Savings account could provide greater flexibility to employees
Almost one-half (43 per cent) of Canadian employers are “likely” or “highly likely” to offer a tax free savings account (TFSA), according to a poll by Hewitt Associates, a human resources consulting company.
The savings vehicle is expected to be available as of Jan. 1, 2009, allowing individuals to contribute $5,000 a year. While contributions are made with after-tax dollars, no tax is paid on capital gains or investment income or withdrawn funds.
Two-fifths of employers say they would add a TFSA to another vehicle for tax-favoured retirement savings. They also want to provide greater flexibility for employees (36 per cent) or say a TFSA will help attract and retain employees (11 per cent) while the same percentage say it will help maintain a competitive benefits program.
Employers identify two challenges to the TFSA: communication (employee understanding) and administration (Will the utilization rate justify implementation and ongoing costs?).
“The introduction of a flexible savings vehicle like a TFSA puts more focus on the level of support needed to help employees meet their financial goals. Companies will need to look closely at the level of communication and employee education they offer,” said Kim McMullen, a senior communications consultant at Hewitt.
Most likely to benefit are those who need access to funds before retirement, individuals with little or no RRSP contribution room, fast-trackers and people receiving income-tested benefits, said Mazen Shakeel, a senior retirement consultant with Hewitt.