How an RRSP matching program gives your employees peace of mind

For some employees, retirement can be years away but it’s a topic that’s not far from their thoughts.

As they struggle to meet their daily expenses, setting money aside for retirement is often placed in the backburner. So, what can employees do about their retirement savings, which are often placed in a Group Registered Retirement Savings Plan or Group RRSP? Apart from doing side jobs, starting a small business, or getting a higher salary, there is little that workers can do to boost these savings.

Employers, on the other hand, can help ease the pressure by offering retirement savings benefits. One such benefit is called the RRSP matching program, a feature of some group retirement savings plans.

In this article, Benefits and Pensions Monitor sheds light on this unique retirement savings benefit.

We’ll answer questions like:

• what is the RRSP matching program in Canada?
• is RRSP matching worth it for the employee and employer?
• what is the employer RRSP matching percentage?

Read on and we’ll give the answers to these and more.

Introduction to the RRSP matching program

For those who may think that the RRSP matching programs are a complex retirement tool, it is simply a feature in some group retirement savings plans. In an RRSP matching program, the company “matches” the employee’s contribution into the retirement plan.

There is a limit: employers only match their employees’ contributions up to a certain amount, or up to a percentage of the employee’s salary. In some companies, the RRSP matching program is used as a reward for employee performance or productivity.

There is no legal requirement for the RRSP matching program either. The creation and participation of this benefit is optional, unless the company adopts a group retirement plan that is mandatory – employees must contribute to the plan in this case. Bottom line, matching RRSP contributions and in what amounts or percentages is a decision left to the employer.

How RRSP matching works

Once established, employees participate in the company RRSP. Employees who have joined the company RRSP then make contributions; this is often done via salary deduction every payroll. Their contributions can be specific dollar amounts or a percentage of their salaries.

And as the employees make contributions to their RRSP, the employer can choose to match their contributions, which can likewise be in certain amounts or percentages of the employees’ salaries.

RRSP match example

Let’s assume that an employee at a Canadian company makes $80,000 a year. They then contribute a percentage of their income, let’s say 5 percent, to their employer’s group RRSP. That means they make a $4,000 contribution.

If their employer decides to put up an RRSP matching program with matching contributions of up to 4% of their employee’s salary, then they would be placing $3,200 in their employee’s RRSP account.

The employee would receive an additional contribution to their RRSP at no extra cost. Instead of putting away a mere 5% in their retirement savings, they’re now saving 7%.

But what if the employee contributes less than that, and only contributes $1,500? In this case, the employer would match the full amount of $1,500.

Important notes about the RRSP matching program

Here are some important guidelines to remember about this benefit:

• Employees typically get to decide on how to invest the RRSP contributions. They get to choose the investments offered by the organization’s investment manager or group RRSP provider.
• Check your company’s plan document to see if the group RRSP provider or investment manager gives any discounts on their fees, making the earnings on the investments larger.
• For the employer to make matching contributions, there must be contributions for them to match. Employers are not obliged to give out bonus contributions – employees who don’t participate in the RRSP or contribute for a given year are not entitled to matching RRSP contributions.
• Contributions made by employees and matching contributions made by employers are not locked in. Should an employee leave the company, they have these options:
  • transfer their RRSP into another account
  • transfer their RRSP contributions into another retirement vehicle
  • cash out their contributions

If the plan is set up for employer match amounts to go into a deferred profit-sharing plan instead of the group RRSP, employees may not cash out.

In this case, the employer’s contributions may be subject to a vesting period before a departing employee can withdraw them. Employers can also choose to place restrictions on withdrawals from the group RRSP.

RRSP matching program: how is it good for the employer?

Here are the benefits your organization can reap under the RRSP matching program:

1. Can attract new talent

For starters, offering the RRSP matching program can give your organization an edge over other companies when it comes to attracting and hiring top talent. Offering this benefit can round out your company’s compensation package and get the attention of high-performing employees.

Apart from offering popular employee benefits, your company will have to be more creative at putting attractive compensation and benefits packages for potential hires.

Read more: How can you improve your company’s compensation and benefits program?

2. Can retain current employees

High employee turnover rates can cost your company more than spending on benefits that keep the employees you already have. There are other non-monetary costs to losing key employees. For current employees, the RRSP matching program is essentially free money if they’re enrolled in the company’s Group RRSP.

Here’s a video that HR staff can use to inform or convince employees about the benefits of the RRSP matching program:

If your company offers this benefit, employees will think twice about leaving or accepting offers from other companies or recruiters. When combined with other benefits like an Employee Assistance Program, the RRSP matching program can be an effective tool for your company to keep valued employees.

