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Group retirement plan

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Benefits
Employee benefit
Tax-advantaged
savings plans

A group retirement plan may be offered by your employer and is generally set up as a group Registered Retirement Savings Plan (RRSP) or a deferred profit sharing plan (DPSP). Some employers also may offer group Tax-Free Savings Accounts (TFSAs). In Quebec, you may encounter a Voluntary Retirement Savings Plan (VRSP). Many company group retirement plans are setup where employee contribute a percentage of their salary, which attracts a company match which increases the total contribution amount.

Participation in a group retirement plan makes saving for retirement a bit easier as contributions are deducted directly from your paycheque and the company match increases the savings rate.

All contributions (both yours and your employers) are tax-deductible to you – and all investment earnings are tax-sheltered.[1]

In all cases (group RRSP, DPSP, VRSP), an individual account is set up for each employee. Like in an individual RRSP, you decide how your money is invested. The retirement income that can be obtained will depend on how much was contributed to the plan, investment choices, and investment returns.

Group retirement plans versus registered pension plans

To help their employees save for retirement, employers can offer either a Registered Pension Plan or a group retirement plan.

Just as the inflexibilities of defined benefit pension plans prompted a migration to less-risky (for the employer) defined contribution pension plans, rigidities in pension regulation and legislation have sparked a move toward more flexible Group RRSP and other arrangements covered in this article.

Group RRSPs

Nearly 4 million people were involved in employer-sponsored group RRSPs in 2021 and over 50,000 employers offered such plans in 2022.[2]

A Group RRSP is similar to individual RRSP, with a few exceptions. The primary one is that plan members may enjoy lower-cost investing (for similar products) thanks to the buying power of the plan sponsor, despite the fact that monthly contributions by individual plan members may be quite small. Still, these are considered "sticky assets" by the plan's manager, most often a life insurance company, that will stay put until the employee retires. The tradeoff, to keep costs down, is a limited menu of investment options.[1]

Only 18% of group RRSPs have mandatory participation.[3] However, even if participation is voluntary, the employer matching funds makes participation attractive.

Other advantages are automated payroll deductions (often with pre-tax dollars), investment options that can be competitive, and access to retirement planning tools.[4] Automated payroll deductions might seem like a small advantage, but they make contributions easier to budget (just another regular expense), and income taxes are reduced immediately rather than later. This means there will not be a large tax refund in the spring, with the temptation to spend it.[5]

Investing in a group RRSP

Learning the basics

You will be making investment choices in a group RRSP, so be sure to read about portfolio design and construction, asset allocation, and rebalancing.

Watch the fees

Management fees in group RRSPs are called "Investment Management Fees" (IMFs)[6]; this is more or less the same concept as management expense ratios for retail mutual funds, although "fund operating expenses" also sometimes charged on top of the IMF (e.g. [7]). Fees for different funds in the investment menu of group RRSPs can sometimes be difficult to find, but make sure you understand what you are paying, since you want to keep as much as the investment returns for yourself as possible. If the fees in your plan are too high, or you don't like the investment options, consider contributing only enough to the group RRSP to get the full employer match, and invest other retirement savings in an individual RRSP or TFSA.

One-fund solutions

In many group RRSPs the default option is a target date fund[8] or a balanced fund. With a target date fund, you pick your approximate retirement date and the fund automatically adjusts it's asset allocation as retirement approaches, lowering the proportion of equities and increasing the proportion of fixed income investments. With a balanced fund (a.k.a. "target risk" or "asset allocation" funds), the asset allocation stays constant. These one-fund solutions will appeal to people who want to minimize their work or have little investing knowledge. Be sure to understand what the fees are if you opt for such a product.

Simple portfolios

If you want more control, and perhaps lower fees, consider building a simple index portfolio in your group RRSP using index funds, which should be among the least expensive options in the menu.

In no index funds are available, you can still combine a Canadian bond fund, a Canadian equity fund, a US equity fund and an international equity fund in suitable proportions, choosing the lowest-cost option for each asset class in the fund menu. The international equity and the US equity funds can be replaced by a global equity fund if available.

Leaving your employer

Typical options when leaving your group RRSP are:[1][9][10]

  • cash out the account (with major tax consequences)
  • transfer it to another RRSP plan, either an individual RRSP or the group plan at your new employer
  • convert it to a Registered Retirement Income Fund (RRIF)
  • purchase an annuity

The last two options are relevant for people who are retiring and want to obtain an income.

