Group RRSP

Group RRSP’s are ideal for small and medium size companies that want to offer pension benefits without the cost, administrative burden or liability of setting up a sophisticated pension plan.

How it works:

Group RRSP’s are simply a collection of individual RRSP’s where the employer arranges for employees to make contributions through their payroll deductions on a pre-tax basis. Once an application form is completed and the monthly contribution amounts are determined, your employer deducts your contributions from your pay and forwards them to your individual group RRSP administered by the insurance company. The contribution amount can be up to the maximum RRSP contribution room limit. The insurance company invests your contribution in the investments you selected when setting up the plan.

How to set up a Group RRSP:

Setting up a Group RRSP is relatively simple but does require some additional administrative work by the employer.

Step 1. Selection of Plan

Stone-Hedge Financial Group Inc. will assist the employer select an insurance company that will administer their plan. Insurance companies offer a wide selection of investment options to choose from. In Canada Group RRSP’s can be set up and administered by banks, trust companies, mutual fund companies and insurance companies. There two types of Group RRSPs, self-directed plans and client name individual plans. In our experience insurance companies are the best option they have the most expertise in administering Group RRSPs and pensions. Having a Group RRSP streamlined through one company offers ease of administration and lowest costs for your plan. Most insurance companies do not charge an annual fee or transaction fees in their plans versus a self-directed plan which have annual fees and transaction fees.

Step 2. Paperwork

Stone-Hedge Financial Group Inc. will assist you with all the necessary documentation to set up your Group RRSP.

Step 3. Communicate your new plan with your staff

Stone-Hedge Financial Group Inc. will provide full support during this process to the employer. To communicate the company's new Group RRSP to their staff Stone-Hedge Financial Group Inc. will provide brochures, group presentation or individual meetings with each individual employee. A designated financial advisor will provide service and advice to each employee for their personal investment and insurance needs. Employees will have to meet a minimum monthly contribution of $50.00 per month to participate in the company Group RRSP.

Step 4. Determine how many people joined the plan

Once the employer has determined how many people have joined the plan and their monthly contribution amounts, the plan is ready to be set up and a start date for the new plan is set.

Step 5. Determine the amount the employer will contribute to the plan

The payroll department will determine the amounts the employer and the employees will contribute to the plan. In the absence of a payroll department this is done directly by the business owner.

Benefits to the Employee:

Instant Tax Savings

Your contributions are deducted at source. There are no payroll deductions on the contributions. As a result employees pay less tax at source.

Convenience

Contributing through payroll deductions is the most convenient way to make regular RRSP contributions.

Pay Yourself First

We have all heard this slogan but rarely put it into action. It is recommended that at least 10% of what you earn is invested and the easiest way to save is by regular monthly RRSP Contributions.

Spousal Plans

The majority of Group RRSP administrators will allow for Spousal RRSP’s within a group plan. A spousal RRSP can be a valuable benefit allowing for withdrawals to be made at a lower tax rate during retirement if the spouse earns less or is a homemaker with no income..

Avoid last minute RRSP rush at the end of February

You no longer have to rush and wait in lineups to make the RRSP deadline.

Better Investment Selection

You can plan your investments with the guidance of a professional financial advisor and select the best money managers to meet your retirement goals. Making last minute rush contributions usually leads to poor investment choices.

Easier to reach RRSP limit

By making monthly contributions you no longer need to contribute a large sum or take out RRSP loans last minute.

Maximizes RRSP savings by keeping them tax-sheltered longer than year end lump sum contributions

By making monthly contributions earlier your money is invested for a longer period of time. It is time in the market not timing the market that adds to returns. You will not get a big refund cheque at the end of the year because you are no longer giving CRA a tax free loan. Your money is invested earning you money.

Eliminates need to borrow money from banks to make RRSP contributions

You no longer need to borrow money and pay after tax interest to make your RRSP contribution.

Dollar Cost Averaging

By making regular monthly contributions you automatically dollar cost average which reduces volatility and can enhances returns in your portfolio.

Complete control and ownership of your RRSP

Formal pension plans have vesting provisions on pension benefits. Vesting determines who owns the pension benefits the employee or the employer. In a Group RRSPs there is no vesting provisions all the funds in the plan belong to the employee. If the employee leaves the employer it is their money, they can transfer it, leave it, change it to an individual RRSP, withdraw money from it and change their investment at any time. The employer can impose locking-in provisions on the employer's contributions made to the employees Group RRSP.

Professional Money Management

Insurance companies offer access to professional money managers and a wide selection of investment options. Insurance companies monitor the performance of money manager for you, this ensures that they earn their management fees.

Access to a variety of tools, resources and information

Insurance companies have many free valuable planning tools and resources available. Financial advisors at Stone-Hedge Financial Group Inc. will be available to guide employees take advantage of tax changes such as increases in contribution limits, new savings vehicles like Tax Free Savings Accounts and other information on tax changes, economic conditions and commentaries by portfolio managers. All these resources are made available to plan members free of charge. 

Benefits to the Employer:

Lower Employee Turnover

Employee turnover is expensive for businesses. Your employees are your most valuable assets. Offering a Group RRSP is an economical and effective way to lower employee turnover, attract new employees and help employees to save for retirement.

A Group RRSP is a free benefit Employers can provide to Employees

It doesn’t cost the company anything to offer this valuable benefit to their employees. It is a free benefit the employer can implement for their employees.

Create Goodwill

Employees will value their Group RRSP and the immediate tax saving on their RRSP contributions.

Generally Group RRSP’s have lower Management Fees

When money is pooled together it creates more buying power for the plan versus individual RRSPs. With a larger sum of investment dollars in the plan insurance companies will negotiate lower management fees to earn your business.

Employers can plan for their own retirement

Employers are the busiest people in the company with the most responsibility and often don’t have the time to look after their own investments. Setting up a Group RRSP enables the employer to participate in the plan themselves and plan their own retirement.

No Liability to Employer to guarantee a specific amount of income when Employee Retires

Unlike traditional pension plans a Group RRSP has no liability to the employer to guarantee a specified amount of income at retirement to their employees.

Tax Benefits

Employer contributions into a Group RRSP can minimize salary expenses compared to wage increases.

Minimal Employee Participation Requirements for Plan Set Up

Employers only need a couple of people to set up a Group RRSP there are no mandatory participation requirements.

 

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The information provided on this web site is intended for general information only. It should not be construed as legal, accounting, tax or specific insurance and investment advice. Clients should consult a professional advisor concerning their situations and any specific insurance and investment matters. While reasonable steps have been taken to ensure that this information was accurate as of the date hereof, Stone-Hedge Financial Group Inc. and its affiliates make no representation or warranty as to the accuracy of this information and assume no responsibility for reliance upon it.