When an employer implements a Group Retirement Savings Plan (GRSP) it motivates employees to save for retirement. When an employee opts to participate in the plan, a portion of their income is deducted automatically from their pay and is invested into the selected plan. The employer determines the matching percentage of employees' contributions, the employees choose where the contributions are invested.
Illustration of how it works
Employee salary- $60,000 annually or $5,000 monthly
Employer match – 3%
Employee contribution to the plan - $150 (3% of $5,000)
Employer contribution to employee’s plan- $150
$150 (pre-tax) will be automatically deducted from the employee’s pay and get invested into their GRSP through a contribution file, as well as, the Employers $150 match (tax exempt if using a DPSP or RPP), for a total of $300 per month.
Advantages of a GRSP
· When an organization implements a GRSP it shows that the employer values its employees and cares about their future savings.
· Matching GRSP contributions boost employee retention. As the employees witness their account grow, it encourages them to stay longer with the organization.
· A GRSP is easier to manage and monitor as compared to choosing individual stocks and bonds, in addition to lower fees.
· Employers have the option to include vesting provisions within the GRSP if they choose to use a Deferred Profit-Sharing Plan (DPSP) or a Registered Pension Plan (RPP), where contributions revert to the employer if the employee leaves before completing a specified duration of employment, such as two years.
· A GRSP helps in tax savings as employer contributions qualify for tax deductions and taxation arises for employees only when they withdraw funds from their GRSP.
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