Deferred profit sharing plans (DPSPs)

A deferred profit sharing plan (DPSP) is a type of registered tax-sheltered retirement plan.[11] The plan is designed to enable an employer to share a portion of profits with arm's length employees.[12] The payments made by the employer must be made to a trustee in trust for the benefit of the employees or former employees of the employer, as provided under subsection 147(1) of the Income Tax Act.[13]

DPSP contributions are not taxed as income to the employee, and money within the plan grows tax-deferred. Money withdrawn from the plan however is taxed as regular income at your marginal rate.

Contributions

Employer contributions, which are the only kind allowed, can be a percentage of profits or a fraction of individual employee's earnings, but no more than 18%.[11] Another constraint is that the Canada Revenue Agency (CRA) defines a DPSP limit every year, $16,905 in 2025.[14] The DPSP limit is exactly one half of the money puchase limit (the yearly contribution limit for DC pension plans). DPSP contributions from the employer create a Pension adjustment which reduces your RRSP room for the following year.[12]

Some employers offer both a group RRSP and a DPSP, with employee contributions going into the former and employer contributions into the latter.[15] One reason for this arrangement is that "unlike a group RRSP, employer contributions to DPSPs don’t require payroll taxes for employment insurance and Canada Pension Plan premiums".[16]

Investment options

Investment options might be similar to those in group RRSPs. However there may be rules about holding a certain amount/proportion of your employer's shares in the plan.[citation needed]

Withdrawals and transfers

Options when you leave your job (after a vesting period) or retire may include:[11][17]

  • a lump-sum payment in cash (taxable)
  • equal annual (or more frequent) instalments over a maximum of 10 years (taxable)
  • an annuity with specific characteristics purchased from an insurance company (annuity payments will be taxable)
  • an advanced life deferred annuity (ALDA)
  • a transfer to another registered plan such as a RRSP, RRIF, registered pension plan, another DPSP, etc.; this continues the tax deferal and does not affect your RRSP contribution room if applicable

Voluntary Retirement Savings Plans (VRSPs)

In Quebec, since 2014, employers (with 10 eligible employees or more) who don't already offer a group retirement savings plan or a pension plan, and are unwilling to do so, must establish a Voluntary Retirement Savings Plan (VRSP).[18] Employee participation is optional, but eligible employees are enrolled by default (to overcome inertia). Employees must actively opt out within 60 days if they are not interested.

Self-employed persons may be able to enroll in an existing VRSP.[18] These are listed under VRSPs registered with Retraite Québec.

As of 2023, nine plans exist, covering over 100 000 participants from over 10 000 employers.[19]

Contributions

Employee contributions are made automatically through payroll deductions, which can make saving for retirement easier and creates immediate income tax deductions. The default contribution rate for employees is 4% of gross salary but it is possible to change it up or down.[18] Employees for which this is the main or only retirement savings plan should consider increasing the contribution rate as much as possible, as saving 4% a year likely will not be enough (see Savings rate).

Employer contributions are possible but not mandatory; they are exempt from payroll taxes[18], unlike in a group RRSP. Unfortunately, only 14% of employers who have mandated a certain life insurance company to administer the plan for their employees make employer contributions.[19]

The maximum total contribution (employee + employer) is 18% of earnings every year[5], minus any pension adjustment, and VRSP contributions count in your RRSP room. In other words, "the RRSP and VRSP share the same contribution limit".[20] It is recommended to track both your RRSP and VRSP contributions in the same spreadsheet to avoid exceeding the contribution limit, which would result in penalties.

Investment options

The default investment option in a VRSP must be a lifecyle-type fund with a maximum fee of 1.25%.[18] See the group RRSP section above for an explanation of how these funds work.

In addition, "the administrator must offer 3 to 5 other investment options so that you can create portfolios tailored to your needs" with maximum fees of 1.5%.[18] These options can include bond funds, equity funds, balanced funds, etc.

Withdrawals and transfers

Employee contributions can be withdrawn from the plan, but this will create a tax bill (like in a RRSP). The general idea is to make such withdrawals during retirement when your marginal tax rate is expected to be lower. If this is not the case, the VRSP might not be the best plan for you.

Alternatively, employee contributions to a VRSP can the transferred to another VRSP, to a RRSP, to a Registered Retirement Income Fund (RRIF), or used to purchase an annuity, among other options.[20]

Employer contributions are generally locked-in (can't be withdrawn) until age 55.[18]

VRSP versus individual RRSP

Contributions to a VRSP reduce your RRSP room, so you essentially have to decide which plan -- VRSP versus individual RRSP -- is more advantageous. If your employer contributes, the VRSP is likely preferable, at least to get the matching funds: this is extra money from your employer and you will not get it otherwise. If the employer does not contribute, then make a detailed comparison between the plans, in terms of investment options and fees.

