Group Pension Plans and Group RSPs

Group RSPs 

Group RSP plans can be set up in three different ways:

  1. Employee contributory plans – With these plans, the employee is the only contributor, and the employer’s role is simply to deduct the desired amount from the paycheque of each employee, and submit a cheque to the providing insurance company for contributions.
  2. Employer and Employee contributory plans – In this case both the employer and employee can contribute to the Group RSP.  Some variations of this are noted below.
  3. Employer contributory plans – In this case, only the employer contributes to the plan.

If you are choosing to set up an Employer and Employee contributory plan, you may wish to further design your approach as follows:

  • As employer, you may wish to  contribute a flat percentage of income each month (e.g., 5%), regardless of  what the employee contributes
  • The employer may wish to match  contributions made by the employee up to a certain maximum percentage of  income each month; the employee then may continue to  contribute more than the amount matched by the  employer
  • The employer may wish to reward  longer-term employees differently than other employees.  For example, you may wish to match  contributions made by employees up to 3% for employees with the company for  1-9 years, and 5% for employees with the company 10+  years.

Group Pension Plans

Pension plans are legislated by the federal and provincial governments.  There are two kinds of Group Pension Plans:

A Defined Contribution Pension Plan (DCPP) is an employer-sponsored program through which the employer and employee contribute an amount (usually a percentage of monthly income, such as 4%) so that the employee may receive a pension based on the accumulated earnings of these contributions.  Funds cannot be withdrawn until the employee either retires, dies or terminates employment.  Contributions are deductible for income tax purposes, the accumulated earnings are tax free while held in the pension fund, and are taxed when paid out.  These are the most common forms of pension plans.

A Defined Benefit Pension Plan (DBPP) is an employer-sponsored program through which the amount of pension to be paid out upon retirement is known in advance, and is based on some criteria such as years of service and income level.  Employer and employee contributions have the same tax treatment as DCPPs.