# Should I join my company's RRSP Plan?



## hedgehog12 (Feb 28, 2011)

Hi everyone,

I recently switched jobs and my new company is offering an RRSP program that allows me to contribute up to 5% of my bi-weekly paycheck . 
For every $1 I contribute, the company will give $0.20. 

I dont make that much, my paycheck (after tax) is only a bit more than $1000. So 5% isn't that much to me.

It sounds like a good deal, but before I join I have a couple questions I was hoping people here can help me answer:


1) Can I buy more RRSP's on my own (a lump sum) before Feb.28th 2016 if I choose?


2) Could I buy more RRSP with other banks? Or am I forced to use the company's bank? 


3) What happens if I leave the company? is it a big hassle to transfer my RRSP's out?


Thanks for your help!


----------



## indexxx (Oct 31, 2011)

1- Yes, you can buy whatever you like up to your maximum contribution
2-You can buy anywhere you want, and hold it at any financial institution
3- Your company will likely have guidelines in its benefits package literature- ask HR or payroll, or whomever administrates your plan. There may be a period before the funds become fully available to you, but it's not a hassle.

It's usually a great idea to take advantage of an RRSP match, because it's guaranteed free money. Even at the high management fees (it's probably through an insurance company, notorious commission bandits); it is still a great deal. If the management fee is 2.5%, you're still guaranteed a 17.5% return- a great return.


----------



## hedgehog12 (Feb 28, 2011)

Awesome, thanks for helping me clear that up 

Yeah, its with Manulife lol. I'm not sure of the commission but its probably high. 

I'm going to sign up next week


----------



## Beaver101 (Nov 14, 2011)

indexxx said:


> ...
> 
> It's usually a great idea to take advantage of an RRSP match, because it's *guaranteed free money*. Even at the high management fees (it's probably through an insurance company, notorious commission bandits); it is still a great deal. If the management fee is 2.5%, you're still guaranteed a 17.5% return- a great return.


 ... +1 on the 3 listed points but not entirely "free" money as it's likely a taxable benefit but still a good deal with a 20% matching ... the return is only "guaranteed" if you place your contribution into a GIC and not mutual funds.


----------



## RBull (Jan 20, 2013)

Agree with what Indexx said although I'm not clear on the company contribution amount. Your max contribution is up to 5%. Is the company matching up to 5% or are they contributing up to 4x (20%) of what you contribute, or is it 20% of the max you contribute (1%)?


----------



## Beaver101 (Nov 14, 2011)

Say hedgehog12 earns $50K per year, his company's (group) RRSP plan allows him to contribute 5% of his paycheck = $2,500 maximum contribution under his company's group RRSP plan. And for every $1 of contribution he makes, the company will give/match him $.20 (or 20%) free money = $500. So in effect, he has $3,000 to contribute to his company's RRSP.

hedgehog12: The mutual fund MER is known as the IMF under the Manulife's suite of funds.


----------



## wendi1 (Oct 2, 2013)

It depends. You are right - a $26,000 annual pay isn't going to go very far. Do you have credit card debt outstanding? I would pay those off first before adding to an RRSP.


----------



## indexxx (Oct 31, 2011)

RBull said:


> Agree with what Indexx said although I'm not clear on the company contribution amount. Your max contribution is up to 5%. Is the company matching up to 5% or are they contributing up to 4x (20%) of what you contribute, or is it 20% of the max you contribute (1%)?


"For every $1 I contribute, the company will give $0.20."

I believe what is said here is that the company has a 20% match- so if the OP contributes $100/month, they add $20. As an example, my company has a 150% match; I am allowed to contribute 4% of my salary and they add an additional 6% of my salary. So if I contribute $200, they kick in an additional $300. (It's a great plan- I work at a university.)

" +1 on the 3 listed points but not entirely "free" money as it's likely a taxable benefit but still a good deal with a 20% matching ... the return is only "guaranteed" if you place your contribution into a GIC and not mutual funds."

