Group RRSP for Small Businesses: What You Need to Know

1. What is a Group RRSP?

A Group Registered Retirement Savings Plan (Group RRSP) is a type of employer-sponsored retirement plan that allows employees to contribute part of their income into a registered investment account. While each employee maintains full ownership and control over their individual account, the group aspect helps reduce administrative costs and may provide access to lower investment management fees compared to standalone RRSPs.

Additional advantages include:

• Automatic payroll deductions, which make saving consistent and convenient.

• Immediate tax savings, as contributions are deducted from gross income before tax is calculated.

• Some plans may offer default investment options, simplifying the decision-making process for less experienced investors.

Employers can also negotiate with financial institutions to provide financial literacy workshops or tools that help employees plan for retirement more effectively.

2. Should Small Businesses Offer a Group RRSP?

Absolutely. A Group RRSP can be a strategic advantage for small businesses trying to compete with larger companies in a tight labor market.

Here’s why offering one makes sense:

• Talent acquisition & retention: Benefits like a retirement savings plan help attract skilled workers who are seeking long-term security. It signals that your business is stable and invested in its people.

• Improved morale and productivity: Employees who feel financially secure are often more focused, engaged, and loyal.

• Customization flexibility: Employers can choose matching structures (e.g., dollar-for-dollar up to a certain percentage), or non-matching contributions, and adjust over time as the business grows.

Group RRSPs also build your employer brand, showing that you prioritize your employees’ financial well-being.

3. How a Group RRSP Works

Here's a closer look at the mechanics of how a Group RRSP functions:

• Employee Participation: Enrollment is voluntary, but employers are encouraged to promote participation and educate staff on its benefits.

• Payroll Integration: Contributions are deducted automatically each pay period, reducing the employee’s taxable income on the spot.

• Employer Contributions: These can be fixed (e.g., 3% of salary) or variable, and they go directly into the employee’s RRSP. This is considered taxable income for the employee, but is fully deductible from the business's income.

• Vesting: Unlike pension plans, most Group RRSPs don’t require vesting periods. This means employer contributions belong to the employee immediately.

Additionally, employers can offer investment choice menus—from low-risk GICs to more aggressive mutual funds—giving employees control based on their risk tolerance.

4. Tax and Legal Considerations for Group RRSPs

While Group RRSPs are more straightforward than pension plans, here are important compliance points:

• Voluntary Participation: Employers cannot mandate employee contributions. Enrollment must be based on informed consent.

• Contribution Limits: Group RRSPs share the same annual limit as individual RRSPs, which is 18% of the employee’s earned income, up to the CRA’s maximum limit for the year.

• Withholding Taxes: If an employee withdraws funds early, taxes are withheld at source, and the withdrawal is reported as income for that year.

• No Lock-In Feature: Unlike pensions, funds in a Group RRSP are not locked in, so employees can withdraw anytime—but at a tax cost.

• CPP & EI Impact: Employer contributions are not exempt from Canada Pension Plan (CPP) and Employment Insurance (EI) premiums.

Best practice: Have clear documentation outlining how contributions are handled, and review your plan annually with a tax advisor or plan administrator.

5. How to Set Up a Group RRSP for Your Small Business

Getting started is easier than you think. Here’s a more detailed step-by-step guide:

Select a Provider
Choose a financial institution that offers dedicated account management, easy onboarding, and robust digital tools for employees. Providers like Sun Life, Manulife, and Canada Life offer scalable solutions, and many fintech companies now provide low-cost, fully online setups.

Define Your Contribution Structure
Decide:

• Will you match employee contributions?

• Is there a cap on contributions?

• Will contributions vary by seniority or role?

Develop a Communication Plan
Run workshops or webinars to introduce the program. Provide FAQs, one-on-one support, or even sample retirement projections to help employees understand the impact.

Integrate with Payroll
Work with your payroll provider or software (e.g., Wagepoint, QuickBooks, or ADP) to automate deductions, remittances, and reporting to the CRA.

Monitor and Improve
Conduct annual reviews of:

• Employee participation rates

• Investment performance

• Administrative fees
  Solicit employee feedback and consider offering additional savings vehicles, such as Group TFSAs or DPSPs (Deferred Profit Sharing Plans).

Conclusion

Offering a Group RRSP isn’t just about retirement—it’s about demonstrating forward-thinking leadership. In today’s competitive hiring landscape, small businesses that offer structured savings tools show employees they are valued.

By providing financial education, optional employer contributions, and a streamlined savings mechanism, Group RRSPs help:

• Employees build wealth for retirement

• Employers strengthen retention and morale

• Companies maintain flexibility without large financial commitments

Whether you're just starting or scaling up, TikiTax.net can help you design and implement a Group RRSP that fits your business goals, budget, and team culture. Reach out today to explore your options.