Retirement Savings Plans – A Changing Landscape

A recent poll conducted by Credit Canada Debt Solutions found that one-third of Canadian respondents admitted that their future financial plans included winning the lottery. Many of you reading may find this piece of information quite humorous, however, from a Retirement Consultants perspective; scary stuff. Bring forth Pooled Registered Pension Plans (PPRP’s); an initiative by the Federal Government to encourage and assist Canadians to start saving more for their retirement.

So what are PRPP’s? How will they benefit small and mid-sized business owners? How will they benefit the employees of these businesses? Although some Provinces have not yet enacted legislation for PRPP’s, the Federal Government has set the framework of the plan.  This framework gives some insight into how PRPP’s will work and the benefit PRPP’s will provide to Canadians.

What is a PRPP?

PRPP’s are broad based, low cost pension plans (retirement savings plans) that employers can offer to their employees. PRPP’s combine the incentive to save within a group retirement plan, while also allowing individuals to control their investment options. In doing so, Canadians can tailor their retirement plan to fit their financial goals.

Benefits to Business Owners

Besides the benefits of creating goodwill through assisting employees save for retirement, PRPP’s also offer other benefits to business owners. With today’s workplace culture changing, prospective employees (especially those new to the workforce) are not only looking at salary and career development. Instead they are weighing in on all aspects of a position, including Pension and Benefit Plans, Wellness Programs and flexible hours. This is what todays workforce is demanding and is crucial to recruiting and retaining sought after employees. PRPP’s will also be a great incentive vehicle to reward key and long term employees. By contributing to the employees PRPP, business owners can reward these employees, all while escaping payroll taxation.

Benefits to Employees

As you may have guessed from the name, PRPP’s involve the pooling of assets. By pooling these assets under one umbrella, employees within a PRPP benefit from lower investment management fees and administrative costs. This means more money remains in the employee’s account as it grows. For the most part, the fees under a PRPP will be lower than most retail investments someone would purchase on their own. Another glaring benefit of some PRPP’s will be the Employer Contribution Match. The Employer Contribution Match refers to the contributions an employer will make on the employees behalf. These employer contributions would match the employee contributions up to a certain percentage. Can you say free money? Although not all PRPP’s will include an Employer Match, the ones that do will grow employee’s accounts at a much faster rate.

Happy Saving.

Mark Morassutti
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