The loss of a key employee can be very expensive to an organization, so give some thought to how you can motivate key employees and keep them focused on the company’s priorities.
One way to do that is through an employer-sponsored savings plans. Employees are increasingly conscious of the necessity to provide for their retirement. Employer-sponsored savings plans are one of the most important aspects of retirement planning and can help you ensure that your employees enjoy a financially secure retirement. Here are some of the more common types of retirement plan offered by employers:
Group Retirement Savings Plans (RSP) are one way you can encourage your employees to save for retirement throughout their careers. They could be an option even for a small business owner. These plans operate like regular RSPs and can be more cost-effective and easier to administer than pension plans.
Registered Pension Plans (RPP) are employer-sponsored pension plans. In general, employer and employee contributions are tax-deductible and the income earned within the plan grows tax-deferred. Funds accumulating within the plan for individual members are generally locked in by provincial or federal legislation.
There are two kinds of RPPs: defined contribution (DC) and defined benefit (DB) pension plans. Employees in DC plans choose the investments within their individual plans, and the retirement benefit is based on the value of the investments in the plan when the employee retires. This can be a less costly option than a DB plan for you as an employer and is easier to administer.
In contrast, DB plans guarantee a specific benefit to the employee at retirement, calculated using a formula based on earnings and years of service.
You could also consider enhanced retirement benefits like a Supplemental Executive Retirement Plans (SERPs). Limits on registered plan contributions and benefits can leave your higher-income employees with retirement benefits that are inadequate to maintain their standard of living.
A SERP may help bridge the gap between the maximum pension available under the company’s RPP and what a higher-income employee would otherwise have received. It can also be a way to help you retain your valuable employees and encourage their long-term loyalty.
An Individual Pension Plans (IPP) is a registered DB plan sponsored by an employer for one individual, and potentially that individual’s spouse if the spouse also works for the company.
It is an RSP alternative that enables your company to make larger annual contributions compared to an RSP, and they are tax deductible to your company.
IPP contributions increase with the age of the plan holder. If investment earnings in the plan are lower than expected, you may be able to make additional contributions. IPP assets may offer creditor protection and typically suit business owners, incorporated professionals or key employees who are age 40 or older and earn an annual salary of at least $100,000.
While financial compensation often attracts your key employees, non-financial benefits often help you retain them. Sufficient tools and time to do the job are essential to employee satisfaction, while training and career development helps to keep them motivated. Aim to foster a social environment and a sense of team and demonstrate your commitment by ensuring that work/life balance can be achieved.
Kirbey Lockhart is an investment advisor with RBC Dominion Securities. This article is provided for information purposes only. Consult with a professional advisor before implementing a strategy.
