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Group RRSPs

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:

  • GICs and GIAs (Guaranteed Interest Annuities)
  • Segregated funds

Unlike an individual RRSP, members of a Group RRSP are not generally permitted to purchase individual securities.

Forms of Pension

Group RRSPs are very flexible in terms of how money is received at retirement. The plan member has the option of taking the money as cash, purchasing a life annuity, purchasing a fixed term annuity (also known as a term certain annuity) or purchasing a Registered Retirement Income Fund (RRIF).

Advantages of a group RRSP compared to an individual RRSP:

  • Payroll Deductions method of employee contributions
  • Immediate tax relief to employee
  • Smaller or no administrative costs
  • Minimal government reporting
  • Not subject to provincial pension regulations, therefore flexible in terms of employee eligibility and contribution levels
  • Lower minimum deposits
  • Income splitting is available through spousal contributions
  • May offer enhanced RRIF and annuity rates at retirement

Disadvantages of a group RRSP compared to an individual RRSP:

  • Group plan may have limited investment options
  • Employer contributions are a taxable benefit to employees
  • Plan may be cancelled at any time by employer
  • Employer may limit an employee's ability to withdraw funds