An employer-sponsored retirement plan provides employees with peace of mind that they will have an income when they are no longer working.
Plans can be set up in various ways. Some factors to consider include:
- Will the plan require both employer and employee contributions?
- Will the plan be open to all employees or only permanent, full-time staff?
- When will employees be eligible to enroll?
- What budget is available to fund the retirement plan?
- How will the plan be managed? Will you outsource a third party administrator?
Pension plans vs. RRSP programs
| Pension Plan | Registered Retirement Savings Plan |
| Defined Contribution Plan: Payment/payout at retirement that will be determined by the amount of money contributed during the life of the plan and the performance of the stock or investments used. Both the employer and employee contribute to these plans. | An employer can arrange for employees to make contributions through a schedule of regular payroll deductions. In many organizations, RRSP contributions can be based on a “matching” program. This means that the employer will put in a certain percentage or dollar amount based on the contributions the employee makes. |
| Defined Benefit Plan: Guarantees a predictable monthly payment at retirement, calculated by using an established formula with some combination of the employee’s salary, years of service and/or age. These plans are costly to the employer and less used. | The employee receives the tax savings immediately upon deduction instead of waiting until the end of the tax year. |
| Plans usually offer employees a range of investment options to choose from that align with their risk tolerance and financial goals. | Income earned within the account is not taxed until money is withdrawn from the plan. |
| Pension plans are subject to complex regulatory requirements, which can create an administrative burden on the employer. | Unlike traditional pension plans, RRSPs are typically portable. This means employees can take their RRSP savings with them if they change jobs, providing continuity in retirement savings. |
| Some pension plans have vesting requirements, meaning employees must work for a certain period of time before they are entitled to the employer's contributions. | RRSP contributions are subject to annual limits set by CRA, based on an individual's income. Exceeding these limits can result in penalties and tax implications. |