An employer's guide to voluntary retirement savings plans

If you’re running a business in Québec, you may need to set up a voluntary retirement savings plan (VRSP) for your employees. This type of retirement plan is legally required if you employ a certain number of staff who do not have access to a workplace pension.  

But how do voluntary retirement savings plans work? Are they exclusive to Québec-based enterprises? Which of your employees are eligible? How much do you need to contribute? Benefits and Pensions Monitor answers these questions and more in this client education guide. 

If you’re among the retirement planning and pensions consultants who typically visit our website, this can be a good resource to share with your business owner clients. Read on and find out everything you need to know about VRSPs. 

What is a voluntary retirement savings plan? 

A voluntary retirement savings plan (VRSP) is a type of defined contribution pension plan designed for employees without access to a group pension plan. VRSPs function almost exactly like pooled registered pension plans offered in several provinces: 

• British Columbia 
• Manitoba 
• New Brunswick 
• Nova Scotia 
• Ontario 
• Saskatchewan 

VRSPs were introduced in Québec in 2014 through the Voluntary Retirement Savings Plans Act (VRSP Act). The goal is to provide workers of small and medium-sized businesses and self-employed individuals access to a simple and inexpensive vehicle to save for retirement. 

Who is eligible to participate in voluntary retirement savings plans? 

Employer requirements 

If you’re an employer or a business owner, then you’re legally required to provide workers with a VRSP by December 31 of a given year if you meet the following criteria: 

• Your business is based in Québec. 
• You have at least 10 eligible employees on June 30 of the same year and five eligible employees on December 31 of the previous year. 
• You don’t offer employees a registered retirement savings plan (RRSP), tax-free savings account (TFSA), or any registered pension plans (RPP). 

If you only have between five and nine employees eligible for a VRSP, the provincial government will determine the exact deadline for meeting your obligations. Businesses with less than five workers aren’t covered by the Voluntary Retirement Savings Plans Act. Employees of these businesses, however, can enrol in a VRSP on their own by contacting an authorized administrator. We will provide a list of VRSP administrators in a separate section.  

Employee requirements 

Employees who meet the following criteria are automatically enrolled in a VRSP: 

• at least 18 years old 
• have one year of uninterrupted service with the company 

You’re responsible for notifying your employees of their enrollment in the voluntary retirement savings plan. This must be done at least 30 days before implementation. After that, workers have 60 days to opt out. Staff members who didn’t meet the criteria but wish to participate may do so by informing you of their intention.  

How do voluntary retirement savings plans work? 

VRSPs can be an attractive option for many small and medium-sized businesses that want to provide employees with a straightforward means to save for retirement. Compared to traditional plans, VRSPs are simpler to administer and have less expensive administration and management fees.  

Here are the different elements and features of voluntary retirement savings plans that employers need to know: 

VRSP contributions 

Eligible employees who choose to participate in the VRSP are required to contribute a portion of their paycheques, just like in group registered retirement savings plans. By default, contributions are set at 4% of their gross salaries. Workers can change their contribution rates any time but not more than twice in a 12-month period. This is unless they are increasing the contribution amount. Employees may also reduce their contribution rates to 0% but only after contributing to the plan for at least 12 months.  

The default contribution rate applies only to employees participating in a workplace-provided VRSP. It doesn’t apply to workers who enrol on their own or self-employed individuals.  

Employers, on the other hand, aren’t required to make VRSP contributions. Choosing to contribute on your employees’ behalf, however, can lead to intangible benefits, including increased employee retention and job satisfaction. Your contributions are also not subject to payroll taxes, unlike those in a registered retirement savings plan (RRSP).  

VRSP contribution room 

VRSPs don’t have a set minimum contribution amount. However, employees must be aware that contributions to their voluntary retirement savings plans are tied with their RRSP contribution limits. Each dollar contributed to the VRSP counts against the RRSP contribution room by the same amount and vice versa. This is regardless of whether the contribution was made by the employee or you as the employer.  

RRSP contributions are capped at 18% of the worker’s previous year’s income, up to a maximum set by the Canada Revenue Agency (CRA). For 2024, the annual contribution limit is $31,560. Employees can carry over any unused contribution room from previous years.  

