The cost of a pension plan primarily depends on the contributions paid into it. Normally, contributions are broken down into three categories, i.e. regular employer contributions, regular employee contributions and voluntary contributions.
The contribution rules vary widely from plan to plan and are usually decided by the employer. Generally, employees are allowed to make additional voluntary contributions if they want.
Contributions can be set in different ways, such as:
- Percentage of salary
- Preset flat amount or based on hours worked
- Based on seniority
- Based on classes of employees
- Employer contributions based or not on employee contributions
The maximum contribution level is subject to certain tax rules.
Returns and management fees are two elements that do not directly impact the cost of a plan, but rather affect the amounts that will accumulate in the plan.
The managers of the funds offered through group plans are continuously reviewed and monitored by the insurers to provide members with the highest possible risk-adjusted returns.
Several factors affect the level of management fees in a group:
- Total plan assets
- Number of members
- Annual contributions
- Type of plan (group RRSP, DPSP, DB, RPP, etc.)
- Investment funds offering
- Related services provided with the plan (e.g.: reports, targeted communications, etc.)
Costs are also strongly impacted by other less tangible factors, such as the quality of negotiations with the insurer, a recent call for tenders, the competitiveness of the insurance market, etc.
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