The Canadian workforce is rapidly changing. In 2021, tens of thousands of workers quit their jobs, part of what many are calling “the Great Resignation.” A growing number of companies are putting more money into employees’ Group RRSP accounts, pulling another lever to attract and retain staff amid high turnover and competition for talent.
Among companies who offer Registered Retirement Savings Plans (RRSPs) to their employees, a common perk is contribution matching. For example, if you contribute to a group plan, your employer may match a certain percentage of your contribution, or a specific dollar value. While some plans match 100% of your contributions, others offer matching arrangements depending on the plan.
If your employer offers a contribution matching, you’ll enjoy an automatic return on investment that would be difficult to beat in the market.
Can I Save For Retirement Through RRSP Matching?
A good reason to increase your annual RRSP contributions is to ensure you’re taking full advantage of your employer-sponsored matching program. Otherwise, you’re “leaving money on the table”. RRSP matching can be done for an individual or a group—and will help to lower your tax burden.
How Does Employer RRSP Matching Work?
In Canada, most employers take a portion of their employees’ income and contribute it to their respective RRSP accounts through payroll. The employer then matches the contribution in whole or in part. The prerogative to choose the terms of the RRSP contribution matching program lies with the employer who has a variety of options from which to choose.
Employer RRSP matching in Canada is determined by certain variables. These variables include employee tenure, contributions, and the percentage that will be matched by the employer.
What Is A Group RRSP Matching Program?
A Group Registered Retirement Savings Plan (GRRSP) is offered by an employer as a perk to attract and retain talent, and as a way to save for retirement. It is similar to an individual RRSP, with the important distinction that the plan is offered to a group in order to reduce administrative costs and fees. Contributions to a GRRSP can be made by the employee or the employer to attain certain tax advantages.
Employers can make the most out of this plan by offering an attractive matching percentage that is cost-effective from a business perspective. The GRRSP gives the employer a tax deduction for all the years that your contributions are matched. Since the program is run centrally, those participating in it are affected by the same rules and procedures as they invest in the same funds.
What Are The Benefits Of A Group RRSP?
RRSP matching is a great way of growing your savings. For instance, the most popular matching is done on 50% of the initial 6% of pay saved by an employee. In this case, an individual whose annual salary is $35,000 and contributes 6% to the RRSP plan ($2,100), would get an extra $1,050 in employer contributions. It is exceedingly rare for any investment vehicle to offer a 50% return on an investment. So, if matching is available to you, enrol today—don’t leave money on the table!
Immediate Tax Savings
RRSP contributions significantly reduce your taxable income. Every dollar contributed to the savings plan lessens tax as per your current marginal tax rate. Employees who contribute to a group RRSP will pay a lower tax as compared to those who do not contribute. Opt into a group RRSP and enjoy the taxable benefits of RRSP matching.
Low-cost Fees & Mutual Funds
For employers, RRSP matching makes sense. The administration cost is relatively low, and there’s no need to give up equity to employee.
Regular Automatic Contributions
Contrary to individual RRSPs, where plan owners manage their own accounts, group RRSPs give employers the opportunity to include features such as contributions through payroll deduction, which allows for uninterrupted regular and automatic contributions.
Lower Minimum Contribution Limit
Group RRSPs lower your minimum contribution limit significantly. Since employers can develop policies for the group RRSP, saving for the future, irrespective of the amount, is encouraged. Besides, you are relieved of managing the RRSP account which may be very confusing if you do not fully understand it.
Should I Contribute To My Employer-Matched RRSP?
Matching retirement contributions is beneficial to both employer and employee. Employers are able to claim a tax deduction in most cases. And since an employees’ contribution comes from their paycheque, the employer does not have to withhold payroll tax.
Contributing to your employer-matched RRSP can help you achieve your retirement hopes and aspirations. Involving your employer in the realization of these objectives will help guarantee your future. Since employer-matched RRSPs can help you raise your total compensation, purchase a home and build financial security for retirement, it’s a savvy financial move. Don’t leave money on the table!