How Do Group Registered Retirement Savings Plans Work?

A group registered retirement savings plan (Group RRSP) are employer-sponsored RRSP savings plan similar to an individual RRSP plan. Group RRSPs are governed by tax legislation and do not fall under pension legislation. Most group registered retirement plans offer an employer contribution matching scheme with the employer’s contribution immediately vested.

How Much Can You Contribute to a Group RRSP?

Group RRSP contributions cannot exceed the RRSP limit of the employee. Therefore, the total contributions made by the employee and employer cannot exceed the total RRSP contribution limit available to the employee. It’s often common for an employer to contribute a percentage of the employer’s wages or match a certain amount of the employee’s contribution.

How is Group RRSP contribution treated for taxes?

When an employer contributes to your Group RRSP, it’s considered a taxable benefit, which is included in your employment income as an employee. However, you will be able to deduct the contribution you and your employer made, assuming you have the available RRSP room, which will reduce the taxable income paid.

Who Manages the Group Registered Retirement Savings Plan?

The employee usually will select who manages and the type of investment option available to employees for their Group RRSP. The employee can then determine which investment they wish to use their money to purchase based on available options. It’s also possible for an employer to leave all investment decision-making to the employee.

What Happens if I leave or quit a Group RRSP plan?

If you leave a group RRSP plan, you have a couple of options;

• You can take the cumulative value of the funds as a lump sum withdrawal
• You can purchase an annuity with the cumulative value of your group RRSP
• You can transfer the existing funds into your RRSP held with your financial institution
• You can also transfer the funds into a registered retirement income fund (RRIF)

Group Registered Retirement Savings plans are a great option to add as part of your retirement plan. If your employer offers such a plan, especially if they are making the contributions without requiring you to make any additional contribution, it’s a huge plus. You should strongly review the plan details and consider joining if the details make sense.

When looking at the type of investment options the employer offers, review their respective fees. Some employers may not pay attention to the particular type of funds being made available to employees, and some funds might have high management expense ratios (MER), which can reduce the overall return an employee can expect.

Finally, note that your personal RRSP contribution limit is impacted by contributions made into the group RRSP (employer and employee). Therefore, if making other contributions into your RRSP, ensure there will be sufficient room to avoid over-contributing above your allowable RRSP contribution limits.