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Investing & Retirement - Group RRSPs
Looking for more information? Visit our Investments section of our website or visit our contact page and submit your question through the "Who can help me?" link or contact our investment specialist, Ozzie MacKay, at Credential Financial Strategies Inc.
A Registered Retirement Savings Plan (RRSP) is a government approved plan through which you save money for your retirement years. Your contributions, within limits, are tax deductible, and the income earned is tax sheltered. Tax sheltered means that your investments are not taxed until withdrawn at retirement. You can have any number of plans. A Group RRSP is subject to the same rules and regulations that govern all RRSPs. Under a Group RRSP, however, an employer can make contributionson behalf of the employee, but would form part of the employee's deduction limit. An individual plan is maintained within the Group RRSP for each individual employee. 2. Why are more employers selecting Group RRSP? A group of employees or members of an association can join together to participate in a Group RRSP. Group RRSPs do not have the “locking-in” requirements of RPPs, however, the group plan can be structured to restrict withdrawals during the term of employment. This restriction can apply to employer contributions only or to both the employer/employee contributions. If this restriction is in place, withdrawals during the term of employment must be permitted for refund of excess contributions or other legislated requirements. 3. How is a Group RRSP set up? It is a simple process for a company to set up a credit union Group RRSP. There must be an agreement between the employer and the employee setting out the terms of the Group RRSP. This includes: · When will contributions begin? · Who will contribute – the employer? the employee? both? · How much will be contributed? How are these amounts determined? Will overtime pay, bonuses, etc., be used in the calculation of contributions? · If the employee has insufficient RRSP contribution room, will there be provision for direct cash payment? · Will there be a restriction on withdrawals during term of employment? if so, what contributions would this effect -- employer? employee? both? · Will there be any restriction on investment options? The employer should communicate information to employees regarding the terms of the Group RRSP, the various investment options available and the options available to employees on retirement. 4. Who can make contributions to a Group RRSP? A group RRSP can provide for employer or employee contributions or a combination of employer/employee contributions. Employer contributions: · can be flexible in both timing and amount · may vary by employee class or even by individual employee; pay equity · are vested immediately; employers may wish to introduce a waiting period for participation · must be included as income for purposes of calculating CPP contributions, EI premiums and provincial health care levies funded through payroll taxes; may be included in the payroll assessable for purposes of calculating Workers' Compensation premiums · may be considered as earnings for purposes of determining benefits under the employer's group benefits plan and/or RPP Employee contributions: · generally optional · can be made to an RRSP owned by the employee or his/her spouse 5. How are contributions made? RRSP contributions can be deducted from your employees paycheques and deposited directly to their RRSP investments. The amount of any bi-weekly or monthly deposit must be no less than $25.00. In some cases it may be easier for your employees to budget by having deductions taken from each paycheque. Also, contributing through payroll deduction will result in reducing the income tax deducted from your employees paycheques. Back to Top One of the significant benefits of a RRSP is the ability to claim the contribution as a tax deduction. Revenue Canada, Taxation will allow the reduction of an employee's source tax deductions by an appropriate amount in relation to the contribution made by an employee/employer to a RRSP. Group RRSPs do not represent amounts "locked-in" under pension legislation. With a Group RRSP there is no requirement to restrict access to funds. This requirement is set by individual companies, however, usually the employer's contributions and income thereon can't be withdrawn as long as the participant remains in that employment.
When the employment terminates, the employee can usually transfer the funds from the Group RRSP to an individual RRSP.
Official receipts are issued to each employee which will identify the total amount of contributions that have been made to their RRSP. These receipts are then filed with the employee's income tax return. The employee has three options:
All legislative requirements, including contribution limits, timing of deposits, transfers, etc., are identical to non-group RRSPs.
11. Who can I contact to set up Group RRSPs? We would be happy to provide financial guidance. You can meet with our investment professionals or, our Wealth Management Representative Ozzie MacKay.
Credential Financial Strategies Inc. is a member company under Credential Financial Inc., offering financial planning, life insurance and investments to members of credit unions and their communities. Credential® is a registered mark owned by Credential Financial Inc. and is used under licence.
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