Since their introduction in January, Group tax-free savings accounts (TFSAs) have not enjoyed the uptake that some had expected. Is this a rejection of the product, or just a slow start?

In early January, Hudson’s Bay Company launched its Group TFSA. “It was important to offer it to round out our benefits program. But we do not make employer contributions,” said Marc Poupart, HBC’s director of retirement programs. So far, employee reaction has been reserved, to say the least—barely 100 of HBC’s 60,000 employees have made contributions.

“We started to talk about [the group TFSA] during the holiday season, which is not necessarily a good time. Moreover, the economic context does not help,” says Poupart. Also, the payroll department was not able to configure its systems to allow for payroll deductions. “The timing was not there. The TFSA arrived when payroll was preparing T4 slips,” says Poupart. Given the urgency of T4 preparation, payroll deductions had to take a back seat.

For its part, the largest administrator of group plans in the country is satisfied with the response of employers. “We felt a great interest from the time the TFSA was announced. Many employers have approached us,” says Louise Ouellette, regional vice-president, Eastern Canada, group retirement services, Sun Life Financial.

By mid-February some fifty employers in Canada had set up a Group TFSA, but Sun Life administers only about 6,000 plans.

“We see this in the long term. It’s like RRSPs: it will take some time to develop. Our challenge is to encourage plan members to participate in their TFSA,” says Ouellette. By this summer, Sun Life Financial believes that 120,000 workers will be eligible for membership in a Group TFSA.

There’s the same measured enthusiasm on the part of Standard Life, the number three Canadian group retirement plan provider. “We conducted a survey of the intentions of employers to provide a Group TFSA. Sixty-eight percent said they were interested in adding to their plans in 2009,” says Emmanuelle Couillard, director of product development at Standard Life. Currently, 23% of Canadian employers have actually implemented a Group TFSA. “This corresponds to the targets we have set ourselves,” she says.

In general, employers add Group TFSAs to options already in place rather than as a substitute. In most cases, the TFSA becomes a priority when there is a plan surplus. For example, if the employer’s contribution to a worker’s RRSP creates a surplus contribution of $8,000, the employer will put $5,000 in the TFSA and the remaining $3,000 in a traditional non-registered account. Before the advent of the TFSA, all of the $8,000 would have gone into a non-registered account, with no tax benefit for the employee.

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Our clients want to offer a Group TFSA for several reasons: to be an employer of choice, retain employees, provide additional tools for retirement savings and to encourage saving in general,” says Couillard.

“The TFSA gives people a new way to save on tax. We want our workers to enjoy that savings,” says Poupart.

In the meantime, a lot of education remains to be done. Many believe that the TFSA is just a bank account with daily interest. Despite everything that has been written on the subject, they are unaware they may include units of mutual funds, stocks, bonds — in short, virtually all financial products are eligible for an RRSP.

However, this misconception may be overstated. Couillard notes that in group meetings, “we see that they start to have an interest in the TFSA.” Sun Life repeats the message whenever they see a client: the TFSA is a tool that can help both employers and employees.

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