5 steps to setting up a group RRSP

Well-designed, effectively communicated plan most valued by employees
By Oma Sharma
|Canadian HR Reporter|Last Updated: 05/16/2010

Most new retirement plans set up in Canada are stand-alone group registered retirement savings plans (RRSPs) or a combination of a group RRSP and a deferred profit-sharing plan (DPSP). Group RRSPs and DPSPs are often favoured over formal defined contribution (DC) pension plans because they are subject to less regulation — they are only registered under the Income Tax Act and do not have to be registered under provincial pension standards legislation. There is less upfront cost to establish these plans and it is less costly to operate and keep them compliant with applicable laws once they are up and running.

Stand-alone group RRSPs are the simplest vehicle to set up a DC retirement arrangement. All told, they are a collection of individual RRSP accounts with an overall contractual wrapper that enables the plan sponsor to act as the agent of each RRSP account holder for the purpose of collecting and remitting contributions to the plan and negotiating competitive fees.

By law, only employees can contribute to group RRSP accounts. Employer contributions can flow into a group RRSP only if they are treated as additional salary, subject to payroll taxes, as though an employee has contributed to his group RRSP account.