A common formula is 2% employee deposit with a matching 2% deposit by the company. However, organizations can set funding formulas at their discretion. Organizations can also set up a DPSP (Deferred Profit-Sharing Plan) for the matching deposits as company dollars in this type of vehicle are considered a tax-free transaction. All deposits are withdrawn pre-payroll, so it minimizes payroll taxes for the employee and employer each pay period. Employees are more likely to participate in a voluntary GRRSP when the employer matches their deposits or combination GRRSP and DPSP.
Using the typical 2% matching example from above, the employee’s 2% is deducted from regular payroll and deposited prior to payroll expenses and typically the employer’s matching deposit would be deposited into a DPSP (Deferred Profit-Sharing Plan). The reason for the DPSP is because the employer’s deposits to an employee’s RRSP is considered a taxable benefit and must include payroll expenses whereas the DPSP is non-taxable and you can choose to include up to two years vesting on these deposits. This means that the deposits you make on behalf of your employees stays with the company for at least two years.
Contact FCA to get started. An FCA broker will provide you with options from multiple companies, comparing the fees and investment options and possible funding formulas for matching employee deposits.
When offering a retirement income program to your employees, the company and your advisor have a fiduciary duty to provide access to education for new employees, education updates for existing employees, sufficient investment options, clear communication of the options and a process for signing up for the program. It is also recommended to form a committee to review the performance of the investments, the fund managers and the plan options once a year and set an education strategy with the same cadence. Much of the education offerings can be done through the trustee of the program, that is the insurance company or bank providing the program. The FCA CapShield program provides a process to follow the CAP guidelines so that your program always meets employee needs and legislative requirements.
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