Employers in search of simpler retirement products for their workers are looking to group registered retirement savings plans and deferred profit-sharing plans as a solution, say experts at capital accumulation plan providers.
Benefits Canada’s 2017 CAP Suppliers Report shows that the number of plan sponsors offering DPSPs has ballooned by 112 per cent over the past decade, from 3,539 in 2007 to 7,514 in 2017. In the same period, group RRSP provision grew by more than 35 per cent, with most of the expansion coming in a spike over the last two years. In 2017, 45,137 plan sponsors provided group RRSPs to employees compared to 33,351 in 2007. Numerical growth in both products has outpaced that of defined contribution plans, according to the results.
Vartkes Rubenyan, a principal at Mercer Canada’s investment consulting business, says the statistics match his own experience in the industry. “I think most companies feel that it is too much regulatory work to set up a DC plan, which is why they are growing at a much slower rate,” he says. “If you’re a new business, you want something a bit simpler and less involved. That’s the beauty of group RRSPs and DPSPs.”
The trend is particularly strong among companies with pan-Canadian operations, says Amanda Fickling, assistant vice-president for marketing and communications at Great-West Life Assurance Co.
“For example, legislation for group RRSPs is federally controlled,” she says. Defined contribution plans, by contrast, fall under legislation that varies by province, “creating extra administrative burden in terms of reporting” fees and filings, adds Fickling.
“Group RRSPs also provide homebuyers [with] options that are not available with registered pension plans. Employers may see this as a benefit their employees will value over a straight retirement savings plan, as it allows members to save for both a home and for retirement,” she says.
Tom Reid, senior vice-president of group retirement services at Sun Life Financial, says some of the attributes unique to DPSPs also appeal to employers. For example, it’s the only type of capital accumulation plan that allows for a vesting period, so that any employer contributions made to a plan on behalf of employees could go back to the company if they leave within two years.
“If you have high turnover of staff, that can help manage costs. It can also be a neat vehicle to attract and retain talent,” says Reid.
In addition, employer contributions to DPSPs don’t attract payroll taxes for employment insurance and Canada Pension Plan premiums, unlike those to a group RRSP. Michelle Loder, a partner in defined contribution solutions at Morneau Shepell Ltd., says plan sponsors can achieve significant savings as a result, especially if a high proportion of employees earn less than the year’s maximum pensionable earnings, which for 2017 stood at about $55,000.
“As long as the employee makes a salary under the YMPE, the net cost of matching contributions is less if you direct them to a DPSP rather than a group RRSP,” she says.
Rubenyan says he expects the growth in popularity of DPSPs to continue in the near future as more plan sponsors learn about their benefits. “A lot of the prospects we speak to haven’t heard of it, so it’s a matter of educating them about the benefits,” he says.
In 2014, the launch of Quebec’s voluntary retirement savings plan presented an opportunity for capital accumulation plan providers to spread the word about DPSPs and other qualifying alternatives. Employers in the province that have 10 to 19 employees must set up a VRSP or an equivalent group retirement savings plan by Dec. 31, 2017. Employers with 20 or more employees had to do so on Jan. 1, 2017.
Fickling says the development, along with the brief prospect of Ontario creating its own version of a mandatory arrangement — the Ontario Retirement Pension Plan — helped fuel the recent surge in numbers for both group RRSPs and DPSPs, which grew by almost 44 per cent in the last two years, according to the 2017 CAP Suppliers Report.