# employer RRSP contribution



## silence

Hi, 

I'm trying to wrap my head around the following question: 

Can my employer pay me part of my salary as a direct contribution to my RRSP (not a group RRSP!)?

- Is this even possible?
- Does it make any sense?

Thanks!


----------



## steve41

Sounds suspiciously like a defined contribution pension plan (LIF/LIRA) It is quite common. You may have the option of contributing a matching amount or portion. It is not technically your RRSP, but it is locked in until a certain age.


----------



## lb71

Not sure if it is allowed legally, but if so it would be treated as a taxable benefit to you, so in effect it is like they pay you the salary and you immediately turn around and deposit it into an RRSP. There could be payroll tax implication that you would be responsible for.


----------



## CanadianCapitalist

silence said:


> Hi,
> 
> I'm trying to wrap my head around the following question:
> 
> Can my employer pay me part of my salary as a direct contribution to my RRSP (not a group RRSP!)?
> 
> - Is this even possible?
> - Does it make any sense?
> 
> Thanks!


I'm not sure if this is possible and I'm not sure why you want to arrange things this way. Why can't an employer pay you directly and you contribute to your RRSP. File a T1213 to adjust withholding taxes with CRA.


----------



## OhGreatGuru

There is a lengthy discussion of the various options on a MoneySense thread http://forums.canadianbusiness.com/message.jspa?messageID=293946

Cardhu seems to have a good summary in tht thread. But it doesn't quite deal with OP's scenario. I'm pretty sure there are employers who are offering "matching" contributions (either 50/50 or some other percentage) to personal RRSPs in the move to get away from defined benefit plans. They would be a taxable benefit, but as there is no Pension Adjustment (PA) factor, you would have increased RRSP eligibility, and therefore should be able to deduct both the employer's and employee's contributions from income tax.

Following up on the question as to "Why can't an employer pay you directly and you contribute to your RRSP". Because then it isn't really a cost-shared contribution, is it? Employer has no control over whether or not you put any of your own money into the plan; or for that matter whether you put the employer's money in. It is really no "Plan" at all.


----------



## silence

thanks for all your answers!

lb71 you highlighted the flaw in my thinking:

If such a contribution is to be treated like a taxable benefit, the only advantage of such an arrangement (more money in my RRSP account and less taxes to be withheld by my employer) goes away.


----------



## CanadianCapitalist

OhGreatGuru said:


> Following up on the question as to "Why can't an employer pay you directly and you contribute to your RRSP". Because then it isn't really a cost-shared contribution, is it? Employer has no control over whether or not you put any of your own money into the plan; or for that matter whether you put the employer's money in. It is really no "Plan" at all.


If an employer contributes directly to a personal RRSP, they don't have any control over it either. The beneficiary can simply withdraw from a RRSP. That's why many Group RRSPs do not allow any withdrawal / transfer of contributions that get matched and the matching contributions until the employee retires or leaves the job.


----------



## steve41

Once more.... you have described a LIRA. (locked in retirement account) This is how they work. The employer contributes to your registered plan, and you have the option of contributing a matching amount. The 'LI' part means 'Locked In'. You are not allowed to draw money out until age 55 (I believe) and the amount you can draw out is subject to a maximum withdrawal rate. Withdrawals are like withdrawals from any registered (RRSP/RRIF) account, they are fully taxed.

It is in effect, a defined contribution pension plan.


----------



## OhGreatGuru

CanadianCapitalist said:


> If an employer contributes directly to a personal RRSP, they don't have any control over it either. The beneficiary can simply withdraw from a RRSP. That's why many Group RRSPs do not allow any withdrawal / transfer of contributions that get matched and the matching contributions until the employee retires or leaves the job.


Quite correct. The employee could withdraw the money afterwards, if he wants to take the tax hit. But at least by having contributions made by payroll deduction, the employer can ensure that both he and employee are making the original contributions in accordance with their contractual agreement (I won't call it a pension plan agreement, because it is not locked in.) This is why it's a taxable benefit - the managmetn of the RRSP and the consequences of taking the money out are entirely in the hands of the employee.


----------



## johnsazzr

The OPs question reminds me of as feature I had available to me when I worked for TD Bank over 10 yrs ago. I had a defined benefit pension plan but they offered a "pension enhancement account", which was essentially a group RSP.

I could contribute to 9% of my pay and it would allow me to increase my pension income/retire ealier, etc.

Eventhough the employer did not contribute to it, I loved the fact that it did not impact my RSP contribution limit.


----------



## sprocket1200

I am sure there would have been a pension adjustment hidden in there somewhere...


----------

