Group Retirement Solutions
Group retirement solutions are employer-sponsored savings plans that help employees save for retirement with tax benefits, competitive fees, and the convenience of automatic payroll deductions. Many companies offer these plans as a key tool for attracting and retaining talent.
These programs are a core part of an employee’s benefits package and can include 6 tax-advantaged savings options.
Common types of group retirement solutions
Group Registered Retirement Savings Plan (RRSP)
This is the most common and flexible type of group retirement plan.
- How it works: An employer sets up a plan with a financial institution, and employees contribute directly from their pay via pre-tax deductions. The employer can choose to match employee contributions, and these contributions are tax-deductible for the employee.
- Benefits: Employees receive an immediate tax break, the convenience of payroll deduction, and often lower investment management fees than individual plans.
- Flexibility: Funds are not locked-in while the employee works for the company (some employers may restrict withdrawals). If an employee leaves, they can transfer the funds to a personal RRSP.
Deferred Profit-Sharing Plan (DPSP)
In a DPSP, only the employer makes contributions. The plan allows employees to share in the company's profits, and the contributions are not considered a taxable benefit to the employee when received.
- How it works: The employer sets aside a percentage of company profits to be distributed to employees. These funds are contributed to a trust, and taxes are deferred until the employee withdraws them.
- Benefits: It acts as a powerful retention tool, as contributions are often subject to a vesting period. It's also a valuable way to motivate employees by linking their savings to the company's financial success.
Defined Contribution Pension Plan (DCPP)
This is a more structured retirement plan that is regulated by federal or provincial pension legislation.
- How it works: The plan defines the amount of money going into the plan, which is often a percentage of the employee's income. The employee and employer both contribute, and the employee is responsible for making investment choices from a menu of options.
- Benefits: Employee contributions are often mandatory, ensuring disciplined savings.
- Limitations: The retirement income is not guaranteed and depends on the investment performance and total contributions.
Defined Benefit Pension Plan (DBPP)
These plans are less common today in the private sector but still exist, particularly in the public sector.
- How it works: The employer promises a specific, pre-determined retirement income based on a formula that typically considers the employee's salary and years of service.
- Benefits: The employee is guaranteed a predictable, lifetime retirement income, regardless of investment returns.
- Risks: The investment and funding risks are borne by the employer, not the employee.
Advantages of group retirement solutions
Attractive benefits:
Offering a robust retirement plan helps attract and retain skilled employees, boosting a company's total compensation package.
Employee retention:
Statistics show that employees are more likely to stay with their current employer if they feel financially secure about their future.
Tax benefits:
Employers can deduct their contributions as a business expense.
Financial wellness:
Group plans leverage economies of scale, meaning employees benefit from lower investment fees than individual plans.