Group Retirement
Large companies already know they can leverage retirement plans to hire and retain great employees, but did you know that this benefit is also available to small business owners? In the past, providers of Group Retirement Plans catered mostly to mid-size and large businesses with annual deposit minimums making it hard for smaller organizations to stay competitive and offer group savings plans to their employees. However, this has changed and group benefit plans can now be set up for companies of all sizes starting at least with two employees. Similar to group benefits plans, group retirement plans are customizable and can be shaped to fit your company’s needs and budget.
Here are examples of the various group retirement benefits you may consider for your company:
Registered Pension Plans (RPP)
An RPP is set up by an employer to provide retirement income to employees. Once set up, the employer is required to contribute to an RPP but the employees may or may not be required to contribute. There are two types of RPPs: defined contribution and defined benefit. The pension plan is registered with the Canada Revenue Agency (CRA) in order to provide tax advantages such as contributions made to an RPP are tax-deductible within the annual limit. Investment income is not taxed until paid out of the plan.
Group Registered Retirement Savings Plans (RRSP)
A group registered retirement savings plan (RRSP) is a company-sponsored plan that the employer offers to all eligible employees. Generally, employees can choose whether to enroll in a group RRSP. If they do decide to enroll, the amount the employee chooses to contribute to the plan will automatically be deducted from their pay cheque. A company may choose to offer an RRSP matching to employee contributions as part of the plan to encourage retirement saving. Whether matched or not, the employee maintains control over their invested savings, and can select amongst the plan’s designed portfolio to suit their own investment goals.
Group Deferred Profit Sharing Plans (DPSP)
These plans are set up by employers to share profits with their employees in a way to enhance their retirement. Contributions made by the employer depend on the profits of the company. Employee contributions are not allowed. The contribution limit is half of the defined contribution limit subject to a dollar maximum. Investment income is not taxed until paid out of the plan. A DPSP often substitutes for, or supplements, a group RRSP. Employers can add up to a two (2) year vesting period in the design of a DPSP. Vesting is a process in which an employee owns the incentives or contributions made by the employer only after a pre-determined period of time. Should the employee resign or terminate within the vesting period, the employer’s contributions revert to the company.
Group Tax Free Savings Accounts (TFSA)
An employer may set up a Group TFSA to help employees save investment fees when using a TFSA in their personal financial planning. Employee’s after-tax dollars, which may be set up as direct payroll withdrawals, are used to contribute within a TFSA and these invested dollars grow tax-free. Withdrawals from a TFSA are also tax-free so the account can be used to save for retirement or large purchases. To qualify for a TFSA, an investor must be 18 or older, a resident of Canada and have a valid social insurance number.
Group Non-Registered Savings Plan (NRSP)
An employer may set up a Group NRSP to help employees save investment fees when using a NRSP in their personal financial planning. After-tax dollars, which may be set up as employee payroll deductions, are used to contribute to NRSP . A savings plan that provides investment opportunities unrestricted by government regulations on contribution limits. An NRSP provides flexibility at termination and retirement since no locking-in rules apply. Investment growth in an NRSP is subject to annual taxation.
Group Registered Education Savings Plans (RESP)
A group RESP is an investment product that can help employees save for a child's post-secondary (university or college) education with lower investment fees on their after-tax contributions. Regardless of family income, the federal government will top up the annual contribution by 20%, up to $500 per year and $7,200 in total, per beneficiary. If the employee’s family income is low, they may be eligible for a larger grant.
Employee profit-sharing plan (EPSP)
An arrangement under which amounts are paid by the employer into individual accounts held for the benefit of participating employees. These amounts must be calculated by reference to the employer’s profits or paid out of accumulated profits. Employer contributions are deductible as an expense without limit. Employees must include all contributions to the EPSP on his or her behalf and any investment income earned thereon in his or her taxable income. In short, the tax treatment of EPSP contributions is the same as if the employer paid the employee an increased salary. There are no vesting requirements and vesting provisions vary from plan to plan, ranging from immediate vesting to deferred vesting that doesn’t occur until the plan member retires.