Investing in Your Company’s Greatest Asset – Employees
Posted In: Employee Benefits Planning, Entrepreneurial Wealth Management, Retirement Planning for Entrepreneurs, Uncategorized

Group RSP and Group DPSP

Every company’s greatest asset is its employees. Whether you are a one-person consulting firm or a 1000+ national tech and computing software company, all employers wish to attract, retain and motivate the best in the industry, no matter the role. A motivated, loyal and skilled employee will produce 3x more than an unmotivated individual. They will increase the company morale and decrease company frustrations of short-term employment and high training costs.

Group Retirement Savings Plan (RSP)/Deferred Profit Sharing Plan (DPSP) will provide a successful retention strategy. These values employee commitment and loyalty while supporting them in achieving future financial goals and successes. Group RSP/DPSP’s and pensions were once only for employees that worked in large unions or large publicly traded companies. However, in today’s competitive hiring environment and more progressive employer/employee relationships, compensation outside of salary is needed to attract and retain the best. As a result, more and more small to mid-sized businesses are offering retirement savings plans in addition to health benefits to compete for the top talent in their industries.

What is a Group RSP/DPSP model?

A Group RSP/DPSP model is where employee contributions are deposited into a Group RSP account. The employee receives a tax deduction meaning the employee pays no income tax on RSP contributions and grows tax-deferred until retirement. The employer contributions are deposited into a Group DPSP. The employer receives a tax deduction for their contribution to the DPSP. The employee does not receive a tax deduction and instead receives a T4 pension adjustment. Therefore, the employee does not pay tax on their employer’s DPSP contribution and grows tax-deferred until retirement.

How is DPSP favourable for employers?

In a DPSP, employers can vest their contributions for up to two years. Vesting means if the employee were to terminate before the vesting period, they forfeit the employer DPSP contribution amounts. If the employee is employed longer than the vesting period, they can transfer DPSP contributions if they terminate. The employer can choose the length of the vesting period to a maximum of two years.

How is DPSP favourable for employees?

Since DPSP employer contributions are deposited directly into a DPSP account, creating a pension adjustment, there are no income deductions, i.e., income tax, EI and CPP deductions. Therefore, an employee will receive more from an employer contributing to a DPSP vs an RSP. Employees can not contribute to a DPSP, and employers can not contribute to themselves in a DPSP.

Regular RSP and DPSP contributions

Employers can choose to have regular contributions and the associated parameters. Regular contributions are employee contributions that attract an employer match. Group RSP plans without regular contributions have very low participation levels. This is because there is not enough motivation or incentive for employees to join without an employer match. When implementing a Group RSP/DPSP, employers choose the regular contribution amount. An example would be up to 5% of income, and the matching parameters, for instance, 1:1 employer match. The employee’s regular contributions are deposited into a Group RSP, and the employer match is deposited into Group DPSP. 

Helping employees receive financial success at all stages in life

Employers may allow employees to withdraw their funds early without penalty for First Time Homebuyers and Lifelong Learning, similar to a personal RSP. This means employers can contribute to employees’ growth, personal successes, and financial achievements from buying their first home, career advancement with continued education, and retirement savings.

Talk to our team to learn more!

These models will better attract and retain top talent away from large corporations with small to mid-sized business company culture and a competitive compensation package. If you are a small to mid-sized company interested in competitive and progressive compensation through Group Health benefits and Group retirement saving, please contact our Group Benefits team at Elementus Wealth Management!

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