What is an Employer RRSP Matching Program?

RRSP matching is when a company opens a group retirement savings plan and matches an employee’s contribution to the plan up to a certain amount, usually 3% to 5% of the employee’s pre-tax salary.

The RRSP itself solely belongs to the employee and they can name their own beneficiary, but it is a separate RRSP from one they may have opened themselves (I.e., through a bank or financial advisor).

There is no limit to how many RRSPs a person can have, as long as they do not exceed their contribution limit, so having both a personal and group RRSP through an employer is perfectly acceptable. (Note, having more than two would make it difficult to track contributions).

How the RRSP Matching Program Works

Participating in an employer’ group RRSP matching program usually involves 3 steps.

1. SIGN UP

First, you fill out a form agreeing to participate in the group RRSP and giving the employer permission to deduct the RRSP contribution from your paycheque. In return, the employer agrees to match the contribution. This form-filling step often gets people hung up and they end of not doing anything, leaving money on the table. Don't let this be you.

2. CONTRIBUTION AMOUNT

The employer will determine the percentage of your gross pay they are willing to contribute and you get to choose how much of that percentage you would like to have - all of it, some of it or none of it.

To illustrate the 3 options, assume you earn $100,000 per year and your employer offers a maximum 4% match.

Option 1: Opt-in 100%

You agree to contribute the full 4% or $4,000 to the group RRSP. Your employer will also contribute $4,000, giving you an $8,000 RRSP contribution for that year. $4,000 of that contribution is free money.

Option 2: Choose your own percentage

Maybe you choose to contribute 2% (instead of 4%) or $2,000 to the group RRSP. Your employer will also contribute $2,000, giving you a $4,000 RRSP contribution for that year. $2,000 of that contribution is free money, but note that in this case you will have missed out on $2,000 of free money.

Option 3: Opt-out

You choose not to contribute to the group RRSP and therefore your employer will not contribute anything on your behalf. In this case you would miss out on $4,000 of free money.

3. INVEST

Lastly you will need to decide how you would like to invest the contributions based on investment options offered by the group RRSP provider. This part can be intimidating and once again, people often feel stuck and end up choosing not to participate.

The decision doesn't need to be made without help. Usually the investment firm’s financial advisor can help with this decision. You could also call your own financial advisor for help. (I helped a client with this exact thing just a few weeks ago). Again, don't let this hold up your decision to participate, as you really would be losing out financially.

The Pros & Cons of RRSP Matching Programs

The pros far outweigh the cons with RRSP matching programs since the employee is being offered extra income by participating. It would be difficult to find a situation in which not participating was the better option.

Pros

RRSP matching is free money you would not have access to if you did not participate.
Participating ensures you are saving something for retirement.
RRSP matching provides an incentive to save for retirement.
Participating in the program is very easy.
A group plan usually offers some cost savings in terms of management fees.
RRSP contribution receipts will be issued for both yours and your employer's contribution, potentially earning you a tax rebate when you file your income tax return.
You could use the tax rebate to contribute to your own RRSP or your TFSA, moving you closer to your savings goals faster.

Cons

Contributions from your employer count toward your annual maximum contribution limit (although this is hardly a con, since you also get the tax rebate).
Participating in the RRSP matching program might lead one to think they are saving enough, when in fact, 1% to 4% (typical matching percentages) of one’s salary usually is not enough. Ideally you will be saving additional amounts in your own RRSP and/or TFSA as well.
There are tax implications for an employer’s contributions because they are considered taxable income and will be included on your T4 slip at tax time, although the RRSP contribution receipt may offset the additional income.
Group RRSP investment options are limited to those provided by the investment partner chosen by your employer, although in most cases, the investment options would likely serve a variety of risk tolerances and timelines.

What Happens to my RRSP if I Leave the Employer?

In most cases, contributions made by both the employee and employer aren’t locked in meaning you’ll be able to transfer the funds to another RRSP (highly recommended) or cash out the RRSP (not recommended).

Sometimes the plan is set up so that the employer portion goes into a deferred profit-sharing plan instead of the group RRSP. In this case, the employer’s contributions may be subject to a vesting period before you’ll be able to withdraw them. It’s worth asking about this, although it’s still most likely to your benefit to opt into the program 100%.

Final Thoughts on RRSP Matching Programs

Here’s a summary of what to do with an employer RRSP matching program in 3 steps:

Opt-in to employer group RRSP matching plans and make the maximum allowable contribution in order to capture all of the free money being offered.

Ensure you choose the right investment strategy for RRSP by consulting your financial advisor.

Make sure you are saving over and above your employer group RRSP plan in either a personal RRSP or a TFSA. RRSPs allow for contributions of 18% of your earned income or a maximum of $27,830 (as of 2022)

If you still have questions about this program, or about RRSPs in general, book a free consultation with me.

Achieving Success by Working Together

Should You Opt-in to an Employer RRSP Matching Program?