Improving Your Employees’ Retirement: Understanding and Maximizing Your Group Savings Plan

As an employer, if your company has 10 or more employees in Quebec, you have had to comply with the obligations to set up a pension and savings plan for your employees. If you want to read more on the subject, we invite you to read our article: The Voluntary Retirement Savings Plan (VRSP), after almost 10 years later. Knowing this, did you opt for a simple and effective solution? Does your current plan meet the needs of your employees as well as your business goals?

In this article, you will explore the different types of retirement and savings plans available, as well as their pros and cons. This will allow you to assess the relevance of your current solution and consider potential improvements.

Choosing a pension plan is based on many factors. Flexibility, simplicity of administration, the value of retirement savings, the short-term needs of your employees, as well as your retention and attraction objectives are all criteria to consider when making your decision.

If you are looking for a flexible solution while still promoting retirement savings, group RRSPs (Registered Retirement Savings Plans) and DPSPs (Deferred Profit Sharing Plans) are great options. These plans are simple to administer and value total employee compensation, improving your employer brand.

A major advantage of the DPSP is that the employer’s contribution is not subject to payroll taxes, making it an excellent complement to the group RRSP into which employees will contribute. Another advantage of the DPSP is the possibility of integrating a vesting period of up to 24 months, thus limiting the risk of contributions for less loyal employees. In addition, RRSP or DPSP contributions can be used for personal projects, such as buying a first home through the HBP (Home Buyers’ Plan) or a transfer to the FHSA (Tax-Free First Home Savings Account).

Adding a group TFSA (Tax-Free Savings Account) can also be attractive, especially for employees at the beginning of their careers, as it allows them to save for short-term projects while acting as a complement to the group RRSP, which also allows newcomers to participate and value the plan.

If your primary goal is legal compliance, the VRSP (Voluntary Retirement Savings Plan) and  the Voluntary RRSP (Registered Retirement Savings Plan) are relevant choices. These plans allow employees to save without having to make contributions from the employer.

However, the VRSP may have certain limitations: the amounts paid by the employer cannot be withdrawn before retirement, except in the case of specific withdrawal conditions, thus limiting the flexibility of this plan. In addition, it can be more cumbersome to manage than an RRSP.

The SIPP (Simplified Pension Plan) offers a structured solution where employer and employee contributions are deposited into a joint account. Contributions belong to the employee as soon as they are paid.

Employer contributions are locked-in as soon as they are made and can therefore only be withdrawn upon the employee’s retirement or in exceptional and well-defined situations. The employer also has the option of locking in or not, the regular contributions made by the employee.

This mechanism limits early withdrawals of funds, thus encouraging employees to keep their savings for retirement. In other words, the employer can restrict access to the amounts paid by the employee, in addition to those of the employer, which makes it an effective tool to promote savings in the long term.

Locked-in contributions encourage long-term savings, which makes the SIPP an attractive option for securing a fund specifically for retirement.

Please note that the SIPP is only available to Quebec businesses.

DC (Defined Contribution Plans) and DB (Defined Benefit Plans) share a common goal: saving for retirement. However, their operation differs significantly.

DB plans provide increased peace of mind to the employee about security due to the amount of pension benefits he or she will receive but can present high and volatile costs to the employer during times of economic instability. They are also more complex and expensive to administer.

DC plans, on the other hand, offer greater simplicity than DB plans, but the final benefits depend on the returns on investments and contributions accumulated in the employee’s account, thus posing more risk to the employee.

This is similar to the other types of plans presented in this article. It should be noted, however, that the regulatory framework, the resulting administration and the associated costs are considerably higher in the case of DC plans, which explains why many will prefer to set up a RRSP/DPSP or a SIPP rather than a DC plan. Some will even convert their DC plan to these types of plans that are more flexible, simpler to administer and better meet the short-term savings needs, such as the HBP or FHSA for example, for certain groups of employees.

In a context where attracting and retaining talent is crucial, it is essential to analyze your pension plan to ensure that it meets your strategic objectives and the expectations of your employees. Here are some key questions to ask yourself:

• Is the current plan structure aligned with your business objectives?
• Does it offer enough flexibility to meet the needs of the different generations of employees within your organization?
• Does it allow your company to differentiate itself in the job market?

• Do employees understand the benefits of the plan?

In addition to the plan structure, other elements can help your employees value the plan and their financial success, including:

• Are you proactively renegotiating management fees with your service provider?

• Have you enhanced your investment options to be inclusive and aligned with your employees’ values?

• Do you offer support to your employees to promote their financial well-being?

Investment management fees, which are levied on the plan’s assets, could be used to provide value-added services, such as individual and independent personal finance advice, or personal finance conferences, webinars or workshops.

According to an April 2024 Leger survey, “one in two (48%) people say they feel anxious when thinking about their finances.” When we know the degree of financial anxiety that employees are experiencing, access to education and support in the field of personal finance is a more than important advantage for employees, in addition to being a very interesting way to stand out as a company.

To meet the needs of SMEs that wish to set up a personalized retirement savings plan, Solertia has built a complete solution adapted to the needs of organizations, including:

• Support for the design of the plan;

• Support throughout the integration;

• A communication plan;

• Access to a comprehensive financial education program, including:

• • Regular webinars;
  • Access to independent personal finance advice;
  • Corporate conferences;
  • The presence of an independent financial planner in the company.

• Governance support;

• Support to the employer for day-to-day administration;

• Access to a toll-free line (1-800) for participants;

• And much more!

It is essential to understand the pension and savings plan you have in place and the reasons behind it.

Do you want a simple and effective plan? Do you want to support employees throughout their financial journey or specifically for retirement? What are the needs of your different employee groups?

Clarifying these points will help you value your program to your employees and promote their financial well-being.

Our pension and savings team is available to help you or to answer your questions. Please do not hesitate to contact us.

^{1. Centraide Financial Anxiety Index, Centraide of Greater Montreal and Firm Léger, April 2024, p.4, IRL: https://medias.centraide.org/Docs/Rapport_indice_anxiete_financiere_Centraide_Printemps2024.pdf}