Employee Retirement Plans

To assist with your understanding of the various employee retirement plan alternatives available to today’s employers, we are pleased to provide following information. These alternative plans include:

• Registered Pension Plans
• Structured Group RRSPs
• Deferred Profit Sharing Plans
• Individual Pension Plans
• Employee Stock Purchase Plans
• Non-Registered Savings Plans

We have assisted employers with analyzing, implementing and servicing all of these plans; however for clients in similar situations to you, we typically focus on Group RRSPs, Structured Group RRSPs and Registered Pension Plans.

Group Registered Retirement Savings Plans (Group RRSP)

These plans are considered the most basic form of an employee retirement plan.  They are typically established when an employer wants to assist their employees with saving for retirement, however does not necessarily want to commit to making employer contributions to the plan. 

A Group RRSP is basically a payroll-deducted retirement savings plan that allows the employees the option to participate and the ability to dictate the level of contributions they make to the plan.  Being a “registered” plan, the employee receives income tax benefits as their contributions and subsequent growth are tax-deferred until they retire.

Employers can, and do, contribute to these plans, however it is not a requirement.  In the event an employer chooses to contribute to a Group RRSP, their contributions are actually considered employee contributions and are therefore treated as such.  For example, if an employer were to contribute $1,000 to an employee’s Group RRSP, this contribution is in effect given to the employee as additional income, then deducted from their pay and deposited into the Group RRSP.

This action results in the employer having to pay various payroll taxes associated with payroll, such as Worker’s Compensation Board (WCB), Canada Pension Plan (CPP), Employment Insurance (EI) and vacation pay.  Once received by the employee, they also are required to pay CPP and EI taxes. 

At times, Group RRSPs are preferred by employees as once the contribution is made by the employer, it becomes theirs. Meaning, the employee immediately owns and controls the employer contribution. They can withdraw it while employed, take it with them if they terminate and invest it in a fund of their choice.

As well, most employees are more familiar with Group RRSPs as they likely have purchased their own individual RRSPs in the past.

Structured Group Registered Retirement Savings Plans

Structured Group RRSPs combine the employee flexibility of a Group RRSP with some of the employer controls of a Registered Pension Plan.  The employer controls give these plans “structure” that Group RRSPs typically do not have.

Some examples of this structure are:

• Penalties in the event an employee withdraws fund from their plan
• Penalties in the event an employee suspends contributions to their plan
• Requirements that employer contributions are subject to specified employee contributions

Registered Pension Plans (RRPs)

As you may be aware, pension plans have evolved over the years.  In the past, many employers used to maintain “defined benefit” pension plans.  Though these plans were ultimately effective in developing and maintaining retirement funds for employees, they were typically confusing to most, expensive to administer and perceived as quite conservative and difficult.  As a result, many developed negative opinions towards pension plans.

Pension legislation and the various pension plan providers have continually adapted to better meet the demands of the employers and their employees.  In recent years, the legislation related to pension plans and the move from “defined benefit” to “defined contribution (or money purchase)” pension plans has made them much more attractive to today’s employers.  As a result, most employers who have had the opportunity to compare a pension plan to a Group RRSP typically choose to implement a pension plan.

Differences Between Group RRSPs and
Registered Pension Plans

Registered pension plans share many similarities with Group RRSPs, however they also maintain significant differences. 

The four main differences between pension plans and Group RRSPs are:

• Employer contributions to a pension plan go directly from the company to the pension plan, thus avoiding payroll taxes such as WCB, CPP, EI and vacation pay.  In addition, the employee is not required to pay CPP and EI on the employer contributions. 

• Pension legislation allows “vesting” provisions to be established.  In British Columbia, an employer may restrict the vesting of employer contributions to after an employee has been a member of the pension plan for two years.  Employers prefer this as it enables them to maintain some control combined with assisting to retain employees.

• Pension legislation also requires that once vested, both the employer and employee contributions to the plan are “locked-in.”  Meaning, once vested an employee would not be able to withdraw their pension funds until they formally retire.  In B.C., this could occur as early as age 55 or as late as age 69.  Many employers like this feature as it ensures that their long term employees will have a base of retirement income.

A pension plan carries more prestige than any other form of employee retirement plan.  It is commonly felt that a pension plan is a strong statement from an employer that they are concerned about the long term well-being of their employee.