A Primer on RRSP Matching Programs

Jun 18, 2019
min read

In the battle to acquire top talent, most employers are using the same weapons. Competitive salary? Got it. Employer-paid extended health and dental benefits? Of course. Flex days, open-concept office, choice of computer hardware? Done, done and done.

For retention, nothing beats psychological safety and a strong employee-manager relationship. But many employers have little on offer beyond that, and end up suffering high employee churn as glitzy competing offers attract people away.

Savings programs have long been viewed as the purview of the public sector and enterprise employers who have the muscle to offer robust pensions and stock options. Most SMEs will argue they haven’t got the resources to offer these kinds of benefits. But therein lies a potential competitive advantage. Businesses looking to one-up the competition and fight against churn should consider an employee savings program in the form of RRSP matching.

What is an RRSP matching program?

Similar to other employer-sponsored retirement savings programs, an RRSP matching program is an incentive for employees to save for retirement that’s subsidized by the employer. Employees contribute a portion of their income to their RRSP via payroll deduction, which is then matched in whole or part by the employer.

Employers have broad flexibility to choose the terms of the matching program, such as minimum employee tenure, how much employees can contribute, and what portion of contributions will be matched. These policies can help control costs and ensure the right incentives are in place. For example, you could restrict participation to employees with at least one year of service to add a meaningful perk that coincides with the first annual performance review. You could force employees to save a certain percentage of their paycheque to earn matching dollars to ensure their participation is meaningful. And you can cap matching at a fixed dollar amount or percentage of the employee’s pay to keep control over expenses.

The magic of RRSP's

For employers, RRSP matching makes sense. The administration cost is relatively low, and there’s no need to give up equity to employees.

For employees, RRSPs are magic.

First and foremost, RRSP contributions reduce the employee’s taxable income. Every dollar reduces their tax owing at their current marginal tax rate – and that includes the money you contribute. Employees who make regular RRSP contributions with matching will pay less tax than those who don’t pay into their RRSPs. (And you can take the credit when they get their refund cheque next May).

RRSPs provide options for more than just retirement. Especially if you’re looking to attract and retain a millennial cohort (and who isn’t these days), you’ll want to turn their attention to the RRSP Home Buyers’ Plan (HBP). The HBP allows first-time homebuyers to withdraw up to $35,000 from their RRSP tax-free to buy a home. Chances are, your competitors aren’t offering their employees a path to homeownership.

Retirement can seem like a far reach for employees – even those who are approaching retirement age. Older employees may not have had the opportunity to participate in pensions and may not have saved enough for retirement. Younger employees may be operating on the assumption that retirement saving is 100% their own responsibility but may lack the resources or knowledge to save on their own. RRSP matching offers a path to retirement that people may not otherwise have.

And, RRSPs provide mobility. Employees don’t want to be chained to their employers. Older employees may feel resentment and disempowerment by restrictive pension policies that can keep them trapped (and make them the target of layoffs) late in their careers. Millennial and Gen-Z employees will reject any whiff of a handcuff to their role. RRSPs allow the employee to take their savings with them when they exit the company. This will give them a greater sense of freedom and autonomy and increase their perceived value of the savings program.

Group RRSPs make administration easy

RRSP matching programs are most commonly administered as a group RRSP that are run centrally, meaning all the participants (employees) follow the same rules and processes, and invest in the same funds.

Unlike individual RRSPs, which are each managed separately by their owner, Group RRSPs allow employers to incorporate features like contributions via payroll deduction. Employers can also set policies that prevent the employee from withdrawing from their RRSP early – a behaviour that could defeat the purpose of the program and be detrimental to their ability to save for retirement in the future.

Group RRSPs also take the onus of managing the program off of the employee. This can be framed as another benefit to the employee, who may find all of this confusing. Not having to compare RRSPs or worry about the ins and outs has value in and of itself.

Employers can also capture data on how employees are using the program. This will allow you to gauge whether it’s effective and optimize for your desired outcomes.

A little education goes a long way

To make your RRSP matching program successful, make employee education a part of your onboarding process. There are tons of regulatory quirks and catches with RRSPs that can make them sound confusing – and make people think that saving in an RRSP is more trouble than it’s worth. What’s more, what is an RRSP might be a question you have to answer.

Employees will also need some guidance on the dos and don’ts of group RRSPs so they can get the most from the program.

By educating employees on the true value of the benefit, you’ll help them understand why it’s important. And hopefully, you’ll convince them that an RRSP matching program is a must-have when considering potential employers.

The way to an employee's heart

Above all, employees want to feel like they’re cared for at work. They want their employers to understand their hopes and dreams, and be an active participant in their quality of life.

Offering an RRSP matching program is a way to do just that. By giving employees a way to increase their total compensation and get help saving for major milestones like buying a home and retirement, you’ll show that you’re the employer they should choose – and the one they should stick with for the long-term.

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