Workers must be wary, however, of exceeding the annual cap. The CRA charges a 1% monthly penalty for overcontributions of more than $2,000. This tax penalty continues until the amount is withdrawn or if the limit covers the excess contributions. Remind your employees to track their VRSP and RRSP contributions to ensure they don’t exceed the annual limit. 

VRSP tax implications 

Just like in an RRSP, employer contributions to a voluntary retirement savings plan are considered a deductible salary expense for income tax purposes. But unlike in an RRSP, employer contributions are exempt from payroll taxes.  

VSRP withdrawals 

Employer contributions are locked-in, meaning they cannot be withdrawn until retirement. Once employees reach age 55, they can choose to transfer the funds to another locked-in vehicle.  

Employee contributions, on the other hand, are not locked in. These can be withdrawn at least once every 12 months. The withdrawn amounts are subject to provincial and federal income taxes. Employees may also incur withdrawal fees. 

VRSP transfers 

Employees are entitled to the full value of their voluntary retirement savings plans. This means that if they leave the company, they may opt to continue the plan or transfer the savings to another account. Employer contributions will remain locked-in.   

Every pension plan comes with different benefits and features. You can find out more about the different retirement savings programs available for your employees in this guide to Canada pension plans. 

Who administers VRSPs?  

VRSP administrators must be authorized by the Autorité des marchés financiers (AMF) and registered with Retraite Québec. These administrators are required to provide members with a default investment option where the risk level is based on the member’s age and adjusted as they approach retirement. Administration and management fees cannot exceed 1.25% of the average plan assets.  

Apart from the default option, the administration must offer three to five investment alternatives to allow members to create a portfolio that suits their needs. Any fees from these options are capped at 1.5% of the plan assets.  

Here’s the list of VRSP administrators registered with Retraite Québec, along with their default and alternative investment options. You can find the complete details, including the contact number and administration fees, on this website.  

Setting up a VRSP: a step-by-step guide 

Here are the steps you need to follow once you’ve decided to enrol your employees in a voluntary retirement savings plan.  

• Step 1: Choose your administrator. It must be a reputable financial institution authorized by the AMF and registered with Retraite Québec. The agency’s website provides a complete list of registered administrators, along with the contact numbers and investment options.  
• Step 2: Notify your employees. This must be done 30 days before the plan’s implementation. The notice must contain specific information that you can find in this infographic. Eligible employees have 60 days to inform you if they are opting out of the VRSP.  
• Step 3: Finalize your contract with the chosen administrator.  
• Step 4: Register your employees. All eligible employees who didn’t opt out are automatically enrolled in the plan. Unqualified staff may be able to participate, but they must inform you of their intention.  
• Step 5: The administrator notifies your employees. Your chosen administrator must send a notice to your employees confirming their membership.  
• Step 6: Collect VRSP contributions. Employee contributions will be deducted from their paycheques after the 60th day of the notice. You may also make contributions on your employees’ behalf, but this isn’t mandatory.  
• Step 7: Remit the VRSP contributions. This must be done not later than the last day of the month after the month when the contributions were deducted.  

Voluntary retirement savings plans are among the simplest and most cost-effective ways of helping your staff save for retirement. But if you’re searching for other ways to provide employees with retirement income, our list of the 10 best pension plans in Canada can help.  

What are the benefits of voluntary retirement savings plans?

Voluntary retirement savings plans were created to ensure that all Québec employees have access to a group savings plan. VRSPs serve as a straightforward and more affordable alternative to traditional workplace pension. For employees, these plans come with tax advantages and low fees that don’t eat into their investment returns. 

While it’s not mandatory for employers, contributing on behalf of their staff can help build loyalty, improve engagement, and increase job satisfaction. VRSPs can also serve as a valuable tool in attracting and retaining top talent. At the end of the day, employers who help their employees secure their financial future reap the benefits of a dependable and productive workforce.  

If you’re looking for the top retirement planning specialists in Canada, our group retirement directory is the place to go. The companies listed on this page employ industry experts that offer the best advice and services to help you and your staff achieve financial security in retirement. By partnering with these professionals, you can be sure that everyone’s financial future is well taken care of. 

How did voluntary retirement savings plans benefit your company? Let us know in the comments.