As an employer, one of your duties is to meet government requirements regarding working conditions. One such requirement may be to offer a retirement savings plan. Here’s a look at two popular programs, VRSPs and group RRSPs.
Yes, voluntary retirement savings plans (VRSPs) are only available in Quebec.
Elsewhere in Canada: Each Canadian province has its own legislation on group savings plans. Other provinces and territories have what are called pooled registered pension plans (PRPPs), which are similar to VRSPs.
If your business is under federal jurisdiction in Quebec, you will not have the option of providing a VRSP to your employees.
Please note: Businesses “under federal jurisdiction” generally include those in navigation, banking, transportation or telecommunications as well as any business in the three Canadian territories (Yukon, Nunavut, Northwest Territories).
If your company is located in a province other than Quebec, learn more about pooled registered pension plans (PRPPs) by visiting the federal government website.
Quebec businesses often have registered
retirement savings plans (group RRSPs). or voluntary
retirement savings plans (VRSPs). There are also other
options, such as group tax-free savings accounts (TFSAs) and
registered pension plans (RPPs).
Both programs are pooled registered savings plans and are similar in some respects:
Good to know: Group RRSPs and VRSPs are not the only retirement savings products you can offer your employees. There are a number of other options, such as deferred profit-sharing plans or defined contribution registered pension plans. Take the time to understand the differences between these plans and choose the one that works best for you. If you need help deciding, consult a group pension advisor.
VRSPs: Automatic enrolment
Voluntary retirement savings plans were created in 2014 by the Government of Quebec. Businesses with 10 or more eligible employees who do not already offer a group RRSP, group TFSA or RPP must offer a VRSP to their staff. In the coming years, businesses with five or more eligible employees may also be required to offer VRSPs. However, this is not currently the case.
Enrolment is automatic for employees 18 or over after one year of continuous service with the company. They must withdraw from the program on their own if they do not wish to participate. The aim is to encourage workers to prepare financially for retirement.
On the upside, all of an employer’s contributions to a VRSP can be deducted from the company’s taxable income. They are also exempt from payroll taxes. On the downside, VRSPs add to paperwork and management responsibilities because, among other things, employers are required to register all employees covered by the act.
Group RRSPs: Easy and flexible
In addition to being available across Canada, group RRSPs are one of the most flexible and manageable plans for businesses.
Generally, employee membership in group RRSPs is voluntary. Employees can also have personal RRSPs that they manage independently, in addition to their group RRSP. But even if they do, it’s usually good to be part of the company program—the employer contribution is like a bonus on top of their wages.
Group RRSP contribution amounts can be changed at any time. One-off contributions may be made in addition to regular amounts.
Note that employees must abide by the annual contribution limit, which is generally 18% of their previous year’s income plus any unused contribution room they have. There is also an annual contribution limit that applies to all taxpayers. If they have already maxed out their personal RRSP when starting a new job, they’re allowed to exceed their limit. A tax expert can advise them on how to avoid penalties.
At the end of the employment relationship, the employee must choose what to do with the money they have accumulated in their retirement savings. The two plans differ slightly in this regard.
With group RRSPs, employees must transfer the money to a personal RRSP. If they want to start withdrawing certain amounts, they may also transfer them to a registered retirement income fund (RRIF).
Employee contributions to VRSPs are not “locked in.” However, employer contributions are and must be transferred to a locked-in retirement account (LIRA).
Employees should plan out a retirement income withdrawal strategy with the support of their financial advisor. Withdrawals from any retirement savings plan are subject to specific rules, including tax liability.
Employees who have not reached retirement age may still ask to receive the money in their group RRSP, but these amounts will be added to their taxable income for the year of withdrawal.
For VRSPs, they can withdraw the “employee” portion of their savings (this is in addition to annual taxable income), but the “employer” portion can only be withdrawn after age 55 except in special circumstances. VRSPs are a good way to make sure you have retirement savings set aside, but they are not flexible in the event life throws you a curve ball before you retire (layoff, illness, divorce, etc.).
It could be mandatory for your company to provide a retirement savings plan, but more than that, doing so can offer concrete benefits.
For example, in the current labour shortage, job candidates are on the lookout for benefits in addition to base salary. Since almost everyone today has a pension plan, you can stand out for how generously you contribute to it.
In addition, pension plans, like other benefits, are retention factors. If you have lower employee turnover, you’ll enjoy lower recruitment and training costs down the road.
Although other retirement savings plans exist, this article shows you
the differences between two of the most popular ones: VRSPs (only
available in Quebec) and group RRSPs (available across
Canada). There are similarities, but also specific differences. To
find out what’s best for your business, contact our specialists.
We’re here to answer your questions.
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