Should You Join Your Company Group Savings Plan?
Question. I just started a new job recently, and have to make a decision about signing up for the company savings plan. In my last job, I was a member of a pension plan, and didn’t really have any decisions to make. But now, I have the option to enrol in a Group RRSP and a Deferred Profit Sharing Plan (DPSP). I already have my own RRSP and TFSA, so I’m not really sure what the differences are, and if I should join. Do you have any advice for me?
Answer. It’s great that you have a job where your employer is encouraging retirement savings. Outside of the public sector, registered pensions are nearing extinction, but many proactive and progressive employers have opted instead to use other plans, such as DPSPs and Group RRSPs, to help their employees prepare for retirement.
Perhaps the main reasons for this move away from pensions and toward other group savings plans, such as Group RRSPs and DPSPs, is increased flexibility, and decreased costs. Registered pension plans are governed by the Pension Benefits Standards Act, and as such, have very stringent funding requirements. Furthermore, pension plans are typically quite costly to administer, with significant overheard and reporting requirements. Many employers have therefore moved away from pensions, and toward other forms of retirement savings plans.
Unlike a registered pension plan, Group RRSP and DPSP contributions by the employer are not mandatory. This gives the employer added flexibility to suspend contributions for a period of time if the company is experiencing financial difficulty. While that’s an advantage to the employer, it is a potential disadvantage to the employee.