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Cutline: Lisa Geen, Senior Production Technologist (FSH) at Bioniche Life Sciences Inc., based in Belleville, Ont.. Credit: Bioniche
Cutline: Lisa Geen, Senior Production Technologist (FSH) at Bioniche Life Sciences Inc., based in Belleville, Ont.. Credit: Bioniche

Pensions and rrsps

Strategy: Looking to attract employees? Think retirement Add to ...

Conventional wisdom has it that when the economy is shaky, employers have an easier time finding good people to work for them. But Bruce McLeod, vice-president of human resources for Bioniche Life Sciences Inc. in Belleville, Ont., knows this isn’t always the case.

“Despite the situation with the current economy, we know we are still going to be facing a reduction in the availability of talented people,” says Mr. McLeod, whose company employs more than 200 workers. “A lot of people we hire are scientists, technicians and technologists with specialized knowledge, so it’s critically important for us to attract the right talent and be able to retain them.”

About 15 years ago, to give itself an edge in its industry’s highly competitive labour market, Bioniche Life Sciences decided to add a retirement plan to its compensation package. After considering a registered pension, such as a defined benefit or defined contribution plan, the company chose to go with a group RRSP where employees can put in money and Bioniche would match their contributions.

“The administration costs to run a full-fledged pension plan was too much for us, especially at the time when we didn’t have as many employees as we have today,” says Mr. McLeod. “The RRSP plan is working very well for us.”

Like Bioniche Life Sciences, SMBs that want to provide for their employees' retirement may feel they cannot afford a pension plan. But they have options, say experts.

Thomas Wilson, an economics professor at the University of Toronto’s Rotman School of Management, says one solution would be for SMBs to have a pooled pension plan, which would allow them to achieve economies of scale. This could be done through industry groups or professional associations.

In fact, in a similar vein, the federal government has recently proposed a pooled registered pension plan, which would be administered by a regulated financial institution. While the PRPP is aimed at employed and self-employed Canadians who don’t belong to an employer-sponsored pension plan, it could also work for a small business owner. A summary of the proposal on the Department of Finance Canada website actually includes a scenario depicting a small business owner named John, who wants to offer a pension plan for his 10 employees.

Many small- and medium-sized businesses in Canada view retirement plans for their employees as an important part of their hiring and retention strategy. Various studies certainly support this thinking. A survey last year by Environics Research Group found 89 per cent of working Canadians want workplace savings plans made available to all workers, and 41 per cent would consider moving to an employer that offered one.

In a study of defined benefit plans published this month by Toronto-based Grant Thornton LLP, an audit, tax and advisory services firm, close to 60 per cent of the 879 employees interviewed said their pension and retirement package was an important factor in their decision to join their company.

“The question of retirement and how you can achieve the retirement lifestyle you want is a universal question that concerns many Canadians,” says Regina Baezner, a principal in the pension and benefit practice at Grant Thornton. “Employers who are able to provide some tools or means for their employees to reach their retirement goals are likely to be more competitive in the talent market.”

For employers determined to provide for their employees’ golden years, pension plans make sense because, unlike RRSPs that can be pulled out any time, pension funds cannot be cashed out until retirement. But pension experts say this logic doesn’t always wash in a small or medium business.

Whether they’re defined benefit or defined contribution, pensions incur costs for employers that include wages for fund administrators and fees for actuarial services. Companies also need to ensure they’re complying with federal or provincial legislation that sets standards for things such as funding, eligibility of members, investment of pension funds, and plan members’ rights to get information about their pension.

A group RRSP such as the one set up by Bioniche Life Sciences is another good option for smaller companies, says Dr. Wilson. Unlike a registered pension plan, a group RRSP – essentially individual accounts that are put together and set up through an employer – does not require companies to contribute to the fund. Group RRSPs are also easier for employers because they’re administered by a financial institution, such as a mutual fund company.

Fred Vettese, chief actuary at Morneau Shepell Inc., a pension and benefits consulting firm, says group RRSPs do have certain drawbacks for employers. Because a company cannot put money directly into its employees’ RRSP, its contribution is treated as part of workers’ pay, even though the money goes directly into the group RRSP. This increases the size of the company’s payroll, which in turn pushes up payroll costs, says Mr. Vettese.

One way employers can keep their payroll costs down is by setting up their retirement plan so that employees’ contributions are put into a group RRSP while the company’s contribution goes into a deferred profit sharing plan.

This structure won’t push up employees’ earnings, says Mr. Vettese, and companies can vary their contributions based on how profitable they are in a given year. However DPSP rules do require companies to be profitable because the contributions have to be drawn from profits.

“The other advantage to this arrangement is that employers essentially become owners of the company, so they have a more vested interest in seeing the company succeed,” says Mr. Vettese.

Whether they’re setting up a pension plan, group RRSP or deferred profit sharing plan, no company is too small to offer employees retirement savings, says Jeff Aarssen, a vice-president at Great-West Life Assurance Company, a Winnipeg-based provider of individual and group financial products.

About 75 per cent of the pension plans Great-West Life administers are owned by small and medium businesses, says Mr. Aarssen. Some of these companies have no more than two employees.

When it comes to employee retirement plans, a big obstacle for many SMBs is understanding the costs involved. At Great-West Life, investment management fees are around 1.5 per cent to 2 per cent of total assets, says Mr. Aarssen. Last January, the company introduced simplified group RRSP and deferred profit sharing plans designed specifically for small- and mid-sized businesses.

Ms. Baezner at Grant Thornton says outsourcing the administration of their retirement plans is a good idea for smaller companies.

“These service providers have the software and systems in place to properly administer the individual plan members’ contributions and to provide statements and booklets,” she says. “It would be expensive to bring that skill set in-house, particularly for small- and mid-sized businesses.”

At BeerBistro, a restaurant in downtown Toronto, the costs for managing and contributing to a group RRSP for roughly 50 full-time employees takes about 2.5 percentage points from the company’s bottom line. But Brian Morin, a principal owner, says he thinks less of the costs and more of the benefits to his employees and, ultimately, to the restaurant.

“We’re in the hospitality industry where service is everything,” he says. “So the way I see it, when our people are happy they provide better service, and that’s good for our bottom line.”

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