- Is it actually a retirement plan (or just an investment account)?
Many group “retirement” plans are not really retirement plans. They are basically investment accounts, where employees can choose from a (too often large) number of funds, and are left on their own to figure out the key aspects of retirement planning on their own.
Here are some questions you can ask to understand if your plan will actually help set your employees up for retirement success.
- Does it help them figure out how much to save?
- Does it help them figure out how much income they will need in retirement?
- Does it help them turn their savings into retirement income?
- Does it help them understand and make decisions about government benefits, such as Canada Pension Plan, Old Age Security, and the Guaranteed Income Supplement?
Offering a retirement plan, rather than just an investment account, can be much more beneficial to employers. After all, it is retirement saving and planning (rather than just investing) that is a key source of financial stress for so many Canadians.
2. Are you paying too much in fees?
Canadians pay some of the highest fees for investments in the world. And while the fees for group plans can be lower than what you might pay through a bank, they can still be high, especially for smaller and medium-sized employers. Insurance companies and banks often charge members fees of 1.5% to 2% of assets. This can cost your employees hundreds of thousands of dollars over a lifetime.
You can see what your employees are paying by reviewing the statements and documents you receive from your provider. The fees are often referred to as a Management Expense Ratio or MER, and they usually vary by the type of investment fund members are invested in. You can use one of the fee calculators out there (see this and this) to see what this is costing your employees.
3. Are you making the most of the Tax-Free Savings Account?
Most group retirement plans are based around the RRSP. In fact, “Group RRSP” has become synonymous with group retirement plan in much of the industry and in many employer circles. This neglects the power of the Tax-Free Savings Account (TFSA). TFSAs are usually a better retirement savings vehicle for modest-income earners (e.g., those earning less than $50k per year), are a powerful supplementary retirement savings tool for upper-income earners, and are popular with those younger employees whom employers sometimes struggle to engage in workplace retirement programs.
Consider adding a TFSA to your group retirement plan. In doing so, think not just about whether your current provider offers a TFSA, but whether it is truly integrated into the plan. Some providers do not offer a Group TFSA option at all. Others say they offer one, but when you scratch below the surface, they do not offer payroll deduction for TFSA contributions.
To learn more about how the Common Good Plan combines easy retirement planning, low fees, and tax and government benefits optimization (including integrating both a Group RRSP and Group TFSA), and how it might work for your workplace, book a free consultation with a member of our team.
Find out more about navigating the market for group retirement plans by downloading our free guide to choosing a group retirement plan.