Investment options in VRSPs are limited to the default plus 3-5 other choices, vary by provider, and may not suit all investors. The default option, a lifecycle fund, is a reasonable choice for novices. A balanced fund with about 60% equities and 40% bonds could also be a good starting point. Eventually assets will accumulate, you will have had time to educate yourself about investing, and fees will start to matter more. That might be the time to switch to an individual RRSP.

Retraite Québec and VRSP providers present the fees in VRSPs as "low", but this is only correct when compared to high-fee actively managed mutual funds, segregated funds, and the like. There are much less expensive products in existence and compared to those, the fees in existing VRSPs tend to be relatively high, close to the legislated maxima. This means that a self-directed individual RRSP could be five times cheaper or more (e.g. by using exchange-traded funds, including all-in-one asset allocation ETFs). Over 30 years, a 1.5% yearly fee will reduce the final amount of money in your account by 36%, whereas a 0.2% fee will only reduce the final amount by 6% (see Investing costs matter). Would you rather keep 64% or 94% for yourself?

In summary, unless the employer is also making contributions to the VRSP (or other features as such payroll deductions are deemed essential), employees should at the very least consider what the alternatives are.

VRSP versus TFSA

Another alternative, if your employer offers a VRSP but does not contribute to it, is an individual Tax-Free Savings Account. TFSAs may be more advantageous than RRSPs or VRSPs for low income workers in particular. See TFSAs versus RRSPs.

Capital Accumulation Plan (CAP) guidelines

Sponsors and service providers of group RRSPs and DPSPs are expected to follow voluntary guidelines from the Canadian Association of Pension Supervisory Authorities (CAPSA), including:

See also

References

  1. ^ a b c GetSmarterAboutMoney.ca, Group RRSPs | Workplace pension and savings plans, viewed January 10, 2016.
  2. ^ Laurin A, Turpie G (2023) Strengthening Retirement Income Security: Fairer Tax Rules and More Options Needed. CD Howe Institute, E-brief 343, 14 p., viewed June 22, 2025.
  3. ^ Benefits Canada, DC plans need better design and raised contribution rates: report, February 19, 2016, viewed February 13, 2017
  4. ^ Jim Yih, 10 Great reasons to contribute to your Group RRSP plan, viewed February 19, 2017
  5. ^ a b Marc Bachand, Nicolas Lemelin, Nicolas Boivin, Donnez un sens à vos finances 2024-25, viewed June 14, 2025.
  6. ^ Jim Yih, Understanding Fees for Group RRSPs and Defined Contribution Pension Plans
  7. ^ University of Winnipeg Group RRSP, Fund Management Fees As Of: December 2016, viewed February 20, 2017
  8. ^ Jim Yih, A Target Date Fund makes investing easy, viewed February 18, 2017
  9. ^ Sarah Milton, Options When Leaving Your Group RRSP, viewed February 19, 2017
  10. ^ Ontario Securities Commission, How Group RRSPs and Group TFSAs work, pdated September 26, 2023, viewed June 22, 2025.
  11. ^ a b c RBC Wealth Management, Deferred profit sharing plans, July 2020, viewed June 30, 2025.
  12. ^ a b Canada Revenue Agency, Register a deferred profit sharing plan - Overview, modified June 6, 2019, viewed June 29, 2025.
  13. ^ Canada Revenue Agency, IC77-1R5 Deferred Profit Sharing Plans, updated August 17, 2007, viewed June 30, 2025.
  14. ^ Canada Revenue Agency, MP, DB, RRSP, DPSP, ALDA, TFSA limits, YMPE and the YAMPE, viewed June 29, 2025.
  15. ^ Dan Bortolotti, Couch Potato works with employer retirement plans, MoneySense, January 26, 2016, viewed June 29, 2025.
  16. ^ Benefits Canada, Sounding Board: How DPSPs can support SMEs’ retirement, talent management goals, May 13, 2024, viewed June 30, 2025.
  17. ^ Canada Revenue Agency, Deferred profit sharing plan (DPSP) lump-sum payments, viewed June 30, 2025
  18. ^ a b c d e f g Retraite Quebec, Voluntary Retirement Savings Plans (VRSPs) and Workers and VRSPs, viewed June 23, 2025.
  19. ^ a b avantages.ca, RVER: un dixième anniversaire en demi-teinte, November 19, 2024, viewed June 27, 2025
  20. ^ a b Autorité des marchés financiers, VRSP – Voluntary Retirement Savings Plan, viewed June 29, 2025.

Further reading

External links

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