Retirement. It’s a big word that’s on a lot of people’s minds these days.
Simply put, Canadians want to know they’ll have enough money to retire comfortably. And as an employer, you’re in a great position to help guide them in the right direction.
But what if employees need guidance on a retirement benefits issue, and you don’t know the answer? Not to worry!
That’s exactly why we put together this article. Here, we answer the most common questions our clients ask us around retirement benefits for employees. Let’s take a look.
Top 6 FAQs on Workplace Retirement Benefits
1. With employees working longer as they age, can the retirement age be extended on their benefits plan?
Yes, the retirement age can usually be extended past age 65. But the benefits extension must be done for the group as a whole, and not just for one or two people.
Important to note:
The extension generally applies only to health and dental benefits. Most insurance carriers will reduce the life insurance benefit by 50% at age 65. Some carriers further reduce the benefit at age 70.
Most LTD plans end on or before an employees 65th birthday although some can be extended to age 70.
(Related post: Help Your Team Maximize Employee Retirement Benefits)
2. What happens to an employee’s retirement (RRSP) and/or savings (TFSA) plan if they leave the company?
When an employee leaves a company that offers a group savings or retirement plan, they have three options. They can:
- Transfer the money to another institution by completing the correct Revenue Canada form. This allows the transfer to happen tax-free, as long as the money goes into the same type of account (RRSP or TFSA.) If the account is a pension plan, your employee will probably need to place the funds in a locked-in RRSP.
- Take the money in cash. However, this could have negative tax consequences in the case of a retirement plan.
- Leave the money with the company’s group plan provider. The provider will automatically transfer it to an individual account. Your former employee will be able to control future investment decisions based on the existing options available. Also, if the investment chosen (RRSP or TFSA) comes with certain guarantees, those guarantees will continue even after the employee has left the company.
3. My employee already has an RRSP or TFSA. Why should they join our group plan?
The number one reason to join an employer-sponsored group retirement or savings plan is to take advantage of the employer’s contribution.
Most employer-sponsored plans offer a matching component. If you mention the words “free money” to your employee, you probably won’t need to work much harder to convince them. The money you put into a group retirement or savings plan on their behalf is often tax-free for them.
In most cases where matching is involved, even before your employee invests the money, they will have received a 100% rate of return!
The expenses associated with a group plan are generally lower than those offered on an individual basis. This means your employee will get more money over the long term. You can also tell them they’ll receive education sessions and tools on financial planning and investing—another bonus.
(Related post: How to Improve Employee Financial Wellness)
4. What does vesting mean?
Vesting: an employer’s ability to restrict employees from transferring out company contributions to a group savings plan.
The maximum vesting period is two years, and is based on the date of enrollment in the plan. Currently, employers can only do this with company contributions to a deferred profit sharing plan.
What if the employee leaves the company before the end of the vesting period?
In that case, contributions you make to the deferred profit sharing plan return to the plan for the benefit of all remaining employees.
5. Can employees on a Canadian work visa contribute to the company retirement plan?
Yes, employees on work permits can join the retirement plan. To join, they must have:
- had Canadian source income in a previous year, and
- filed a Canadian Income Tax Return.
Make sure that if any employees are on a Canadian work visa, they’re aware of the total amount they can contribute to the retirement plan.
Why is this important?
Because they can easily over-contribute to the plan in the first year, if their previous Canadian Source income was low. To make sure they contribute the right amount, tell them to check the Notice of Assessment they would have received from CRA the previous year.
One other point to note:
Some employees on work visas may still need to file a tax return in their home country. If this is the case, it’s important that they confirm whether or not the home country sees a Canadian RRSP as a tax-deferred vehicle.
If not, they may have to pay tax on the RRSP growth in their home country. However, most countries have tax treaties with Canada and this isn’t usually a concern.
6. My employee lost their tax receipt. How can they get another one?
All insurance carriers that offer group retirement savings plans will issue duplicate tax receipts, if you ask them. Most carriers offer this service through their website or 1-800 number.
There you have it! We hope this blog has cleared up any confusion around employee retirement benefits. Do you have a retirement question we didn’t address here? Let us know in the comments, and we’ll get back to you with some answers.
It will help you learn how the right employee benefits advisor is good for business, and how to choose the best one.