Economic fallout from the COVID-19 pandemic has spurred pension regulators to take actions that affect Canadian employers that sponsor registered pension plans.
Group registered retirement savings plans (Group RRSP) have received less attention.
Group RRSPs are a common type of savings plan offered by Canadian employers. Service providers take care of most of the administration work involved with these capital accumulation plans, and often communicate directly with plan members without giving advance notice to the employers that sponsor them.
If you are a Canadian employer that offers a Group RRSP to your workforce, consider the following suggestions to assist your employees and manage your legal risk.
Check in with your service provider
Has there been an uptick in calls to the service provider’s call centre since the end of February? Are your employees raising specific concerns with the service provider? Has there been a drop in the service provider’s responsiveness to your employees’ calls and emails? Are your employees changing investments in their accounts in a manner that the service provider reports as unusual? Has there been an increase in employee withdrawals? If the answer is yes to any of these questions, consider working with your service provider or advisor to send out a targeted or group communication to remind your employees of the long-term risks of changes to investments and withdrawals. Urge your employees to contact the service provider for support.
Review the investment funds
As an employer, you have a legal obligation to monitor the fund line-up in the Group RRSP you established for your employees. Get advice from your service provider or advisor as to whether the funds offered in the Group RRSP are performing as expected in this period of market volatility. Ask your service provider or advisor whether any changes should be made to the line-up now. Ask them whether information about problematic funds should be pushed to your employees who are invested in those particular funds, in addition to the general information provided to all members of the program.
Read the material your service provider is giving to your employees
Are you aware of what your service provider is saying to your employees? Is your service provider providing substantive investment advice that creates an unnecessary legal risk to you? Is the messaging from your service provider sent to all members of the Group RRSP you sponsor (i.e., inactive and former employees, not just active employees)? Take action to modify or supplement member communications that may not convey the messaging that is appropriate for your workforce.
Consider easing up on withdrawal penalties
Does your Group RRSP impose penalties on employees who make withdraws? Consider suspending those penalties, especially for employees on temporary layoff. Consult your service provider to find out how such a design change to your Group RRSP rules could be made without imposing any programming or other service provider costs on you.
Consider allowing terminated employees to leave their accounts in your Group RRSP
Most Group RRSP programs require members to withdraw their account balances following the termination of their employment. If they do not instruct the service provider on where they want their account balance to go, it is common for the account to be automatically transferred to another program sponsored by the service provider, often with higher fees. Look into what happens with your terminating employees. It may be helpful to change the rules to allow them to remain in the Group RRSP for now, for several reasons, including the benefit of low fees, and the suspension of disruption to investment holdings.
Stay informed about possible changes to RRSP withdrawal rules
The federal government has been urged recently to relax the rules applicable to RRSPs on a temporary basis, to allow individuals to withdraw money from their RRSPs without the punitive repercussions of taxation and negative impact on RRSP contribution room. Ask your service provider to inform you promptly if changes are made to the tax rules, so that you can consider whether to communicate them to your employees who may need cash from their accounts in your Group RRSP.
Remember that you control the Group RRSP program that you established for your employees. You have legal responsibilities to monitor what the service provider is doing and be satisfied that the investment fund line-up remains appropriate. Manage your legal risk and consider what you can do with your Group RRSP to help your employees in these challenging times.
For more information, please contact Mary Picard or another member of Dentons’ Pensions group in Canada.
