Workplace Savings Plans: An Underused Benefit Worth Rethinking

There’s an employee benefit you may be overlooking: workplace savings plans. But if your organization doesn’t offer any currently, you’re not alone. According to IG Wealth Management’s annual retirement study, less than half of non-retirees in Canada have a workplace pension plan. Many employers worry about the cost and administration of adding another benefit, but those worries are often unfounded and there’s actually a practical business case for workplace savings plans. 

What do we mean by a workplace savings plan?

In order to truly understand the benefit that workplace savings plans can bring - to both employee and employer - we need to first be on the same page about what we mean when we say ‘workplace savings plans’. These plans generally fall into a few categories:  

• Group RRSP (Registered Retirement Savings Plan): Employees contribute to registered retirement savings accounts through a workplace arrangement, with immediate tax advantages. Employers may contribute or match employee contributions.

• Registered Pension Plans (RPPs): These are more structured, regulated programs where the employer generally has more responsibility for establishing and overseeing the plan. They can be either defined benefit (DB) or defined contribution (DC) plans. 

  • Defined contribution (DC) pension plan: Employer and/or employee contributions are specified, but the eventual retirement income depends on contributions, investment performance and other factors.

  • Defined benefit (DB) pension plan: Retirement benefits are determined by a formula, often based on salary and years of service. The employer generally bears the investment and funding risk.

• Group TFSA (Tax-Free Savings Account): Employees save through payroll into individual TFSAs. Investment growth and withdrawals are generally tax-free. Employer contributions have tax implications and need careful plan design.

• Deferred Profit-Sharing Plans (DPSPs): Funded solely by the employer, DPSPs allow companies to share profits directly with employees in a tax-deferred way. 

The right approach depends on your organization’s budget, workforce, objectives and appetite for complexity.

Are we underestimating the value of workplace savings plans?

Many employers think saving money is an individual responsibility rather than something the workplace can or should support. Yet employees are increasingly burdened by the responsibility of building their own retirement security, often without the guaranteed income their parents or grandparents may have had. 68% of Canadians say they’re worried they will outlive their retirement savings.

Workplace savings plans hold tremendous value for employees. Employees benefit from access to financial tools and education through the workplace that they might not seek out, or have access to, independently. For starters, workplace savings plans make building a financial security net effortless by using automatic payroll deductions. This represents a priority shift towards ‘pay yourself first’ budgeting. Instead of saving whatever money happens to be left over at the end of the month, you treat your savings goals like a non-negotiable monthly withdrawal from your income, before covering bills or discretionary spending.

Through workplace savings plans, employees benefit from access to group pricing, lowering investment management fees through pooled group assets. Workplace savings plans can also offer more choice and flexibility than what an employee might be able to access on their own. Depending on the arrangement, employees may be able to balance retirement savings with other financial priorities. For employers who offer free matching contributions, employees will benefit from an immediate boost to their total savings. Many workplace saving plans also offer automated tax breaks to lower workers' taxable income right away. A workplace savings plan isn't just a retirement benefit. It can be a practical way to help employees build financial security over time.

The employer benefits too

Though many employers worry about the cost of adding another benefit to their existing plan, far fewer are thinking about the return on that investment. According to one study, workplace savings plans - such as RRSPs or pensions - can deliver an estimated 3 to 1 return on investment (ROI) for employers through increased productivity, reduced turnover, and payroll tax savings. That’s because employer contributions to RRSPs, RPPs or DPSPs are deductible as a business expense, and payroll taxes may be reduced since the RPP and DPSP contributions are not treated as pensionable or insurable earnings.

A meaningful employer contribution can also strengthen your overall compensation package, which makes recruiting qualified candidates easier. It can support long-term retention too, giving employees another reason to stay long-term. Regular payroll contributions can make saving easier and more consistent for employees, which can lead to greater financial security for your employees. This in turn can reduce financial stress-related absenteeism and boost productivity at work. A win-win for everyone. 

Three common myths that may be holding employers back

Myth 1: “It will cost us too much.”

Employer costs depend on the contribution or matching structure they choose. You can work with your benefits advisor to model the potential cost using payroll and realistic participation assumptions. But remember, a match doesn't have to be huge to be meaningful. For example, one employer might match up to $50 per month, with higher contributions based on years of service. Your plan can be designed to suit your organization - a generous pension isn’t the only worthwhile option.

Myth 2: “It will create too much administration.”

Contributions can often be integrated into regular payroll processes, meaning the extra administrative burden is relatively low. While we can’t promise that every plan will only require a certain number of minutes per payroll, providers typically offer administrative support, member portals, education and planning tools to help reduce the administrative burden. 

Myth 3: “Employers shouldn’t tell employees what to do with their money.”

Offering a workplace savings plan doesn't mean dictating how employees should save or invest - it’s about giving them options. Employees can retain choice over their contributions and, depending on plan design, the accounts and investments they use. However, group arrangements make it more likely that employees will save at all, by making contributions automatic and by potentially lowering investment fees. The bottom line is that employers can make useful financial options and resources available without prescribing what employees should do.

Don't just offer a plan; help employees use it

Your benefits plan is only as useful as your employees’ ability to understand and engage with it. So, offering a great workplace savings plan isn’t enough. The work of education and communication starts at onboarding - ensuring that your new (or newly eligible) employees know the total value of the compensation package you offer - and how they can participate. But this work doesn’t end at onboarding. Employers should regularly review participation and employee feedback to identify where additional education or support might help.

Helping employees understand their financial options requires ongoing communication and support throughout the year and throughout their careers. Accessible financial education is one way to do this. Currently, only 50% of employers are offering financial planning services to their employees, with only 42% offering financial literacy resources. However, the vast majority of employees wish their employers offered more financial information and support. Employers can encourage employees to use the calculators and planning tools available through their existing providers to explore their projected retirement income and potential shortfalls.

Another way to keep employees engaged is to make the employer match clear. Some employers match employee contributions on a percentage basis, up to a specific cap, while others offer a flat contribution. In some cases, the employer contribution may have a "vesting" period, requiring you to stay with the employer for a certain period of time before you can access the employer-matched funds. When employees understand how employer contributions work and the value of the contribution, they’re more likely to engage in a workplace savings plan. 

Start with a few practical questions

As an employer, it can be difficult to know where to start. Answering a few practical questions can help you determine what your next steps are: 

• Do we offer a workplace savings plan? If so, when was it last reviewed?

• Is the employer contribution meaningful enough for employees and sustainable for our organization?

• Do employees understand how to join and how the plan works?

• Are employees using the provider’s planning tools and educational resources?

• Does our current offering reflect our workforce’s needs and our organization's recruitment and retention goals?

These aren’t the only questions to ask, but they’re a good starting point for identifying whether your values, what you offer your employees and what your business can afford are aligned.

Workplace savings plans don't have to be expensive, complicated or prescriptive, but thoughtfully done, a plan can give your employees more options for building financial security while helping your organization strengthen its overall benefits offering. The question isn't whether employers should take responsibility for employees’ financial futures. It's whether they can make the tools, support and opportunities to build those futures more accessible. Workplace savings plans are one way to do just that. 

If you’d like to review your plan, through the lens of workplace savings plans, reach out to Shannon to discuss what else you can do to better support your employees’ financial future while being mindful of costs.