Group Registered Retirement Savings Plan (GRRSP)
A group Registered Retirement Savings Plan (RRSP) is an employer-sponsored retirement savings plan, similar to an individual RRSP, but administered on a group basis by the employer. Contributions are made by pay-roll deduction, on a pre-tax basis, through a Group RRSP administrator. Employee contributions are often matched by the employer (typically to a maximum of 3-5% of earnings). However, contributions by the employer are not mandatory. Contributions by the employer are taxable as income to the employee.
Under current legislation, contributions up to 18% of the employee's previous year's earned income to the maximum contribution limit can be made, if the employee is not a member of a Deferred Profit Sharing Plan (DPSP) or a registered pension plan. If the employee is a member of a DPSP or a pension plan, the total maximum RRSP will be reduced by a pension adjustment.
Investment decisions are made by the employee and the options are similar to those available for an individual RRSP and can include:
- GIAs (Guaranteed Interest Annuities)
- Segregated funds
Unlike an individual RRSP, members of a Group RRSP are not generally permitted to purchase individual securities.
All contributions (within the RRSP contribution room) are tax deductible. As with any RRSP plan, earnings on investments are not taxed as long as the investments remain in within the RRSP
Ease of Contribution
In a Group RRSP member decides for themselves how much they are willing to contribute per pay period to their own RRSP plan within the company’s Group RRSP. On top of the RRSP contribution per pay (which can be either a percentage of the gross salary or a specified amount), the Group RRSP members have the option to deposit lump sum into their RRSP plan, within the company’s Group RRSP.
Contribute Directly Without Paying Taxes
In the absence of a Group RRSP, most people’s contributions to an RRSP come out of their bank account – money has already been taxed. With the help of a Group RRSP however, you allocate a portion of your employee’s pre-tax pay directly into their RRSPS. In effect, employees receive their tax “refund” on every pay cheque.
Spousal Plans Available
Spousal plans let employees contribute to their spouse’s RRSP and still get the same tax advantages as if contributing to their own RRSP.
Flexibility and Popularity
The decision whether or not to contribute to your employees’ RRSP is completely up to you. If you do contribute, you may opt to match a percentage of their contributions, either on a regular basis or as part of a bonus program. However, any contribution made to an employee’s Group RRSP plan, will be a Taxable Benefit to your employee, thus increasing the payroll taxes. There are other options around this issue, for instance using a DPSP.