What makes a good Group RRSP or Pension Plan?
One of the easiest benefits to put into the workplace is a Group RRSP. They are excellent for small and medium size businesses who do not want the administration that goes along with pension plans. Group RRSP offer lots of options for plan design. Here are some key things to consider when implementing a group RRSP plan
Every company is unique and the Group RRSP plan should fit the needs of the employer and the employees. Group RRSP Plans need to be customized and coordinated with the corporate culture and values. If there is a benefit plan, the group RRSP should also work in conjunction with other benefits like the health, dental and insurance components. Take some time to look at the overall compensation package to see how the group RRSP fits into the big picture.
2. Company selection.
There are four main companies that administer group RRSP plans: insurance companies, mutual fund companies, banks and self-directed trustees. The biggest players in the group RRSP market are the insurance companies as they have been doing it the longest. The insurance companies are also key players in the non-financial group benefit market s they understand provide benefits to employees. Each group has strengths and weaknesses so choose wisely.
3. Low Fees.
The ideal group RRSP plan is one that does not have any front or back end loads and offers lower management fees. One of the overlooked benefits of a group RRSP plans is the ability to access lower management fees on investments than on a retail basis. Many studies (including my own) suggest that fees do matter and investors who shop for lower fee investments will be ahead in the long run.
4. Ease of Administration.
Part of picking the right company and the right broker is making sure the administration is not a burden on the company and the Human Resource department. Picking the right Group RRSP plan and company should add little to no extra administrative work.
5. Investment selection.
Having the right suite of investments with good quality managers is critically important to a good plan. It’s a delicate balance of having enough choice for your employees without offering too much choice so they are confused. One key feature that is important in a plan is having access to a “re-balancing mechanism.” My research shows that re-balancing is the best and easier to manage a portfolio as it ensures that you always practice the one strategy that makes money – buy low, sell high.
6. Appeal to Employees.
Let’s face it, the only reason you would implement a Group RRSP plan is to attract and retain good employees. Before you put in a group RRSP plan, it makes sense to sit down with a few key employees or groups of employees (you value and trust) to see what their thoughts are on a Group RRSP benefit. If you have an existing Group RRSP plan, have you taken the time to see how your employees feel about the plan?
7. Financial Education.
One of the best ways to improve the appeal to employees is to incorporate financial education as a standard part of the benefit. Most plans offer the minimum required education as set out by the CAP Guidelines (Capital Accumulation Plan). Most education centers around product and plan education as opposed to true financial education – Helping employees make better decisions about money (even beyond the group plan). Many studies have shown that financially stressed employees are not the best employees to have. They are less productive, they bring their problems to work, they bring work standards down and they have higher rates of absenteeism. A good financial education program can go a long way.
Although employer matching is not mandatory, it really does add value to a plan. Employers can start with a minimum standard of 2% where the employer puts in 2% of base salary for every 2%, 3% or 4% of employee contribution. Having a group RRSP plan offers some other benefits to the employee but really, matching is the true added value benefit.
There are lots of great reasons to put a Group RRSP plan into place but the make sure you look at these 8 factors to ensure you put in the best Group RRSP plan for your business.