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Beth Buczynski
Canadian employers sometimes offer registered retirement savings plan (RRSP) matching programs as part of their group RRSP. Since the employer matches your contributions to the group plan, it is considered ‘free’ retirement money with no extra cost to you.
However, there are important considerations to keep in mind before deciding if an RRSP matching program is right for you.
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What is RRSP matching?
RRSP matching is a feature of some group retirement savings plans. In a matching program, the employer matches the employee’s contribution into the plan dollar for dollar, up to a certain amount, or up to a percentage of the employee’s salary.
In some cases, RRSP matching is based on employee performance or productivity.
Ultimately, whether contributions are matched, and how much is matched, is up to the employer.
RRSP matching vs. group RRSPs
Think of RRSP matching as an add-on to some group RRSPs.
Not all group RRSPs will have an employer contribution or matching feature, but if offered, all matching takes place within the group RRSP offered by the company.
Your employer won’t match contributions to personal RRSPs held outside of the group plan.
How to find out if your company offers RRSP matching
At the time of hiring, your employer should tell you if there’s a group RRSP and whether they match contributions to the group RRSP.
Additionally, they should explain when you will be eligible to participate in the company’s group plan. While some employees may be able to start participating immediately, others may be required to wait a few months.
For specific questions about your company’s group plan and RRSP matching, it’s best to connect with your HR department or the plan’s administrator.
Group RRSPs are usually administered by major financial institutions or licensed insurance companies.
How employer RRSP matching programs work
To get started, you’ll first need to opt into your company’s group RRSP matching program.
Once enrolled, you can regularly contribute to the group RRSP via payroll deduction — either a fixed dollar amount or a percentage of their paycheque. Your employer may then match your contributions up to a specified amount or percentage of your total salary.
RRSP matching example: Let’s say you earn $100,000 per year and you contribute $5,000 (5% of your income) to your employer’s group RRSP. If your employer matches contributions up to 4% of your salary, they’ll add $4,000 on your behalf. This means you’d be nearly doubling your annual contribution at no additional cost. If you contribute less than 4% in a given year, $1,000 for example, they will match that full amount instead.
Keep in mind that there are no bonus contributions. If you don’t opt into the group RRSP or don’t contribute in a given year, you won’t get any “matches” from your employer, as these always hinge on your contributions into the plan.
You’ll typically get to decide how to invest the contributions, based on investment options offered by the group RRSP provider or investment manager.
In many cases, contributions made by employees and employers into group RRSPs are not locked in and the money is yours if you leave your company. You’ll be able to transfer your RRSP to another account, a retirement vehicle or cash it out.
However, if the plan is set up so that the employer portion goes into a deferred profit-sharing plan instead of the group RRSP, the employer’s contributions may be subject to a vesting period before you can withdraw them.
Some employers may also place restrictions on withdrawals from the group RRSP while you’re an employee.
Pros and cons of RRSP matching programs
There are a number of RRSP benefits and factors to consider if your employer offers an RRSP matching program.
Pros
- RRSP matching is an easy way to top up your retirement savings. Employer RRSP contributions to the group plan can be a valuable benefit in your compensation package.
- RRSP matching incentivizes employees to save for retirement. Employer contributions in the group plan boost your annual savings at no extra cost.
- The guaranteed RRSP match may provide a better return than other volatile investments. Returns on investments are linked to the stock market and they underperform if the market goes down.
- Joining a group RRSP is generally optional and fairly simple. Employees can sign up for RRSP matching programs at the time of hiring or anytime after they become eligible during their employment.
- You may be able to reduce the amount of tax you owe on your income. RRSP contributions made by you and your employer are tax-deductible.
Cons
- Contributions from your employer count toward your annual maximum contribution limit. You must have enough contribution room to accommodate both your contributions and those from your employer to participate in the employer match program.
- Your employer’s contributions are considered taxable income. These contributions will be included on your T4 slip each year at tax time.
- Unlike an individual RRSP, the group RRSP investment options may be limited. You may be bound by the options provided by the investment manager.
Should you contribute to an employer-matched RRSP?
Whether to participate in your workplace’s group RRSP and any employer matching program is usually an individual decision, unless your company’s group plan is mandatory. That being said, many Canadians consider RRSP employer matching plans to be ‘free’ retirement money worth taking advantage of.
Your decision may also depend on whether you have RRSP contribution room in a given year, which is built up during the previous year. For example, if you’ve only recently started working, you may not have enough contribution room to participate in the plan.
To find out whether you have contribution room, take a look at last year’s Notice of Assessment or log into your CRA My Account.
Frequently asked questions about RRSP matching
It may be worth contributing to your company’s group RRSP where the employer matches your contributions, provided you have enough contribution room. The RRSP matching contributions are guaranteed and provide a substantial boost to your retirement savings. Additionally, you may be able to reduce your total taxable income if you include your and your employer’s RRSP contribution receipts at the end of the year.
Yes. Any contributions made by the employer to your RRSP account are considered taxable income and will be included on your T4 slip each year at tax time. However, you’ll also get RRSP contribution receipts for your and your employer’s contributions, which may offset the additional income.
No. Unlike with other registered savings vehicles (such as the Registered Education Savings Plan, or RESP) where the government matches contributions up to a set amount) you won’t receive government matching contributions to your RRSP individual or group accounts.
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