Are you ready to implement a group RRSP in your business? You’ve made an excellent decision, especially with the law that will require you to offer a retirement plan to your employees by the end of 2016. However, before initiating this process, it is important to consider 9 specific points that are featured in this article.
1 – Plan membership
Do you want to offer a mandatory or optional plan? The vast majority of companies choose an optional plan, where enrollment is voluntary for employees.
Do you want to offer the plan to both full-time and part-time employees? Remember that starting on December 31, 2016, employees with at least one year of continuous service (whether full-time or part-time) must be able to enroll in your group RRSP.
2 – Employee eligibility
Do you want to allow employees to enroll in the group RRSP upon hiring or after a few months of service? You may have a different rule for full-time and part-time employees and even for different employee classes. For example, managers could be eligible for your group RRSP right upon hiring whereas other employees would have to wait three months. Effective December 31, 2016, the eligibility waiting period must not exceed one year of continuous service.
3 – Employer contributions to the group RRSP
Do you wish to make contributions for your employees, as an incentive to save for their retirement? This is the best way to encourage retirement savings among your employees. Your contributions can take several forms; for example, they can be based on employee contributions, seniority, employee classes, etc.
Note however that contributing to a group RRSP is usually not tax-efficient for employers. Other options should normally be considered, such as the DPSP.
4 – Employee contributions
Do you want employees to contribute a $ amount or a % of their salary? The % of salary is recommended as the contribution will grow with future salary increases, enabling employees to maintain the same level of savings over the years.
You must also decide whether contributions will be calculated only on the basic salary or if bonuses, commissions and overtime will also be considered as part of earnings.
5 – Withdrawals
Do you want to allow withdrawals of savings prior to retirement? Usually, employees can withdraw any amount they wish from their group RRSP. If you don’t want to allow withdrawals, another type of plan could be contemplated. Some plans authorize the withdrawal of employee contributions while forbidding the withdrawal of employer contributions.
6 – Individual transfers
Do you want to allow employees to transfer personal amounts to the group RRSP? Usually, this type of transfer is authorized and suits employees.
7 – Investment funds
The investment fund offering must be determined by the employer. You will have to specify what kind of funds you want to offer, including appropriate diversification to enable employees to invest adequately for their retirement. The offering must be simple, but broad enough for seasoned investors. Your advisor and the plan provider should normally guide you through these choices.
8 – Default fund
The default fund (the fund into which employee contributions are deposited when the employee did not choose an investment fund upon enrolling in the plan) must be selected upon opening the account. A “life cycle” fund is very often chosen as the default fund.
9 – Contribution remittance
As an employer, you will have to collect the contributions through payroll deductions and remit them to the financial institution. While several payroll providers can incorporate this process in their system to make it automatic, you can normally make the remittance through preauthorized payment, bank transfer or cheque.
GRILLE DES ÉLÉMENTS À CONSIDÉRER AVANT DE METTRE EN PLACE UN REER COLLECTIF
| POINTS TO CONSIDER | DESCRIPTION DES POSSIBILITÉS | |
|---|---|---|
| 1. |
Plan membership |
Mandatory of optional |
| 2. | Employee eligibility |
Upon hiring After X months of service* Different by employee classes (manager, administrative staff, etc.) |
| 3. |
Employer contributions |
Will the employer contribute for the employeeds? $ amount, a % of the employee's salary and function of :
|
| 4. |
Employee contributions |
$ amount or % of the employee's salary |
| 5. | Withdrawals |
Not allowed Allowed (with or without a penalty) :
|
| 6. |
Individual transfers |
Allowed or not (from outside to the plan) |
| 7. |
Investment funds |
Number of funds to offer Categories of investment funds :
|
| 8. |
Default funds |
"Lifecycle" funds often used |
| 9. |
Contribution remittance |
Transfer directly through the pay system (with certain service providers) Preauthorized payment Bank transfer Cheque |
* Effective December 31st, 2016, eligibility rule will have to be one year of continuous service or less.
To help you determine the points to consider for your group RRSP, do not hesitate to contact one of our advisors to benefit from their expertise when setting up your plan.
Jimmy brings overs 20 years of experience in pension plans. After starting his pension career at the Ontario Teachers’ Pension Plan, he worked as DC Consultant for a large actuarial firm and two insurance companies before joining AGA. With his extensive pension experience, he has developed an acute expertise in the selection, the design and the implementation of pension plans. Jimmy provides his clients with both expertise and insight on their employee benefits.