What companies need to know before offering Group RRSPs
There’s a huge talent shortage in Canada. To cope, cities and provinces are opening up that talent search to the world (even as others turn skilled workers away). In this hyper-competitive recruiting environment, savvy employers are using a big enticement to keep top performers: Group RRSPs.
Not all employee savings programs are equal, of course. “At CI Direct Investing, we often find ourselves advising people who come to us with traditional group RRSP plans,” our CEO and Co-Founder Tea Nicola said a little while back in IE magazine as we were launching our own Group RRSPs offering. Often, companies pay high fees for limited offerings when they don’t have to. CI Direct Investing’s flexible employee savings offering has a less-than 1 percent fee, for instance.
Companies seriously looking at getting or changing up their Group Plans often come to us with questions that we’re happy to answer. Today we wanted to share some insights from a talk we had with Cissy Pau, Principal Consultant at Clear HR Consulting. Cissy is a highly-sought-after expert in HR matters, who is regularly interviewed by the likes of the CBC, Globe & Mail, BC Business and other major media.
We talked with Cissy about what companies need to know before they move ahead with a plan.
WB. I gather that companies don’t often think about Group RRSPs until they start to really grow. When should a company consider getting a Group Plan?
Cissy. It makes sense to look at it more if they’ve looked at other areas of compensation first. For instance, is there a competitive salary? Medical benefits? Training and professional development?
Once you’ve taken care of the basics, then you can look at Group RRSPs. But if you pay employees on the low-end of a salary range, don’t do Group RRSPs.
WB. What are some other things to think about in terms of timing or the kind of plan?
Cissy. Look at where your staff is in life. That will help you understand what your employees’ needs are going to be and also highlight the benefit. For instance, if you’ve got a lot of young employees who are looking to buy their own home, you get set up Group RRSPs so the employee can use them for the First Time Homebuyer program.
If instead most of your workforce is closer to retirement age, there might not be enough years to contribute. In that case, the employees might not care about the benefit.
WB. What level of benefit is enough to draw in new employees, or to encourage current employees to stay on?
Cissy. What we’re seeing on average is in the 3 to 6 percent range of matching if employees are contributing. That said, one company I know contributes up to 6 percent to RRSPs without requiring a contribution from the employee.
If it’s one of a basket of benefits, it can help retain staff. However, I’m not sure RRSPs would be the reason to stay in a business. The exception would be if the RRSP benefit is so extraordinary for the employees that it’s a golden handcuff.
WB. But there’s no magic number for a percentage for the company to contribute.
Cissy. I don’t know if there is a right amount because there are so many considerations. There’s work culture. What’s the leader like? After that, you look at the benefits package. If the company says they’ll match 6 percent if an employee put in 6 percent, it could be quite appealing. That’s especially true if you’re looking at a faster vesting period.
A big question for the employee is, at what point do you get the full employer contribution? How long do they get to keep the full amount contributed from the employer? If it vests right away, it could be attractive. If it takes two years to vest, that could be a different story.
WB. What should companies not do when it comes to setting up a group RRSP benefits plan?
Cissy. Make sure you have a qualified group RRSP advisor setting it up, not just some guy who sets up investments. A qualified Group Plan adviser knows how to create a mix of funds that create good returns for your staff.
You would also want to make sure employees can get independent investment advice and that the employer encourages them to take up that advice.
The one thing we hear from advisers: when the group RRSP is set up, those funds are supposed to be locked in until retirement and they can’t just withdraw from that RRSP whenever they want (and pay taxes).
The thing about Group RRSP plans, if they’re set up to be too flexible, it defeats the purpose of having them. That’s why the rules are set up. It’s about putting some of those restrictions in place. Otherwise employees just take the funds out, and there’s nothing left for retirement.
WB. Are there any other challenges you often see with employees setting up a Group RRSP plan?
Cissy. One of the things we see more often than not (and this also applies when dealing with any kind of benefits): employers typically do a bad job of explaining RRSPs to employees.
The employer should focus on communicating the benefits. They need to be clear about why it’s a benefit. If employers aren’t explaining it, you run the risk of employees not even realizing what they get. It’s not uncommon to hear employees saying I didn’t even know I had this. Again, that defeats the purpose of having the benefit.
We recommend at least an annual compensation benefits reminder. That’s a communication sent to employees to remind them what they get. It’s especially important if they have a group fund and they have to pick funds every year. Who’s doing that with your staff? There needs to be a process in place.
Thinking about starting a Group RRSP plan at your company? Contact us to talk about our flexible employee savings programs.