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This might just be the right time for you to implement an employee group savings plan – here’s why and how
- By Lindsay Byrka, Vice President, Immix Group: An Employee Benefits Company
With RRSP season winding up – the deadline for 2019 RRSP contributions is March 2 – you may be debating if now is the time to implement a group savings plan for your team.
In working with our clients to implement and manage group savings plans, we come across a number of questions and misconceptions. For example, a common incorrect assumption is that implementing a plan will be costly or difficult.
In this article, we’ll try to give you clarification around the why and how of these plans.
First of all, what do we even mean by a group savings plan? Is this a pension?
While you may think of an employer-sponsored plan as a pension, these days a Registered Pension Plan (RPP) is less common than other types of employer-sponsored savings programs. We can certainly still offer pension plans, but we are finding that most employers now choose other options.
When we talk about a group savings program, we typically mean a group Registered Retirement Savings Plan (RRSP), often offered in combination with a Deferred Profit Sharing Program (DPSP) and Tax-Free Savings Account (TFSA) option. This is the typical composition of most programs we set up for our clients.
While the above may seem like a lot of acronyms all at once, they’re much less complicated than you may fear.*
Six reasons you should consider implementing a group savings program:
- It’s cost-effective. Generally speaking, other than a very small amount of administration time, the only cost to you as the employer is whatever you decide to contribute to your employees. If it’s just not in the budget, you can still set up a plan that is for voluntary employee contributions only.
- It’s part of a comprehensive benefits offering. If you’ve already implemented a comprehensive health benefits program, and you’re paying competitive salaries within your industry and for your location, the next step is implementing a group savings program.
- It gives your company a competitive edge. Despite the process being simple and easy, most employers are not providing their teams with the opportunity to join an employer-sponsored group savings program such as a group RRSP, TFSA or DPSP. These employers aren’t taking advantage of this very simple, very meaningful way to help reward employees and cement their loyalty. Implementing a plan makes your company stand out- in a good way.
- Help your team to succeed. Saving money is hard, and it’s stressful. Show your employees that you care about them and their future. Help them to save for their goals, whether it’s for a down payment or for retirement. Just as with employee health insurance plans, your team will truly appreciate a group savings program. These plans are highly valued, far beyond the dollar equivalent in a salary raise.
- It’s tax-effective. Properly set up, a group savings plan provides tax advantages to both the employer (contributions can be tax-deductible to the business) and the employee (reduced income tax payable). Employees are often surprised to learn they can reduce their income taxes through a payroll deduction to a group savings plan.
- It’s incredibly easy. We promise: This is one of the simplest programs to both implement and manage. As you’re required to be hands-off in many respects (for example, you cannot provide investment advice to employees), you are really just facilitating access for your employees. Our team of advisors at the Immix Group can handle the details, along with your chosen investment provider.
Is my company large enough to offer a group savings program?
Most likely, yes. A common misconception is that a small or mid-sized company is not large enough. However, you do not need to be a large organization to offer a group savings program such as a group RRSP, TFSA or DPSP. With just a handful of employees, you can implement a plan that is competitive with those of much larger employers.
Is there a lot of administration or complicated paperwork involved?
No. Set-up is simple, and the majority of that set-up is done by our office of benefits advisors and the carrier with whom we decide to provide the group savings program platform. With today’s technology, the systems (online and mobile) available to small and medium organizations are very impressive. These systems offer employees real-time access to managing and tracking their financial and retirement planning. Administration by employers is simple and is basically limited to enrolment and termination of members, and remittance of contributions to the carrier.
Are there hidden costs such fees charged by the investment carrier or the advisor?
No. The fees are taken off the investment returns prior to being distributed to the members of the plan. For example, if an investment had a return of 10%, and the investment management fee were 1%, the employee would simply see a 9% return.
While there can be some small one-off charges, these are uncommon and for unique, infrequent situations. In the typical day-to-day administration of the plan, the employer and employee would not be subject to admin fees or service charges.
How do I take the next step, and implement a plan?
Enlisting a benefits consultant such as one of the advisors at the Immix Group is the first step in setting up a group savings program. We can walk you through several steps:
- Outlining a variety of options that fit your budget
- Ensuring you understand the various tax details that are relevant to you
- Helping you in selecting the right plan
- Rolling it out to your staff
- Ensuring education opportunities for staff, both as a group and individually
- Managing it going forward.
When it comes to a group savings program, set yourself apart as an employer: Offer your people the opportunity to save for their futures. As noted earlier, it’s easy – we promise!
For more information, please feel welcome to contact me: firstname.lastname@example.org
*Group RRSP: a Registered Retirement Savings Plan. Just like the individual one you may have, but sponsored by your employer, and with contributions made via payroll deduction. A RRSP allows for tax-deferred investment growth.
Group TFSA: A Tax-Free Savings Account; just like the group RRSP, a Group TFSA is simply a TFSA sponsored by your employer. This allows for tax-free investment growth.
DPSP: a Deferred Profit Sharing Plan. This is for the employers’ contributions, and also offers tax-deferred growth on investments, similar to a RRSP.