Supporting Your Team’s Retirement Dreams

Research indicates that Canadians are not saving enough for retirement, and while retirement may be farther away for some of your team members than it is for others, it is an important consideration for your employee benefit package. Although every organization supports the retirement of their employees through contributions to the Canada Pension Plan (CPP), a retirement program is a great way to show support, and can be a very valuable benefit feature in recruiting and retaining staff.

Public sector and/or very large private sector employers normally provide a “defined benefit program” for their staff and contributions are made by both the employer and the employee. The pension amount is usually calculated as a percentage (based on tenure with the organization) of the best five years of earnings, and as such employees can figure out how much they will receive on a monthly basis after retirement. This is an expensive and challenging system to set up and administer and smaller employers normally look for a different program to meet their needs.

For smaller businesses, it is relatively easy to establish an RRSP program, or “defined contribution program”, with an investment company. In this case, the amount of contribution is clearly defined instead of the amount of money or benefit that is paid out.

Once the agreement is established, payroll is set up so the deductions can be made and remitted directly to the investment company. Employees are permitted to make pre-tax contributions to their own RRSP account, which are often matched by the company, based on program parameters. For example: An employer may provide a 100% match on contributions if the employee remits up to 5% of their base earnings. These matching funds would either go into the employee RRSP account, or be held in “reserve” until the completion of a vesting period, which could be up to 2 years.

With a program like this, the employee is in charge of the investment of their funds and the total value of their fund will vary based on those decisions. Younger employees may opt for more risk in anticipation of a higher return, while older workers may choose to invest in funds that have less volatility. The investment company usually provides relevant investment information and history of funds in an online portal. Employees are able to make those investment decisions and complete the transactions themselves.

When an employee leaves the company, the employee still has access to their retirement funds and may choose to remain with the current investment company (in a non-company account), or transfer their funds to another institution. As long as the funds remain in an RRSP account, this can be done without any tax implications for the employee.

This is a great way to demonstrate to your employees that you care for their long term well-being and may well be a differentiator for you in the war for talent.

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(A Subsidiary of Chemistry Consulting) Offers a wide array of programs and services to employers and job seekers across British Columbia.

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