Group RRSP
Often a first step for small teams. Expect CPP and usually EI on employer money, and less retention value since it vests at once.
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Group Retirement Plans
Group RRSP vs DPSP vs Defined Contribution Pension
Three common ways to help employees save for retirement. They differ in who can contribute, how employer money is treated on payroll, how quickly it vests and how locked in it is.
Side by Side
How do a group RRSP, DPSP and defined contribution pension compare?
A group RRSP is the simplest, but employer money attracts payroll costs. A DPSP generally avoids those costs and can vest over up to two years, but employees can't contribute and many owners can't join. A defined contribution (DC) pension is the most formal, with required employer contributions and locked-in money.
| Group RRSP | DPSP | DC pension | |
|---|---|---|---|
| Who contributes | Employees, the employer or both | Employer only | Employer must contribute, generally at least 1% of members' pay. Employees may too |
| 2026 limit | Employee's RRSP room: 18% of prior-year earned income up to $33,810, plus unused room, less pension adjustments | Lesser of 18% of compensation or $17,695 per employee | Lesser of 18% of compensation or $35,390 per employee, employer and employee combined |
| 2027 dollar limit | $35,390 | $18,195 | $36,390 |
| RRSP room | Uses the employee's room | Reduces next year's room | Reduces next year's room |
| Employer money on payroll | Taxable benefit. CPP generally applies, and EI too unless withdrawals are restricted | Generally not taxable when paid in, so generally no CPP or EI | Generally not taxable when paid in, so generally no CPP or EI |
| Vesting | Immediate | Up to two years, or sooner if the plan allows | Immediate for Ontario-registered plans |
| Access | Not locked in, but employers can restrict withdrawals during employment | Not locked in, but employers can restrict withdrawals during employment | Usually locked in for lifetime retirement income |
| Owners with 10% or more | Generally can join, using their own RRSP room | Generally can't join, nor can people related to them | Depends on the plan rules |
| Administration | Lightest | Moderate: a registered plan with a trust | Heaviest: registered with the Canada Revenue Agency (CRA) and the pension regulator, with ongoing filings |
Employer Matching
How does employer matching work?
You set a formula, such as matching all or part of what an employee contributes, up to a limit you choose. Matching is a design choice, not a requirement, in a group RRSP or DPSP.
Because employees can't contribute to a DPSP, a common design has employees contributing to a group RRSP by payroll deduction while the employer's match goes to a DPSP. Employer money then generally avoids CPP and EI, and a vesting period can support retention.
DPSP contributions are tied to company profits. The plan terms must state how contributions are calculated, and none are required in a year without profit.
At a glance
- Group RRSPSimple and flexible, with immediate vesting
- DPSPEmployer-only and profit-linked
- DC pensionFormal, with locked-in money
- OwnersSee the Individual Pension Plan if you're on salary
Payroll and Tax
How are contributions treated for payroll and tax?
The key difference is whether employer money counts as employment income when it's paid in.
Group RRSP
CRA treats employer contributions as a taxable benefit, generally pensionable and insurable. They aren't insurable if employees can't withdraw them before retiring or leaving, apart from Home Buyers' Plan and Lifelong Learning Plan withdrawals.
DPSP and DC pension
Employer contributions generally aren't included in the employee's income when made, so CPP and EI generally don't apply. Employees pay tax when money comes out.
Employer deduction
Contributions are generally deductible to the business, subject to timing rules and limits. Your accountant confirms the deduction.
Ontario Employer Health Tax
EHT is a payroll tax on remuneration, including taxable benefits, so group RRSP contributions generally count if your business pays it. Eligible employers currently have a $1 million exemption.
Vesting
How does vesting work?
Vesting is the point when employer money belongs to the employee, even if they leave.
- Group RRSP: immediate. Contributions go into the employee's own RRSP, so they keep the money when they leave.
- DPSP: employer contributions must vest after no more than two years of plan membership. If someone leaves sooner, unvested amounts are forfeited, then reallocated to other members or returned to the employer by the end of the following year.
- DC pension: for Ontario-registered plans, benefits vest immediately once an employee joins the plan. Vested money usually stays locked in.
Who Each Plan Fits
Which plan fits which employer?
If you own 10% or more of the company, a DPSP generally won't cover you. Owners on salary may want to look at an Individual Pension Plan for themselves, and all of these can sit alongside your group benefits.
Group RRSP plus DPSP
Suits employers who want to share profits and use vesting for retention. It may not fit a family business where most staff are related to the owners.
Discuss your planDC pension
Suits employers who want a formal, locked-in plan and accept more governance. It may not fit if required contributions would strain cash flow.
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When a group plan may not fit
Any of these plans may not suit a business without steady cash flow, or a team that would rather have take-home pay. Sponsors also stay responsible for overseeing the plan, even when they use a provider. Pension regulators set out those expectations in CAPSA Guideline No. 3 (2024), which covers group RRSPs, DPSPs and DC pensions.
Common Questions
Questions about group RRSPs and DPSPs
Generally not if they are a specified shareholder, which generally means owning 10% or more of any class of shares, directly or through related persons. People related to a specified shareholder or to the employer are also excluded. Owners can use a group RRSP or look at an Individual Pension Plan.
No. CRA doesn't permit employee contributions to a DPSP, which is why many employers pair one with a group RRSP.
Yes, they're a taxable benefit to the employee, who can generally deduct them within their RRSP room. CPP generally applies, and EI generally applies unless employees can't withdraw the money before retiring or leaving. Your accountant confirms the treatment.
Yes. Employer DPSP contributions are reported as a pension adjustment on the T4, which reduces the employee's RRSP room for the following year.
Group RRSP money stays with the employee. Vested DPSP amounts generally become payable within 90 days of leaving, and unvested amounts are forfeited. Vested DC pension money usually stays locked in, and can often move to a locked-in account such as a LIRA.
We work with clients across Burlington, Oakville, Milton, Mississauga and Hamilton. Many first conversations start with a call to 289.339.8100.
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This information is general in nature and is not tax, legal, accounting, insurance or investment advice. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. Contribution limits change yearly, and vesting, locking-in and plan terms vary by plan and jurisdiction; the plan documents govern.
Group RRSP and DPSP plans in Burlington, Oakville, Milton, Mississauga and Hamilton
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Add a retirement plan for your team
A short conversation is the easiest way to see which plan fits your team, and your accountant leads the tax side.
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