Group Savings Plans

With many businesses quickly growing from small one or two man operations into significant employers, group retirement plans are all too often overlooked. Usually a growing company’s prerogatives are finding the right employees (in some cases finding any employees), finding and growing their facilities, and their own business development. Further, a lot of small businesses don’t even bother considering implementing group retirement plans because they might perceive them to be too costly or too much work on their own end.

Group savings plans can be set up for companies with as few as 5 employees, at a one-time cost of less than what most such companies pay in monthly bank fees.

3 reasons why every company should have a group retirement plan:

1. Increased productivity: Less time that employees need to spend attending to their personal financial matters.
2. Reduced turnover: Having a group plan in place helps attract and retain qualified individuals.
3. Increased morale, work satisfaction and loyalty: Employees can participate in a company’s profits (via DPSP), get access to vested company contributions over time, and generally just feel more comfortable that in addition to meeting their week to week expenses, a plan is in place to meet at least some of their future retirement expenses.

What exactly are group retirement plans? Primarily 3 types of plans fall into this category:

Group RRSP
A group RRSP is like a regular RRSP only it allows the employee to deduct pre-tax dollars directly off his or her pay-cheque to go into the plan. This alone benefits the employee in that their RRSP contributions defer taxable income instantly, rather than giving the CRA an interest-free loan until tax-time.

A company also has the option to match some or all of an employee’s contributions, up to certain limits. For example, an employee might get full matching on the first 5% of their gross earnings contributed, but no matching for anything additional they contribute. Whether or not a company chooses to offer matching contributions, and how much, really depends on how competitive the business wants to be to attract talent. As an experienced financial planner, who has helped a wide variety of clients and SEEN many different benefits packages, I can share my own experience of what other companies are paying.

Deferred Profit Sharing Plan (DPSP)
A DPSP offers employees the opportunity to share in a company’s profits and it offers employers a variable benefit, to which they can contribute more in more profitable years and nothing at all when money is tight. Contributions to a DPSP are made only by the employer and are tax deferred for the employee from day one. Unlike money in a Group RRSP, money in a DPSP may be subject to a vesting period of up to 2 years, benefitting employee loyalty. Ultimately employees transfer their DPSP into their RRSP or RRIF when they retire.

Defined Contribution (DC) Pension Plan

A DC pension plan works very much like a group RRSP, with required employee and employer matching contributions. Like all pension plans, DC pensions are registered with a provincial or federal pension authority which, depending on province, apply a few additional restrictions on the plan such as transferability and maximum payouts, as well as generally restricting a plan member from making any withdrawals whatsoever before age 50 or 55 (with a few exceptions, such as financial hardship). These restrictions are in place to ensure that the plan is actually available to the employee and their spouse at retirement and not simply withdrawn and spent, like anThe higher A1c levels rise in the blood, the more likely you are purchase generic cialis http://robertrobb.com/?iid=8986 going to suffer from ED. How couples deal viagra pfizer 25mg with this problem Many couples have strong desire to resolve ED to enjoy their sexual life, while some are exceptionally extraordinary in nature. If you are a computer user, your work productivity is badly affected if the computer you use goes to dysfunction. buying tadalafil online online levitra Several studies have found it to be very effective for infections like colds and fever.

RRSP can be. Unlike group RRSPs, DC pensions may also have vesting periods of up to 2 years in most provinces, ensuring the employer is getting better value (in terms of employee loyalty) for their contributions.

A company can employ either one of the above plans or a combination, even all three, depending on what their needs are. For example, a company that wants to be able to offer something like a matching contribution, without being liable to make those contributions in lean years, could use a combination of group RRSP (without matching) and a DPSP, and wait until they have a more consistent cash flow before introducing matching contributions in the GRSP or a DC plan. A more established company, with a need to attract top talent, might use a DC pension plan together with a DPSP, and possibly also a group RRSP.

Group retirement plans are fairly easy for the employee to transfer, should they leave the company. Non-vested company contributions in DC pensions and DPSPs of course can be clawed back by the company, but the employee can transfer their group RRSP and vested DPSP into any RRSP of their own choosing while DC pensions can be transferred into other pension plans of the same provincial/federal legislation or into a locked in RSP/RIF.

Likewise a company may choose to change their group savings provider from time to time, if their needs change. As companies get larger, greater economies of scale can make more cost-efficient plans available (lower MERs on mutual funds bought in “bulk” for the group). Employees also may have the flexibility to look at moving their plans into a more sophisticated brokerage account, once their balances are higher.

Most of the salespeople of group plans are directly employed by the plan sponsors, thus are only selling one range of products and cannot objectively match a business with the BEST group plan for their needs. Over the years I have transferred a lot of client assets in from group plans after they leave their company and find they all have very similar experiences: Very little interaction from the plan sponsors after setting their plans up, and then only very basic asset allocation advice.

I want to change that.

As an Investment Advisor and Financial Planner I coordinate the set-up of group plans, both in finding the right solution for companies from a variety of providers as well as providing initial and ongoing financial planning to employees. I feel that providing a retirement plan to each employee in the plan is important in both emphasizing the tremendous value that the company is providing them as well as ensuring that they stick with their plan long-term and don’t see it as an extra little piggy bank.

To find out which group savings plan is right for your company please call or e-mail and I will meet you at your place of business for a no-obligation consultation.