Lots to know about Group RRSPs

One of the most common group financial plans is the Group RRSP.  A group RRSP is very similar to an individual RRSP you would open at a financial institution except that is administered on a group basis by the employer.

Contributions

Employees make contributions to the group RRSP directly from their paycheque and the tax savings from the RRSP contribution can be applied to each paycheque immediately instead of at the end of the year.

Employees can define how much they want to contribute to the group plan either as a fixed dollar amount (ie $100 per paycheque) or as a percentage of income.

Employers have the option of matching employee contributions in some manner and although matching does make for a better plan, it is not required.

The contribution and tax rules for group RRSPs are guided under the income tax act.  The most anyone can contribute to a RRSP is 18% of his or her previous years income.  This includes both contributions to  Group RRSP, individual RRSPs and even pensions.

Taxation

When money is put into the RRSP, the employee receives an eligible tax deduction for the amount contributed.  Any employer contributions are tax deductible but also can be seen as a taxable benefit.

When the money is withdrawn from the RRSP, the amount withdrawn is taxable to the employee in the year of withdrawal.  Proper use of RRSPs requires good evaluation of tax rates when the money goes into the RRSP and also when the money comes out of the RRSP (see article on Proper Use of RRSPs).

Investment Options

Generally speaking the investment options limited by what the financial institution administering the Group RRSP has to offer.  Typically, group RRSP plans are administered by a bank, mutual fund company or an insurance company.  Part of implementing a good Group RRSP plan is to have a good solid foundation of choice for the employers.

Some Group RRSP plans offer self-directed RRSP options which gives employee a broader range of investment choices beyond just what the bank, mutual fund company or insurance company has to offer.

Fees

One of the biggest but often overlooked benefits of a group RRSP is the fees tend to be much lower because of the buying power of a group of people.  The more money in the plan, the lower the fees become.  This is important because fees do matter and lower fees can translate to better returns for the employee over time.

Administration

Group RRSPs are one of the easiest group financial benefits to administer.  They are simpler and less regulated.  It is easy to add employees.  It is also easy to wind down the plan or deal with terminating employees.  They simply move the money to an individual RRSP plan.  Pensions rules are usually more complicated and more cumbersome.

Vesting

It is much more difficult to vest funds employer funds in a group RRSP.  Once the employer makes a contribution into the employees plan, those funds are then owned and controlled by the employee.  Technically, the employee has the right to withdraw the funds, pay the tax and use the money for whatever purpose they want.  There are ways to design the plan to minimize the temptation to withdraw the funds.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

7 Responses to Lots to know about Group RRSPs

  1. Hi. Can some one help me on this question?

    If I got laid off due to short of work. when the employer can terminate my group benefit?

    right the way or after 3 months????

    Many thanks

    • Every plan is different. It will depend on the rules of your plan so you need to talk to the employer. Many plan administrators can move you from the group plan directly into a personal plan with the same institution.
      good luck!

  2. Hi.
    My husband are having a bit of an argument about the Group RRSP. We get a tax advantage directly on our pay stub from which I deduct that I should not claim my RRSP contribution on my Tax return.
    My husband thinks that as long as I have a income tax receipt from the administrator of the plan it means I can claim it.

    My employer matches my contribution dollar for dollar.
    who is right?
    thanks

  3. I have a question. My employer withdraws money each pay towards my RRSP’s however, they money takes 4-6 weeks to show up in my RRSP account. Is this legal? I have contacted HR many times regarding this and they are now referring to me as a pest.

  4. This is a very long story so I will keep it as short as I can.
    I work for an American company who has come to Canada 7 years ago and I have been employed with them since. Last year I got very ill and ended up in the hospital. I contacted my plan administrator and filled out the forms she had asked as I wanted to make a withdraw from my group RRSP. . The reason for taking money out was because I was getting behind in my rent. My landlord gave me a deadline of April 2 because I had no idea how long it would take.

    In February I could not get anyone in HR to help me and I did not hear back from the companies plan administrator. In March I finally heard from her. She told me she had received the eviction notice but needed something more up to date.
    I went in to my buildings management explained why I needed a new eviction notice. After this was done I could not get ahold of her from March 20 until March 24. After weeks of sending the same info over and over i sent a second set of forms directly into Manulife I asked for a full withdraw of my contribution. March 30 plan administrator asks for another letter from my landlord. I sent another one in to her and again I could not get ahold of her from March 30 to April 17. I called Manulife again and they told me a request was made but full withdraw was denied by my PA. She would only approve 950.00 and I was given one cheque in the amount of 850.00 after taxes. I now owed 3 months back rent and what she approved wasn’t even enough for one months rent. I went to court got evicted and now trying to find a place to live but I can’t hide the fact I was evicted and I’m still looking.

    Is this right? My RRSP wasn’t even locked but the company told me I had to prove hardship and what I had given them wasn’t enough! Then I’m told to find some Doctors bills that way she might be able to get more out for me??????
    Doctors bills???? I’m in Canada??

    Please at this point any info would be so helpful. Nobody at head office for crate&barrel will even talk to me about it. I was told just move on!!!

    • Legally the money is yours and they cannot prevent you from taking it. I am surprised manulife did this. Contact them and ask them on what legal basis did they have to deny you access to your money. Ask for it in writing and them send it to the insurance regulator.

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