but you don’t have to. If you choose to do so, you can choose the amount and the terms for the contributions. What’s more, you do not pay the social security charges [in French] on contributions you make to employee RRSPs, meaning you don’t pay QPP, QPIP, CNESST, etc. So it can be advantageous, for you and for your employee, to pay a bonus as an RRSP contribution rather than on their pay.
  • Some employers would rather contribute to their employees’ RRSPs via a Deferred Profit Sharing Plan (DPSP). The advantage of a DPSP for the employer is they can impose certain conditions, like a minimum period of employment before the amounts paid to employees are made available to them. That way amounts paid are discretionary and the employee only gets access to them after two years of participation.

With the RRSP+ through payroll deduction, your staff pay less tax and helps support the Quebec economy

The Fonds de solidarité FTQ RRSP+ is a turnkey solution that’s free and easy to implement and lets you give your employees more with its additional 30% tax credit*. In other words, an RRSP+ of $1000 only costs an employee $425 dollars, or $8.17 per week**, savings that are specific to the Fonds de travailleurs RRSP.

Participants can contribute through payroll deductions and benefit from tax savings right on their paycheques, which can help with things like buying a first home, going back to school or providing for a comfortable retirement.

By opting for the RRSP+, employees help support thousands of Quebec companies as the Fonds reinvests in over 3100 companies that create, maintain and save jobs all across Quebec.

The group TFSA

Like a group RRSP, the group Tax Free Savings Account (TFSA) is an assemblage of individual TFSAs offered to a company’s employees. The TFSA isn’t only for retirement and can be used to help finance other life projects. It offers no tax savings at the time of contribution which makes it less attractive than an RRSP for many participants who are interested in buying a first home, or saving for retirement, for example. It is generally used as a complement to a retirement savings solution, by virtue of its tax characteristics.

  • Your employees can make withdrawals from their TFSA accounts whenever they want and these amounts are not taxed.
  • They can choose their investments according to their objectives and their savings strategy.
  • Your employees can choose their means of contribution, whether by payroll deduction, where the amount can be adjusted as needed, or via lump sum contribution. They can also make additional contributions at any time.
  • They do not however benefit from tax deductions on their or their employer's contributions if any, because that's the nature of a TFSA.
  • Management fees are generally lower than for an individual TFSA, which can have a positive impact on the portfolio value over the long term.

For employers, here are some key elements to keep in mind:

  • The group TFSA is generally offered as a complement to a group retirement savings product. It is an addition to a range of benefits and is rarely the first product made available.
  • As an employer, you can contribute to your employees’ TFSAs if you wish to do so, but contributing is not mandatory and, if you do, your contribution is not subject to payroll tax.

The Simplified Pension Plan (SPP)

Available only in Quebec, the SPP is a defined contribution plan established by the company and administered by a financial institution. Contributions are deducted directly from an employee’s pay, helping them enjoy tax savings. Unlike the RRSP or TFSA, companies must make a minimum employer contribution of 1% of payroll. They can also decide if this money should be locked away for the employee’s retirement or not. Even if many employers are less familiar with this plan, it may prove interesting as contributions and administration fees are tax deductible for the employer.

The Voluntary Retirement Savings Plan (VRSP)

If a company has 10 or more employees, it is obligated to offer a group savings plan such as one of those discussed above, like the Fonds RRSP+, which meets the law’s requirements. Failing that, the company must put a VRSP in place. This legal requirement stems from the government’s effort to make saving for retirement more accessible to Quebecers.

Here’s what your employees should know about the VRSP:

  • Unlike other savings solutions where the employee gets to decide whether to participate or not, your employees are automatically enrolled in a VRSP and can make contributions of up to 4% of their salaries. If they want to, they can request to be unsubscribed or to adjust the amount of their contributions.
  • Their contributions are withheld at source, directly from their pay, which helps them enjoy immediate tax savings.
  • Management fees are low and determined under the Act. They vary between 1.25% and 1.5% which can have a positive impact over the long term.
  • Even if the options may be more limited due to the ceiling placed on management fees, an employee still has a choice of investments they can make.

As far as you are concerned, here’s what you need to know:

  • The implementation of a VRSP is governed by law. As such, you are obligated to enroll all your employees and must unsubscribe those requesting that you do so. Automatic enrollment and the right to unsubscribe can represent a potential administrative burden for employers.
  • You can contribute to your employees’ VRSP, but are not obliged to. When you do, you pay no social security charges on your contributions.
  • The process for setting up a VRSP is relatively long and takes a minimum of 91 days. It is nonetheless a standardized and regulated process.

Good to know! Employer contributions are not subject to payroll taxes in any of the aforementioned group savings plans, which lightens your tax load when you make contributions that benefit your staff.

An important decision for employers and employees

When a group savings plan is being implemented, as an employer you have two roles to play. First, you need to choose a solution for your team, then the financial institution that will render the service. Next, you are responsible for informing your employees, with support from the financial institution, so they can make sound choices where their investments are concerned.

At the same time, offering a retirement savings plan can play a role in attracting talent and retaining staff. Group savings plans are generally easy for the employer to set up and administer. They provide your staff with the ability to enjoy immediate tax savings using payroll deductions as well as lower management fees, hence better returns.

As an employer, you can establish rules and conditions such as seniority, for example, which may also be required by financial institutions. As far as employees are concerned, it is each individual’s responsibility to make sure they don't exceed the RRSP and TFSA contribution limits, and to keep track of amounts they contribute to their VRSP when they combine their individual and group accounts and plans.

Sources

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