A Group Registered Retirement Savings Plan (Group RRSP) is similar to a defined contribution plan with one important difference. Defined benefit and defined contribution pension plans are regulated by provincial legislation. Group RRSPs are not. Your employer is therefore not subject to the same rules and requirements when they offer a Group RRSP.
Group RRSPs are a way to save for retirement:
- your contributions are deducted directly from your pay
- your contributions might be matched by your employer, but there is no minimum required employer contribution.
- you might have the opportunity to control the investment of your funds
- service fees might be lower than with personal RRSPs
- you might have a greater variety of mutual funds to choose from than your personal RRSP due to the purchasing power that comes from being part of a group.
Group RRSPs are not subject to the same locking-in requirements as defined benefit and defined contribution pension plans. However, access to your funds may be limited by the contract that you sign with your employer. For example, the contract might set out a penalty for withdrawing funds from the Group RRSP. The penalty might be the suspension of employer contributions for a defined period of time. It is important to understand the terms of the Group RRSP before you enroll.
Your contributions to a Group RRSP are tax deductible from your employment income and any investment earnings are tax sheltered. If your employer contributes to the Group RRSP, the amount is first added to your salary and then deducted from your pay as RRSP contributions.
On retirement or termination, you can transfer your funds from the Group RRSP to a personal RRSP.