What is a group retirement plan, and how does it work in Canada?

If you’ve typed “what is a group retirement plan” into a search bar, you probably want the plain version first and the details second. That’s the order this article follows.

The basic idea

A group retirement plan is a savings program your business offers through work. You choose a provider, set the rules, and connect the plan to payroll. Every employee who joins gets their own account. The money is invested and grows tax-sheltered until it’s withdrawn.

It is not a traditional pension. A defined benefit pension promises a specific income in retirement, and the employer is on the hook if the investments fall short. A group retirement plan makes no promise about the final amount. What an employee ends up with depends on three things: how much goes in, how it’s invested, and what the fees take out. Regulators call this kind of plan a capital accumulation plan, or CAP.

The three accounts you’ll hear about

Group RRSP. Employees contribute a percentage of their pay through payroll. Because it’s an RRSP, the contribution reduces their taxable income, and payroll can lower the tax withheld on that same paycheque. The tax break shows up right away instead of at tax time. Anything the employer adds to a Group RRSP belongs to the employee immediately.

DPSP. Only the employer contributes. The business deducts the contribution, the employee isn’t taxed on it until they withdraw it, and it isn’t subject to CPP or EI. A DPSP can require up to 24 months of plan membership before the employer’s money is fully the employee’s. That waiting period is called vesting. Two rules owners often miss: contributions have to be tied to the company’s profits, and anyone who owns 10% or more of the company’s shares (and their family members) can’t be a member.

Group TFSA. Contributions come from after-tax pay, so there’s no deduction going in. Growth and withdrawals are tax-free. It suits younger or lower-income employees, or savings that aren’t strictly for retirement.

How the money actually moves

Here is the setup I use most often, step by step:

1. The employee chooses a contribution, for example 4% of pay. Payroll sends it to their Group RRSP every pay period.
2. The business matches it, for example dollar for dollar up to 4% of pay. The match goes into the DPSP.
3. The employee picks investments from the plan’s menu, or the money goes into the plan’s default option.
4. Both accounts sit on the same platform, under one login, on one statement.

Why split the money into two accounts? Because the employer’s dollars avoid CPP and EI in a DPSP and can vest over time. I explain the full trade-off in Group RRSP vs. DPSP.

Who does what

Three parties are involved. The provider holds the accounts, runs the investments, sends statements, and handles most of the administration. The advisor helps you design the plan, enrols employees, and reviews the plan with you. You, the sponsor, set the rules, send contributions on time, and keep an eye on the provider and the advisor.

That last responsibility isn’t optional. Canada’s pension regulators spell it out in a guideline written for exactly this kind of plan. I cover it in what the CAP Guidelines require from employers.

What it costs the business

Mostly, it costs what you decide to contribute. On the platforms I work with there’s typically no setup fee and no ongoing admin fee for the employer. Investment fees are paid by the members out of their accounts. The full breakdown, including CPP and EI, is in how much a group retirement plan costs an employer.

Who it’s for

Any business with employees. You don’t need 50 or 100 people. The plans I set up start at two employees, and I explain why size stopped mattering in how many employees you need.

Sources: Income Tax Act (Canada), sections 146 (RRSPs) and 147 (DPSPs); CAPSA Guideline No. 3, Guideline for Capital Accumulation Plans (September 9, 2024). General information only.

Common questions

What is a group retirement plan?
A group retirement plan is a savings plan an employer sets up for its employees. Each employee has an individual account, contributions are made through payroll, and the employer usually adds a contribution. In Canada the most common types are the Group RRSP, the DPSP and the Group TFSA.

Is a group RRSP the same as a pension?
No. A defined benefit pension promises a set retirement income. A Group RRSP promises no particular amount. The final balance depends on contributions, investment returns and fees. Regulators classify Group RRSPs as capital accumulation plans, not pensions.

Do employees have to join a group retirement plan?
Usually not. Joining the Group RRSP is generally voluntary. Employer-only contributions to a DPSP can be paid for every eligible employee without the employee contributing anything. In Quebec, employers with five or more eligible employees must offer a Voluntary Retirement Savings Plan unless they already offer a qualifying plan.

Can the business owner join the group retirement plan?
An owner can join the Group RRSP. An owner who holds 10% or more of any class of the company’s shares cannot be a member of the DPSP, and neither can their family members.

What happens to the account when an employee leaves?
Group RRSP money belongs to the employee and can be transferred to an individual RRSP. In a DPSP, vested money belongs to the employee and can be transferred tax-free to an RRSP. Unvested DPSP money is forfeited under the plan’s rules.