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A Voluntary Retirement Savings Plan (VRSP) is a new type of group savings plan. It is a defined contribution pension plan with some differences that make it simpler than a traditional plan. The VRSP offers tax advantages, for both employers and employees that are similar to those offered by a traditional pension plan.
Any employee who is 18 years of age or older and who has one year of uninterrupted service is automatically enrolled in the VRSP. All other employees may elect to join by notifying their employer.
Upon receiving their notification of enrolment into the plan, the employee will have 60 days to opt out of participation in the plan.
No, employers are not required to contribute to the organization’s VRSP. However, you may choose to do so. Aside from the benefits of employee retention and attraction, if any employer chooses to contribute, these tax benefits are available:
- Employer contributions are not subject to payroll taxes
- Employer contributions are a deductible salary expense and may therefore be deducted from income for tax purposes
Employee contributions to a VRSP are deductible from income before income tax is applied in the same manner as Registered Pension Plan contributions. As well, money contributed by the employer to the VRSP is not included in an employee’s taxable income and the employee does not pay income tax on this money until it is withdrawn (ideally at retirement).
An employer will automatically enroll his/her eligible employees by providing the administrator (Manulife) with the required employee information to establish a VRSP account. The administrator in turn sets up an account for each employee. Employees will have 60 days to notify Manulife if they do not want to participate in the VRSP.
No, an employee may terminate his/her participation in the VRSP within the first 60 days of receiving notification of enrolment into the plan. Additionally, after the 60-day opt-out period ends, employees remain a member of the plan but have the option to reduce contributions to zero if:
- Employee has at least 12 months of contributions in the account,
- You are making contributions on behalf of your employees, or
- The employee has reached their annual contribution limit as set out by CRA.
An employee can contribute up to his/ her Registered Retirement Savings Plan contribution limit, which is typically 18 percent of the previous year’s earned income to a maximum dollar amount set by Canada Revenue Agency (CRA) plus any carry forward room the employee may have.
The default contributions rates as set out in the VRSP regulations are:
- 2% of gross earnings from July 1, 2014 – Dec 31, 2017
- 3% of gross earnings from Jan 1, 2018 – Dec 31, 2018
- 4% of gross earnings from Jan 1, 2019 onwards
Employees may change their contribution rate at any time but not more than twice per 12-month period, unless you agree to a greater frequency.
Employer contributions are locked in and cannot be withdrawn until retirement. If the employee is age 55 or older, they do have the option to transfer to another locked-in vehicle. Employee contributions are not locked in and can be withdrawn at least once every 12 months.
However, regulations state locked-in funds can be withdrawn in certain situations (i.e., a disability).
Employees are entitled to the full value of their account. The employee may opt to continue in the plan or transfer their savings to another retirement savings vehicle. Amounts that are locked in will remain locked in.
No. As long as any employer with 5 or more eligible employees offers a workplace savings plan to all employees within the deadline provided in the regulations, the employer is fulfilling the government mandate.