Posted in:Total Rewards
For several decades now, it has been common for employers to offer some form of long term savings plan as a benefit to their employees. Savvy job seekers often seek out employers who offered such an arrangement to grow their retirement nest eggs, and employers have come to understand the positive impact such programs can have on long term employee retention.
This week we will take a look at Defined Benefit (DB) and Defined Contribution (DC) Group Retirement Savings Plans, which are becoming more important to employees as government pension programs are no longer sufficient to cover increasing living expenses.
For many years, the strategy of choice was to offer Defined Benefit Retirement Savings Plans. These plans paid out a pre-determined amount, generally calculated based on the employee’s years of service, age, and earnings with the company. Due to the financial burden of running such a program, Defined Benefit Retirement Savings Plans are decreasing in use across many sectors. Yet, they can still be found ¬ – particularly in public service organizations or heavily unionized industries.
To workaround the financial burden that resulted from Defined Benefit Retirement Savings Plans, employers are now predominantly offering Defined Contribution Retirement Savings Plans. These are becoming more prevalent in the private sector, whereby an employer matches each contribution made by their employees through regular payroll deductions. These contributions can either be based on a percentage of earnings or a set dollar amount, depending upon the employee’s personal preference.
Employees then have the option to keep their retirement savings in a regular savings account or invest it across different investment vehicles. The most common choices are government bonds, GICs, mutual funds, or stocks.
Since these savings plans are subject to federal regulations, there are often limits set on contribution matches to ensure employees do not accidentally shelter more than 18% of their pre-tax income. To avoid overpayment scenarios, some companies also offer non-registered retirement savings plans (NRSPs) vs the more typical registered retirement savings plans (RRSP).
The key benefit to employers, no matter what form of long-term savings program is offered, is that these programs can be very effective at encouraging employee loyalty and reducing staff turnover. Most programs become more lucrative to the employee as length of service increases, and many are subject to a vesting schedule that further encourages employees to stay. Your Honiva HR Services Consultant can help you to determine what types of long-term incentive programs will best suit your organization, and how to go about implementing the program successfully.
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