-yes, that is more accurate; however personally I would likely not use a GIC as the return would more or less equal the MER; thereby negating any growth potential. You are still getting the 20% however, so that is definitely a solid strategy if you are risk averse. What I did was look at all the insurer's funds and found a couple of index funds, getting my MER down around 1.5% or so. Think they had some type of REIT that I chose as well; I'd have to look it up again. I am allowed to pick any combination of their funds in any percentage.


----------



## RBull (Jan 20, 2013)

indexxx said:


> "For every $1 I contribute, the company will give $0.20."
> 
> I believe what is said here is that the company has a 20% match- so if the OP contributes $100/month, they add $20. As an example, my company has a 150% match; I am allowed to contribute 4% of my salary and they add an additional 6% of my salary. So if I contribute $200, they kick in an additional $300. (It's a great plan- I work at a university.)
> 
> ...


Thanks. I agree that's what seems to be implied, but not stated clearly at all, which is why I asked all the possible interpretations I inferred.


----------



## hedgehog12 (Feb 28, 2011)

Thank you for your replies everyone 
I have learnt a great deal here lol
Sorry for the confusion, I guess what i meant to say is for every $1 I contribute to my RRSP, the company will match 20%, so I will get a total of $1.20.

As for the Mutual funds, I believe they have several classes "Aggressive", "Balanced", "Modest" and "Conservative". I'm asked to pick which ones I want and in what percentage. Since I'm not a risk-taker, I plan to do 50% Balanced and 50% Modest.


----------



## Beaver101 (Nov 14, 2011)

hedgehog12 said:


> ...
> As for the Mutual funds, I believe they have several classes "Aggressive", "Balanced", "Modest" and "Conservative". I'm asked to pick which ones I want and in what percentage. Since I'm not a risk-taker, I plan to do 50% Balanced and 50% Modest.


 ... a "Modest" fund ... LOL! ... this is news to me as never heard this term. What's the next reinvention ... a Happy fund? :biggrin: 

On serious note - your 50/50 B/M pick seems good or one that fits in your comfort zone. Good luck.


----------



## Eclectic12 (Oct 20, 2010)

indexxx said:


> 1- Yes, you can buy whatever you like up to your maximum contribution


+1 ... though the difference is that in any of the plans I've read of that have employer matching, putting the $$$ into anywhere but the company RRSP means the company contribution (20 cent for each employee $) is no longer given.

This is why the employer matching can be seen by some as "free" money.




indexxx said:


> 3- Your company will likely have guidelines in its benefits package literature- ask HR or payroll, or whomever administrates your plan. There may be a period before the funds become fully available to you, but it's not a hassle.


I expect the employee portion will be a bit of paperwork. The plan administrator who is making money off the plan will usually try to get one to stay within their company to keep making money (i.e. transfer from the company plan that has matching to a public plan). Depending on one's situation, it may be cheaper to move it to a cheaper alternative.

Won't the employer portion have to go into a locked-in retirement account (LIRA)?
I've read of DC and DB plans requiring this but am not sure for an RRSP with matching funds.


Cheers


----------



## My Own Advisor (Sep 24, 2012)

Personally I think anytime you can get other people (i.e., your employer) to match your RRSP contributions, even in part, the better. It will at least help offset the fees charged by Manulife for their RRSP products.


----------



## Kail (Feb 7, 2012)

Definitely take advantage of it, it is free money after all. My company has a DC pension plan, ESPP plan and a group RRSP. I take part in the first 2 as the company will match what I put in where as the group rrsp is just a vehicle for retirement savings with no matching involved.

My best friend works at Westjet as an aircraft mechanic and according to him they match dollar for dollar up to 20% of your salary with the option of it going to an RRSP if you so choose. IF that is actually true, this is probably the best matching I have heard of.


----------



## kcowan (Jul 1, 2010)

You should also get your HR to show you the fund performance for you putative selections. Often company matched funds underperform their regular commercial ones. The availability of relative performance data will help you decide. I have experienced that at Industrial Alliance.

