While Registered Pension Pans ruled the retirement saving scene in the past, the high cost of these plans has had employers looking for cheaper plans for their employees. Group RRSP’s offer a flexible, cheap alternative to traditional pension plans and have become a popular option for some employers.
What You Need to Know
A Group Registered Retirement Savings Plan (Group RRSP) is an employer sponsored retirement savings plan. Group RRSP’s have many similarities to individual RRSP’s with the only difference being that they are administered on a group basis. The plans are made up of employee and employer contributions, but unlike traditional pensions the employer is not required to contribute any amount to the plan. This option may be attractive to business owners who want to be able to offer a retirement plan to their employees but do not necessarily have the desire or income to fund a pension plan. The only cost to a group RRSP is the labor cost of deducting the employee’s contributions from their payroll.
The employer isn’t the only party to benefit from a group RRSP. Group RRSP’s offer the employees greater flexibility in how they invest their money, how much they invest, and what happens to the money once they leave the company. RRSP’s are not regulated by provincial pension laws. This means greater flexibility to the employee on when and how much money they can draw out of their plans. There may be restrictions on withdrawals from a Group RRSP while an employee is active with a company, but once the employee terminates employment, they have the freedom to do what they like with the funds. Unlike traditional pensions that have to remain locked in, a group RRSP can be either transferred to the individuals personal RRSP, purchase an annuity, or be taken in cash. Another perk are the tax benefits that the employee will reap. All contributions to a group RRSP are deductible to the employee and tax sheltered until the time of withdrawal.
The Bottom Line
Group RRSP’s can be a great retirement savings alternative to a traditional pension plan. Greater flexibility and increased investment options have made them a popular savings plan for employers.