3. Make your business more competitive

An RRSP matching program can be a good incentive for your employees if your company cannot afford other costly benefits like stock options or pension programs. If you risk losing employees to bigger multinational companies or government offices, this benefit can give your company a fighting chance and retain your valued workers.

4. Optimizes company finances by earning tax deductions

The contributions that employees make, and the employer’s matching contributions are both tax-deductible. The RRSP matching program can help your organization reduce their income tax due.

5. Improved productivity and efficiency

Employees who have the peace of mind that comes with their retirement savings getting a boost from this benefit are more productive. With happy, productive employees, it should follow that the company becomes more profitable – it's a win-win situation all around.

Important considerations when setting up an RRSP matching program

The RRSP match is not a cut-and-dried benefit, as there are certain conditions and features that employers will have to think about. HR staff and management should discuss and decide what features their RRSP matching program will have. These are the top considerations of this program:

Group RRSP options: restricted or unrestricted?

Whether a Group RRSP (or GRSP) is restricted or unrestricted, the contributions the employer makes to it are deemed a taxable benefit to the employee.

But if your company opts for a restricted plan, employees cannot transfer or withdraw funds before retirement – unless they do so to avail of RRSP features like:

• The Lifelong Learning Plan (LLP)
• The First-Time Home Buyers Plan  

On the other hand, in an unrestricted plan, plan participants can withdraw or transfer their money with certain limits, such as after filling out a request form or only doing it once a year.

An unrestricted plan is usually the better choice of the two, as employees can have access to funds from their GRSP in case of an emergency.

With or without a vesting schedule?

Some companies choose to have a vesting schedule in place when it comes to retirement plans. This is often the case when the GRSP is combined with a deferred profit-sharing plan (DPSP) where employee contributions go to the GRSP while matching employer contributions go to the DPSP. Vesting schedules aren’t allowed with GRSPs.

If an employee leaves before the date where they are eligible for vesting, unvested funds go back to the employer. So, if an employee leaves before the end of their vesting period, their DPSP money goes back to the company. It's recommended to offer a GRSP plan without a vesting schedule to allow employees to maximize this benefit. 

GRSP Plan tiers or no plan tiers?

When establishing your company GRSP, companies can offer different tiers of plans to employees based on categories like:

• years of service: progressively higher contributions, e.g. match 0.05% per year up to 5 years and then add 1% for every year after
• employee class: higher contributions for managers, executives, or certain roles that are more senior or competitive
• location: higher contributions for areas with more competitive hiring and retention rates

While this may seem like a sound idea at first glance, this may not be favourable for companies and employees in most cases. For one, they only complicate the process and, maybe more significantly, plan tiers can appear unfair to employees. Many employers would want their staff to feel equally valued regardless of their tenure, job, or locale.

First-day enrollment or only after a probationary period?

Employers can choose to make new employees members of their GRSP program on their first day on the job, after a probationary period (e.g. 3 months), or after a year or more of employment.

An employer may also allow new employees to participate in the GRSP program but delay the RRSP matching program until the employee has reached a specified employment milestone.

While any of these options are acceptable, it’s best if you offer your full GRSP program, including RRSP matching from the start of their employment. That way, the employee experiences their full compensation package immediately.

Base contributions and matching?

Some employers give matching RRSP contributions only if the employee also contributes the same amount to the GRSP via deductions from every paycheque. Other companies may opt to make percentage-based match contributions regardless of whether the employee contributes to the GRSP or not.

But as with all the other decisions related to an RRSP matching program, it’s the employers who take the lead. When your company decides on these program features, it’s important to apply only what makes sense for your company’s size, workforce, compensation budget, industry, and values.

RRSP matching program to help support employees

When designing your RRSP matching program and your benefits package, there’s a lot to consider. Before choosing a GRSP provider, prepare questions and a basic framework for how you’d like your company’s GRSP to operate.

The RRSP matching program can be a powerful part of a company’s employee benefits toolbox.

Apart from being an effective attraction and retention tool, this is a positive and cost-effective way for companies of any size to help their workforce eventually ease into retirement.

This benefit also encourages employees to save. And with the rising costs of living, Canadian workers will need all the help they can get to cobble together a decent retirement savings fund.

A benefit like this can be a real boon to Canadian workers, since many of them think they won’t retire or don’t know how to go about retirement. Assisting your employees prepare for a decent financial future can help ease their minds and increase your company’s performance and profitability in the present.

Is your organization thinking of including an RRSP matching program in your benefits package? Tell us in the comments what you think about this strategy