The Observer


Retire that group RRSP: Why Multi-Employer Pension Plans may be the future of workplace retirement savings plans

by Brian Prokop, Link Plan Management

Cumbersome. Byzantine. Expensive.
Those were once the arguments by small to midsize employers against establishing defined contribution (DC) pension plans for their workforce.

Historically, the group RRSP was the only practical solution for these smaller employers who wanted to offer their people a workplace retirement savings plan.

In Alberta and other provinces, however, changes to pension legislation and regulations in recent years have effectively leveled the playing field—and allowed smaller, unaffiliated (e.g. non-union) businesses with two or more employees to offer the myriad of benefits of a true pension plan.

Without the cost. Without the administrative burden. Without the regulatory demands. Basically, offering all the advantages once available only to large corporations or government entities.

There’s a case to be made that Multi-Employer Pension Plans (MEPPs) are the future of workplace retirement wellness.
Multi-Employer Pension Plans vs. Group RRSPs

In the past, this choice was a no-brainer for smaller organizations.

Historically, pension plans (either DC plans or defined benefit (DB) plans, which have now been all but grandfathered out of the workplace) were only offered by larger corporations or the public service—due to their cost, significant startup and ongoing administrative efforts, stringent regulatory requirements, and requisite plan administrative knowledge and expertise.

That was then. This is now.
An immediate benefit, for employers and employees

Multi-Employer Pension Plans (MEPPs), of the defined contribution (DC) variety, are now available to small and midsize businesses, with immediate benefits for both employer and employee.

And they’re available with no employer administration or regulatory filing required, since experienced third-party experts now take on
all the heavy lifting involved with administration, registration and regulation and cost.
Here’s the difference between MEPPs and group RRSPs in today’s world. With group RRSPs:

  • Employer contributions are considered income, and therefore insurable
  • This means that the employer’s contribution can be reduced by up to 15%, depending on salary level, thanks to payroll taxes, Canada Pension Plan deductions, Employment Insurance premiums, and other source deductions
  • Effectively, that means the employer has to “gross up” the contribution, or the employee takes the reduced-benefit hit
Conversely, with MEPPs:
  • Contributions are fully tax deductible for the employer through these DC pension plans
  • Employees receive the entire employer contribution without any of the taxes, deductions or premiums associated with group RRSPs
  • Employee contributions are made with pre-tax dollars via payroll deduction—another immediate tax benefit

Burning questions: What about fees?

There’s another important aspect to this debate—and that’s the ever-meaningful subject of fees. It’s been demonstrated time and again that fees have a profound impact on the future value of a portfolio.

New third-party providers charge less than 1% to professionally manage each employee’s pension assets—after determining that employee’s personal risk capacity, financial situation and investment objectives, and generating a tailor-made investment portfolio consisting of low-cost exchange traded funds (ETF).

Traditional providers have charged as much as 3%, depending on investment choices and size of plan, in the face of a changing landscape that is seeing greater demands for fee schedule transparency.
A culture of caring

Granted, there are many reasons that some of us may want to work past the age of 65. But the high price of retirement should not be one of them.

The newly practical Multi-Employer Pension Plan option—a sensible, more generous workplace pension option—creates a culture of caring within a company.

Recent industry surveys indicate strongly that
financial health is an important component for any employer, with regards to attraction and retention. Younger workers are a pivotal element of that strategy, with many facing the financial hardships of paying off student debt, home ownership, and starting a family almost simultaneously.

A recent Mercer Canada poll suggests that 30% of Canadian financial employees believe that financial wellness programs are a major factor in choosing a new employer, while nearly 20% in a higher income bracket don’t feel they are in control of their financial situation. When an employer fosters a culture of caring, very good things happen, including:

  • Higher productivity
  • Lower employee turnover
  • Less stress and employee absenteeism
  • Rapid transformation into an employer of choice
Defined Contribution (DC) pension plans are no longer the exclusive territory of the heavyweight organizations.

With new third-party providers taking on the administrative burden, providing fee transparency, and tailoring pension assets to the individual, small and midsize businesses can rapidly transform themselves into an employer of choice.

Brian Prokop, P.Eng, CFA is CEO of Link Plan Management, the licensed Portfolio Manager of Calgary-based Link Investment Management, a provider of innovative financial solutions. He has over 30 years of business and investment experience in both public and private companies. Brian can be reached at: