How Do Employers and Their Employees Really Benefit from Group RRSPs?

We’ve come a long way in the last almost 70 years, but the RRSP remains a Canadian tradition and a savings mechanism that continues to stand the test of time. In 2022, more than 6.2 million Canadians collectively contributed $54.2 billion to RRSPs.

One of the ways the RRSP has become accessible to a wider swath of people is the Group Retirement Savings Plan (GRRSP), a collection of individual RRSP accounts that a company sponsors for its employees. The plan is usually administered by a third-party insurance company, bank, or brokerage. Employees choose their individual contributions and have them deducted straight from their pay cheque into a range of pre-selected investments, often with the employer matching RRSP contributions.

GRRSPs have become a valuable perk that employers use to attract, retain, and compensate their employees. And employees benefit by getting a leg up on saving for retirement (or other milestones like buying a house or going back to school) in a convenient and financially rewarding way.

Let’s break down how GRRSPs work and what employers and employees stand to gain from them.

How does a GRRSP work?

Contributing to a GRRSP has virtually the same features and benefits as adding funds to an individual RRSP:

GRRSP contributions are typically made by payroll deduction on a pre-tax basis, i.e. an employee may choose to direct a percentage of their pre-tax salary directly into their GRRSP account. 

Most GRRSPs offer a mix of actively managed asset class funds like Canadian or U.S. equity mutual funds and target-date funds. Wealthsimple Work’s GRRSP offers globally diversified portfolios that are concentrated in exchange-traded funds (ETFs), which typically have lower fees than mutual funds. Through these various portfolios, employees should be able to select a combination of investments that will be automatically rebalanced. 

How does group RRSP employer matching work?

Some GRRSP plans involve employer RRSP matching contributions, usually between 3% to 6% of an employee’s salary. (In non-matching plans, an employer sets up a convenient, lower-fee way for employees to save with their own contributions.) Employer deposits are considered part of an employee’s salary, so they will be taxed. But once the money is in the GRRSP, it’s tax-sheltered in the same way RRSP contributions are. 

If an employee makes $120,000 and contributes $12,000 (10%) into the GRRSP per year, the employer could contribute 3% ($3,600), 5% ($6,000), 6% ($7,200), etc.

Some companies use RRSP employer matching contributions as a retention or incentive program, increasing the percentage of matched contributions depending on factors like an employee’s length of service, performance, or position in the company. For example, an employer could match 0.5% per year up to 5 years and then add 1% for every year beyond that. 

GRRSPs: What’s in it for employers?

What does a company get for employer RRSP matching contributions?

A lot, actually.

In a competitive job market, employers are increasingly challenged to offer even more meaningful and valuable perks to appeal to high-quality employees. And the GRRSP has long been part of a first-class compensation package. ​ 

Here are some of the possible benefits of offering a GRRSP.

1. Attract and retain talent

In the wake of a pandemic that disrupted industries, knocked the economy on its side, and sent unemployment numbers skyrocketing, employees are thinking about ways to recover from lost income. In fact, 1 in 4 Canadians say they are less prepared for retirement because of COVID-19.

 An employer that offers a way to help these workers save for the future as part of its compensation package, particularly if they offer a matching program, will be an attractive option for talent that has their pick of jobs in the current market. In fact, 3 in 4 of our American counterparts would take a lower paying job with better benefits, according to a study conducted in late 2024.

2. Increase employee productivity

Few things are more worrying in life than concerns about whether or not you’ll have enough money to live in retirement. This new stat isn’t from the perspective of the employer, but it is more recent and is focused on Canadian workers. Could phrase as: “In fact, nearly 30% of Canadian workers cite finances as their primary source of stress, with nearly one-quarter saying the stress has affected their work productivity.”

Employers can help reduce this distracting unease by offering a GRRSP program so employees can feel confident that funds are being set aside for their future every time they get paid. 

With a diminished fear of the future comes the opportunity for employees to focus on the present, including looking for ways to advance themselves in their careers. Employers that offer increased matching contributions for years of service and/or performance could further incentivize increased productivity and long-term relationships with staff.

3. Better brand perception

What company doesn’t want to have a reputation for being fair and even generous to its employees? When workers feel that they’re compensated fairly, they are valuable ambassadors for the organization. 

Lists like Canada’s Top 100 Employers rate compensation, including GRRSPs, as part of its criteria. Companies that make the list may even see benefits from positive PR and branding that could help boost sales and attract customers and employees alike.

4. Tax deduction

Did you know that there’s a financial benefit to offering a GRRSP? Many businesses can claim a deduction, which can lower your tax burden.

When employers contribute to a GRRSP (especially as a lump-sum bonus at the end of the fiscal year), you’re using profits to invest into your employees. The profit you choose to invest into your employee GRRSPs would otherwise be taxed. 

GRRSPs: What’s in it for employees?

Employees also have a lot to gain from participating in a GRRSP. Allocating a percentage of income to investing vehicles designed for long-term growth is a wise way to prepare for the future. 

Benefits for them include:

1. Free money from employers who match contributions

Socking away an additional 3 to 6% of your income into a GRRSP is an undeniable bonus in a compensation package. For someone who makes $100,000/year, that adds up $3,000 to $6,000 a year (that’s $15,000 to $30,000 over 5 years) that goes directly into investments built for growth. 

2. A hassle-free way to save

Retirement planning can be stressful, and putting away money for the future is hard when you’ve got other priorities in the present. A GRRSP allows employees to set their savings on autopilot by assigning a portion of their income before it even hits their bank account. Saving in smaller amounts, as a line item on a pay stub, is a lot easier to stomach than transferring larger sums at the end of every year. It also helps employees reduce income tax on every pay cheque vs. waiting for a tax time reimbursement.

3. Access to investing at lower fees

GRRSPs take advantage of economies of scale by offering lower management fees than are available through individual RRSPs. Group retirement plans typically carry fees in the 1.5% to 2.5% range. (Wealthsimple charges fees up to 1% at the highest). Portfolios that are heavily concentrated in mutual funds will carry the most fees; those with ETFs will be lower. 

4. Access to a digital platform, expert advisors, and financial education

Depending on the GRRSP provider you choose, employees can benefit from a number of helpful services. For example, Wealthsimple for Business has a digital platform that allows employees to manage their account online — from choosing their portfolio to setting their contribution amounts to checking on how their GRRSP is performing.

When it comes to compensating and rewarding employees, employers have long turned to GRRSPs as a simple, cost-effective measure. And employees are responding. When they find a company that cares about their financial future (almost) as much as they do — and shows it with employer RRSP matching — it says a lot about what it would be like to work for them. GRRSPs may be one of the rare win-win situations in the workplace. 

Because no matter which side of the desk you’re sitting on, every dollar counts.

The tax benefits of GRRSPs may differ based on individual circumstances. Therefore, you should consult a tax professional to ensure you are making the best decision based on your overall financial circumstances.