Since July 1st, 2014, the Voluntary Retirement Savings Plan Act (VRSPA) introduced obligations for Quebec employers. These measures aim to facilitate retirement savings for employees through payroll deductions.
This article will familiarize you with the VRSPA, including its impact on your organization and your employees’ savings habits.
Compliance with the VRSPA
To comply with the VRSPA, companies with 10 employees1 or more must offer all their employees a means of saving through payroll deductions.
Important reminder: The law does not mandate companies to establish a VRSP-type plan. To be exempt from this law, companies can set up a Registered Retirement Savings Plan (RRSP), a collective Tax-Free Savings Account (TFSA), or any other retirement savings plan.
Failure to meet obligations could lead to a complaint to the CNESST, resulting in fines ranging from $500 to $10,000. Note that fine amounts are doubled in cases of recurrence.
For organizations opting for the default account under the VRSPA, here are the main characteristics and guidelines for this type of retirement savings plan:
- Automatic Enrollment: All employees are automatically enrolled in the plan and can consciously choose to opt out within 60 days of their enrollment.
- 4% Salary Deductions: Since 2019, employers offering a VRSP must deduct 4% of their employees’ salary. This contribution rate can be reduced upon the employee’s request.
- Low Investment Management Fees: The law imposes a cap on investment management fees that can be charged in the plan, namely 1.5% of assets under management (1.25% for the default investment option2).
- Flexibility in Employee Contribution Treatment: Employee contributions are non-locked-in and, therefore, eligible for withdrawals under the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP).
- Voluntary Employer Contributions: Employers are not obligated to contribute to the VRSP they offer to their employees. However, if the employer chooses to do so, the contributions belong to the employee upon payment and will be locked in3.
Advantages and Limitations of the VRSP
Overall, the VRSP provides a form of retirement savings without requiring employees to take action to subscribe to a plan. Automatic enrollment is a proven and recognized model for effectively increasing participation rates in retirement savings plans. With the VRSP, employees contribute 4% by default through payroll deductions. A step in the right direction!
The VRSP imposes limits on investment management fees, which may seem advantageous at first. However, it is crucial to note that reduced fees can restrict investment diversification options while limiting services offered to the organization and its employees.
The investment management fees, typically paid by plan participants, can be utilized to provide high-value services, both for the company and its employees. These services include independent financial advice, seminars focused on financial education, support in plan administration (fee management, investment selection, compliance, audits, etc.), fostering a positive perception of the plan by employees while allowing organizations to focus on their operations.
Moreover, collective plans with significant assets (i.e., $1,000,000 under management or $500,000 in annual contributions4) have the opportunity to negotiate similar or lower fees than those imposed by the VRSP while providing access to more comprehensive services.
Additionally, an employer offering a VRSP exposes itself to certain administrative burdens as it is now obliged to automatically enroll all eligible employees and initiate 4% salary deductions. Although employees have the option to opt out or reduce their contribution rate to 0%, the employer must remind all employees who opted out that they have the option to opt back in every 2 years.
In summary, in addition to adding administrative burdens to Quebec businesses, this legislative approach targets management fees rather than addressing the true shortfall of employees: their financial literacy, i.e., their lack of knowledge in managing their personal finances.
Transitioning from VRSP to Value-Added Programs
In Quebec, two types of plans stand out due to their flexibility and simplicity:
- The Deferred Profit Sharing Plan (DPSP) coupled with a RRSP;
- The Simplified Pension Plan (SPP).
These plans mimic the benefits of the VRSP while building a personalized retirement savings plan adapted to the realities of organizations. Moreover, investment management fees charged on the plan’s assets could enable the offering of value-added services, including:
- Individual and independent financial advice;
- Workshops or conferences on personal finances;
- Support for payroll and human resources staff;
- Proactive negotiation of management fees based on plan evolution;
- Updates on trends and any other relevant information regarding retirement savings, etc.
According to a Leger survey from October 2023, “one in two people (48%) mentions feeling anxious when thinking about their finances”5. Considering the level of financial anxiety experienced by employees, access to education and support in personal finances is more than important for employees and represents an interesting way for companies to distinguish themselves.
What Solutions Does Solertia Offer?
To meet the needs of SMEs wishing to implement a personalized retirement savings plan, Solertia has developed a comprehensive solution tailored to organizational needs. This includes:
- Support for plan design;
- Guidance throughout integration;
- Communication plan;
- Access to a complete financial education program, including:
- Monthly webinars
- Independent financial advice
- In-house conferences
- Presence of an independent financial planner in the company.
- Support for governance;
- Support for ongoing employer administration;
- Access to a toll-free number for participants;
- And much more!
In conclusion, the VRSPA has highlighted the importance of retirement savings. With the decline in the popularity of defined benefit plans, most Quebec employees will have no other guaranteed income in retirement than government programs.
While it is the responsibility of each employee to finance the lifestyle they wish to have in retirement, employers also have a role to play in supporting their employees. How? By facilitating access to savings. Companies can encourage savings through a program in which the employer rewards employees’ savings discipline with a contribution to the plan.
Many employers allocate significant sums to their employees’ savings. However, it is crucial to understand that the true catalyst for the success of their retirement plan, one that will truly influence their quality of life, lies in promoting financial education and their interest in personal finances to ensure financial security in their later years.
Actively encouraging employees to get involved in managing their financial resources will be a crucial step in strengthening their long-term financial well-being. Think about it!
Do you have any questions? Would you like more details on this topic? Our professionals are ready to assist you.
1. To determine whether your organization is considered to have 10 employees or more, “targeted employees” are defined as those aged 18 and over who have one year of continuous service, as per the Labor Standards Act. The employee count is calculated as of June 30th of a given year if the organization had at least 5 employees on December 31st of the previous year. The law contemplates extending the obligations of the Voluntary Retirement Savings Plan Act (VRSPA) to companies with 5 to 10 employees. However, no specific date has been established regarding the applicability of this law to smaller organizations.
2. The default investment option is an investment choice in which funds are invested when a participant fails to provide instructions on how they wish to allocate their money.
3. Immobilization is a concept that restricts how accumulated money can be used, as it is theoretically intended to fund a lifelong retirement income.
4. The pricing of a retirement savings plan is influenced by multiple factors, such as assets under management, expected contribution volume, the number of plan participants, plan design, plan complexity, the business relationship with the insurer, etc. The figures mentioned in the article (1 million dollars in assets under management or $500,000 dollars in annual contributions) are indicative and may differ from what is offered to you by an insurer during your negotiations.
5. Indice d’anxiété financière de Centraide, Centraide du Grand Montréal et la Firme Léger, octobre 2023, p.4, IRL : https://leger360.com/fr/sondages/indice-danxiete-financiere-de-centraide-3e-vague/#:~:text=Les%20Qu%C3%A9b%C3%A9cois%C2%B7es%20ont%20un,finances%20publiques%20qu%C3%A9b%C3%A9coises%20vont%20bien.