Besides a group benefits plan to keep them healthy, employees are seeking group savings and retirement plans that will ensure they have the necessary resources for a lengthy and comfortable retirement. From the employee’s perspective, group savings and retirement plans provide:
- Savings that grow tax-sheltered until retirement
- Payroll deductions so that less tax is withheld at source and so investments can benefit from dollar cost averaging
- Low minimum contributions, so employees of all pay ranges can benefit from the plan
- Professional investment management from some of the top managers in Canada
- Lower fees due to economies of scale
All contributions by the employer on behalf of the employees are tax deductible. Employers can offer the following plan options for their employees:
- Group RRSP – Flexible plan in which contributions grow tax-sheltered and can be contributed by both employee and employer. Even though contributions by an employer is a taxable benefit to the employee, an offsetting deduction can be made by the employee on their tax return, resulting in no net tax. Savings are eligible for the Home Buyer’s Plan and Lifelong Learning Plan.
- Deferred profit sharing plan – Contributions are derived from company profits and is solely up to the discretion of the employer. By allowing employees to share in the profit of the company, it drives up productivity and loyalty.
- Defined contribution pension plan – A more stringent plan that allows both employee and employer to contribute based on a percentage of earnings. Assets are locked-in and must be withdrawn as an annuity or life income fund upon retirement. It does prevent employees from prematurely withdrawing from their retirement plans like they can with a group RRSP.
- Defined benefit pension plan – It has similar rules as the DCPP, with the difference being that retirement income is predetermined and promised based on age, earnings history and tenure of service. Actuaries are involved in the calculation and investment shortfall is funded by the employer, increasing the overall cost of the plan if investments fall in value.
- Group TFSA – Contributions are made by the employer on behalf of the employee and is considered a taxable benefit. They are not tax deductible for the employee, but do not result in taxable income when withdrawn.
To see how we can help you set up a group savings and retirement plan, head on to our contact page and send us an email.
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