Employers in Alberta today are faced with an ever competitive job market when trying to attract and retain qualified employees. With more than half of the Canadian workforce having no company pension plan, health and retirement benefits can be a major factor in both attracting and retaining those employees. A Group RRSP plan is a good way for employers to provide a low cost benefit to their employees who can take advantage of saving for their retirement.

A majority of Canadians worry about not having enough money at retirement to pay their bills and wonder if the Canadian Government can maintain the public retirement system when all those baby boomers hit the system. Already the cornerstone, Old Age Security is clawed back to high-income seniors and though Quebec and Canada Pension Plans are on solid financial footing, they can hardly ensure a comfortable retirement. In 2007 the maximum monthly CPP payout at age 65 was $863.75 or an annual income of $10,365. In 2007, Old Age Security averaged $495 a month or $5,940 per year. That’s why the federal government has been offering the benefit of tax deferrals on investment savings. They want to encourage Canadians to save for their own retirement through registered retirement savings plans.

Simply stated, a Group RRSP is a collection of individual RRSP setup by the employer and funded by regular scheduled payroll deduction from the employee. One of the significant benefits of a group plan is the contributor (the employee) realizes a tax saving immediately, instead of waiting until the end of the tax year. The contributions on a group plan are made on a pre-tax basis. This means that the tax calculated is after the RRSP contribution is deducted. With an individual RRSP contribution, the tax break comes as a refund on taxes after you filed your income tax for the following year. With a group plan you won’t overpay your taxes during the year and then wait for your income tax return in essence giving the government an interest free loan.

Another advantage to the employees of a group plan is that they can customize the plan, as group plans usually have a number of investment options which they can tailor to their own risk tolerance and objectives. Because the contributions come right off their paycheck, the group plan provides them with a disciplined savings plan and allows them to take advantage of dollar cost averaging. It gives them access to a financial advisor who can assist them in making informed decisions regarding their investment options. Group plans are also easily transferable to an individual plan if the employee leaves the company.

A benefit to the employer is that a Group RRSP is an affordable and flexible alternative to a traditional pension plan without large financial or legal commitments. It’s a flexible way to compensate employees, as the employer may choose to build on the plan by adding to the employees’ contributions (i.e. matching 5%) or increase their contribution based on the employees’ tenure with the company. They can even use it as vehicle for bonuses.

This is one aspect of providing a comprehensive benefit package that contributes to a positive working environment and enables employers to attract and retain qualified employees.

July 2, 2008