There are no costs to step up a Group Retirement Plan for you or your plan members and no hidden fees. How insurance companies make their money is through IMFs (Investment Management Fees). For groups under 40 lives there are a variety of packaged retirement products available that keep the IMFs very low.
Typically, a plan member will choose a retirement date fund. If the plan member plans on retiring in 2045 for example, the retirement date fund could be called RDF 2045. The average annual rate of return for a typical retirement date fund is 9.5% and the typical IMF is 1.8%. So, each year the plan member’s average rate of return is 9.5% – 1.8% = 7.7%.
The only item to consider when implementing a Group Retirement Plan is the Plan should have a minimum of $10,000 in annual contributions. Typically, the plan is set up through a Group RRSP where employee contributions are matched by the employer. Employees can contribute up to a set maximum each month, for example $200 and this would be matched by the employer. The reason why matching is used, is so employees have vested interest in their RRSPs. If employees wish to contribute more of their own money into their RRSPs they can do so.
The contributions that employees make are made through payroll deductions for immediate tax benefits. Contributions made by the business to employees will provide tax savings for the business. This includes the contributions made by the business to the owner’s RRSP in the Group RRSP Plan if you choose to have one.
Group Retirement plans are a high-value benefit that can attract and retain key employees, are easy to set up and launch and are quick and easy to manage. Group Retirement plans offer flexible eligibility through classes of employees and very low investment management fees (IMFs) for members.