For employers, 'It's very straightforward, it doesn't require extensive paperwork,' says taxation specialist
“I’m surprised by the conclusion that employees are not taking advantage of it because it’s basically a freebie from an employer. So why wouldn’t you take advantage?”
So says David Rotfleisch, certified specialist in taxation at Taxpage, a tax law firm in Toronto reacting to a Canadian report that showed 27% of employees don’t participate in their employer’s RSP matching program.
“Here you put $100 bucks into your RSP and your employer is giving you $100 matching, why wouldn’t you do it? That doesn’t make a lot of sense to me,” he says.
For employees, contributing is easy to do so, and should be undertaken by all workers, says Rotfleisch.
But why aren’t these plans even more popular? It might be one of two reasons, he says.
“Number one, you don’t know about it, or you don’t understand it, or you don’t have the money to make the contribution which really would be unfortunate if that’s the case because you’re basically getting a two-for-one boost plus double that because it’s tax deductible. This is a huge benefit, that’s a huge win for employees,” says Rotfleisch.
The report was gleaned from Sun Life client data, representing about 1.4 million persons in more than 7,500 group plans.
There is only one downside to the matching RSP, according to Rotfleisch, and that’s because when an employer makes the contribution, it is considered a taxable benefit.
“I mean, you get $100 for your employer, it’s taxable regardless.”
Is an RSP the best thing for employee retention?
For employers, these types of programs could be good for keeping employees in-house, says Rotfleisch, but other types of contributions might be even more advantageous.
“If you’re a private company, you may want to do an equity type of plan, which is called golden handcuffs. That probably would be what I would do if I was an employer because if you contribute into an RSP, and they leave tomorrow, they’re gone. If you’re doing some sort of equity buy-in, then it’s going to vest over time and the employee has skin in the game.”
However, “if you’re really trying to attract a certain type of employee, and you’re really want to give a complete basket of benefits, [an RSP] is certainly something I would offer. It’s very valuable to an employee who takes advantage of it,” says Rotfleisch.
The Sun Life survey found that employees contributed an average of $5,530 per year for 2022, which is up slightly by $500 from 2020 figures. Employers contributed an average $5,230 per year.
Program set-up ‘straightforward’
Implementing this type of program is easy for HR departments, he says.
“You basically set it out in your HR rules, and you update it as you want to change it. It’s very straightforward, it doesn’t require extensive paperwork, it only requires an accurate description of the entitlements.”
And employers don’t need to register.
“It’s not a complex system where it’s like a private pension plan where you have to go through hoops. You set it up, you make contributions as the employees do. The employee gives you proof of contribution, you match it on a weekly monthly, probably quarterly basis to minimize admin costs but there’s really no room for error. It’s a pretty straightforward plan,” says Rotfleisch.
For employers who have low participation in an RSP-matching plan, it’s important for HR to canvass employees to find out why.
“If you do want to encourage them, I suppose step one would be a survey: ‘Why aren’t you participating?’ and based on that data, you can then act accordingly. If the reason is ‘I didn’t know about it,’ well, then it’s as simple as education.”
Half of Canadians recently surveyed said they believe they may never retire because of financial reasons.
If the employee survey shows that employees feel it’s not affordable, there is a way to make this more palatable.
“You can introduce a payroll deduction program for it: ‘We’re going to take off $100 a paycheck,’ and the next thing you know, you’ve got $5,000 for the year,” says Rotfleisch.