(e.g. if they underperform by 10%, then the 1.20 becomes 1.08 less MER)


----------



## fraser (May 15, 2010)

As above , but I am told that there is a fair amount of litigation going on now over exactly this, ie poor selection of funds, only funds with high MERs. The result has been poor employee returns. 

Apparently some employers have been found to be getting 'rebates' from some money management firms based on the basket of funds offered to employees. This gag is slowly coming to an end. Amazing how some employers will try to scam their employees.


----------



## My Own Advisor (Sep 24, 2012)

Kail said:


> My best friend works at Westjet as an aircraft mechanic and according to him they match dollar for dollar up to 20% of your salary with the option of it going to an RRSP if you so choose. IF that is actually true, this is probably the best matching I have heard of.


20% of salary for RRSP matching???? Wow, if so....


----------



## Beaver101 (Nov 14, 2011)

> *Eclectic12*
> 
> Won't the employer portion have to go into a locked-in retirement account (LIRA)?
> I've read of DC and DB plans requiring this but am not sure for an RRSP with matching funds.
> ...


 ... the employer's portion (taxable benefit) is for a "RRSP" (done on a group basis), not a DC pension plan so most unlikely to go into a LIRA on termination of employment. The RRSP monies (mutual funds converted to cash unless financial institution has same MER mutuals for a transfer in kind) can simply be transferred to an individual or personal RRSP when one is no longer associated with the company.


----------



## Beaver101 (Nov 14, 2011)

fraser said:


> As above , but I am told that there is a fair amount of litigation going on now over exactly this, ie poor selection of funds, only funds with high MERs. The result has been poor employee returns.
> 
> Apparently some employers have been found to be getting 'rebates' from* some money management firms *based on the basket of funds offered to employees. This gag is slowly coming to an end. Amazing how some employers will try to scam their employees.


 ... examples?


----------



## indexxx (Oct 31, 2011)

Eclectic12 said:


> +1 ... though the difference is that in any of the plans I've read of that have employer matching, putting the $$$ into anywhere but the company RRSP means the company contribution (20 cent for each employee $) is no longer given.
> 
> This is why the employer matching can be seen by some as "free" money.


-Yes, my bad- I was responding to the OPs two points:

1) Can I buy more RRSP's on my own (a lump sum) before Feb.28th 2016 if I choose?
2) Could I buy more RRSP with other banks? Or am I forced to use the company's bank? 

-my response was based on it being a given that OP was going to go into the company's funds to get the match, and then buy elsewhere to top up.


----------



## fraser (May 15, 2010)

Beaver 101...I have no specific examples. I was told this by a Calgary lawyer with a nstional firm who specializes in employment law. He also said that employment law was one of their fastest growing areas of practice-specifically pension plan litigation.


----------



## Beaver101 (Nov 14, 2011)

^ Interesting ... I presume it's litigation on behalf of individual employees (not class action)? Any mention of the success rate?


----------



## fraser (May 15, 2010)

I asked him that . He said wrongful dismissals keep them busy but the big growth was in pension plan litigation. DB wind ups, DB/DC conversions, DC plan management, and surprisingly pension fund advisory/management firms.

The latter must be a juicey area for lawyers....lots of money for those high fees are in those plans.


----------



## Homerhomer (Oct 18, 2010)

hedgehog12 said:


> As for the Mutual funds, I believe they have several classes "Aggressive", "Balanced", "Modest" and "Conservative". I'm asked to pick which ones I want and in what percentage. Since I'm not a risk-taker, I plan to do 50% Balanced and 50% Modest.


Watch their fees in those balance or modest options, from what I recall (and we are also with manulife for group rrsp) they charge you over 2% which wll eat up most if not all of your returns (bonds, gic, and what not pay very little these days), the only funds they have with somewhat reasonable fees ( in the 1.5 % range) are the Canadian and US index. All equity may not fit everyone's portfolio, but you are buying it every month and you should be happy when the markets go down so you can buy more.


----------

