RRSP Matching Canada

In an RRSP matching program, your employer matches contributions you make to your RRSP (Registered Retirement Savings Plan). That means when you put aside money for your retirement, your employer also adds money towards your retirement.

Win-win, right. So, what’s the catch? In truth, there isn’t really a catch – but there are some nuances. Read on to learn more.

What is RRSP matching?

In a matching program, an employer matches their employees’ RRSP contributions. When you put aside money into your RRSP, your employer also adds money into your RRSP. Depending on the employer and the plan, the matching could be dollar-for-dollar up to a certain amount or to a percentage of your salary. For example, it could be that you save 5% of your paycheque and your employer matches it with another 5%. Sometimes, however, the “matching” is not one-for-one but more like an incentive – if you save 5% each paycheque, they’ll “match” it with an additional 3%. Whatever the arrangement, it’s basically free money.

Not every employer offers RRSP matching. But you should find out if your workplace offers matching when you join a company. If you’re eligible, your employer will provide you with all the registration and participation information to join the program. Sometimes, employers will offer a matching program right out of the gate, or an employee’s opt-in eligibility might start a few months after starting a new job.

It’s important to note that where RRSP matching takes place, it’s done into a company-run Group RRSP, and not into your personal RRSP. You can maintain both a personal and group RRSP accounts, but your employer won’t pay into your personal account.

How does RRSP matching work?

Joining an RRSP matching program starts with opting in. There will be some paperwork to fill out and submit to HR or your manager to join the Group RRSP. Once you’re enrolled, you’ll agree to have a set amount deducted from every paycheque (a set amount or a percentage of your pay), and your employer will “match” your contribution with a predefined contribution of their own added to your RRSP account.

As mentioned, the amount an employer offers won’t always be buck-for-buck. It could be that your employer’s matching program encourages you to contribute, for example, 6% every paycheque into your RRSP, while they “match” that with a contribution to a maximum of 4%. But make no mistake, that’s still be an additional 4% they’re contributing into your RRSP on top of your salary – which, of course, is nothing to scoff at.

Let’s take a nice round number in this scenario and for ease of calculation say you earn $100,000 a year. If you’re saving 6% per year ($6000), your employer would be adding 4% on top ($4000). That’s $10,000 in retirement savings a year with just a $6000 commitment on your end. Not bad, eh.

Group RRSPs

When employers are matching your RRSP contributions, it’s done into a Group RRSP, which are usually administered by human resources (HR) departments internally but are managed externally by an insurance company, bank, or online provider. If you’re curious about an employer’s RRSP program, your HR reps will usually be the gatekeepers of information and should be your first port of call.

You can contribute into both a Group RRSP and a personal RRSP – but your employer will only match into the group account, not your personal RRSP. If you have both a group and a personal RRSP, you just need to be careful not to exceed your contribution limit. Employer contributions count toward your contribution limit and are considered as taxable income. The contributions you make to a Group RRSP are deducted from your paycheque, on a pre-tax basis.

In most cases, the money in your Group RRSP – both from your contributions and from your employer’s contributions – can be easily moved with you when you change job and tranferred into a new RRSP account. In some cases, employers may place restriction periods on when the money can be moved, either while you’re an employee or for a certain period after you leave. But rest assured, your retirement savings are yours and you will have full access to it.

RRSP matching: what’s in it for the employer?

RRSP matching programs are – quite simply – attractive to employees. Anything employers can employ to attract and retain staff should be considered, especially in today’s worker-friendly job market. Offering RRSP matching is an added perk for employees, making it easier for them to squirrel away funds for retirement while also helping with present-day tax advantages.

RRSP matching can be an incentive for new employees to join a company (for example, if a talented jobseeker is considering two comparable jobs and only one is offering RRSP matching, their career decision should be an easy one). It can also be an incentive for current employees to stay with a company rather than look elsewhere (the grass isn’t always greener when there’s no RRSP matching at a different job).

With many workplaces now offering employee benefits that once seemed progressive (like flex time, work from home, and health and dental), providing RRSP matching is one more way for employers to stand out and show their appreciation for their workforce.

Should I contribute to my employer-matched RRSP?

The answer is almost certainly yes. We can ask this question another way and get the same answer: do you like free money?

If we examine the pros and cons, you can see why these programs are almost always beneficial.

Pros

• Most RRSP matching programs offer between 50-100% matching of your contributions. It is incredibly rare to find other forms of investment that offer such guaranteed high returns. If you have access to employer RRSP matching and you aren’t enrolled in the program you’re effectively leaving money on the table.

• RRSP contributions reduce your taxable income, so with every dollar contributed (by you and by your employer), you’re lowering your tax burden. And since it comes automatically out from your paycheque, you don’t even need to think about it.

• Saving for your retirement should be one of your long term financial goals. A RRSP matching program incentivizes you to save. Plus your employer is right there adding extra savings alongside you.

Cons (kind of)

• There’s less freedom in a Group RRSP to invest your money how you might choose to in a personal RRSP. As they’re managed by an external investment manager on behalf of the group, your investment options may be limited.

• You do still have an annual RRSP contribution limit, so you need to be aware of your limit and ensure you’re not over-contributing, especially if you’re also contributing into a personal RRSP. (You can find your contribution limit in your previous year’s Notice of Assessment from the CRA).

Conclusion

There really are few losers when it comes to RRSP matching. For employers, it’s a chance to stand out and offer a perk that benefits employees now as well as in the future. And for employees, well, it’s a chance to grow your retirement pot faster and more easily with extra money from your bosses. So, yeah, in most scenarios RRSP matching is a win-win situation.