Challenging the status quo: Comparing MEPPs and Group RRSPs




With the rise of the Multi-Employer Pension Plan, it may be time to retire that old standby

Complicated, cumbersome and costly. In the past, these were the knocks on defined contribution (DC) pension plans—all of them legitimate, and largely curbing small to midsize employers’ ability to offer them to their workforce.

Historically, the group RRSP was the only practical solution for these smaller employers who wanted to offer their people a workplace retirement savings plan. Not anymore. In fact, there’s a case to be made that Multi-Employer Pension Plans (MEPPs)—such as Link Investment Management’s own Link Pension Plan (formerly the Alberta Link Pension Plan)—are the future of workplace retirement wellness.

“Historically, pension plans were only offered by larger corporations or the public service for several reasons—their cost, their significant startup and ongoing administrative burden, the stringent regulatory requirements, and the knowledge and expertise needed for plan administration,” notes Brian McClennon, Link’s President and Chief Executive Officer.

“But thanks to recent changes in pension legislation and regulations in Alberta and elsewhere,” he adds, “smaller, unaffiliated businesses can now offer all the advantages of a pension plan with immediate benefits for the employer and employee alike.”

Breaking it down: MEPPs vs. Group RRSPs

MEPPs like the Link Pension Plan require no employer administration or regulatory filing, since experienced third-party experts like Link now take on all the heavy lifting involved with administration, registration and regulation.

Here’s the difference between MEPPs and group RRSPs in today’s world. With MEPPs:

  • Contributions are fully tax deductible for the employer through these DC pension plans
  • Employees receive the entire employer contribution without any of the taxes, deductions or premiums associated with group RRSPs
  • Employee contributions are made with pre-tax dollars via payroll deduction—another immediate tax benefit resulting in more overall assets to the employee

Conversely, with group RRSPs:

  • Employer contributions are considered income, and therefore insurable
  • This means that the employer’s contribution can be reduced by up to 15%, depending on salary level, thanks to payroll taxes, Canada Pension Plan deductions, Employment Insurance premiums, and other source deductions
  • Effectively, that means the employer has to “gross up” the contribution, or the employee takes the reduced-benefit hit

Total fee transparency

Ultimately, fees have a profound impact on the ultimate value of a portfolio. Link's Pension Plan, available across Canada, offers a lower, simplified fee structure—along with regular portfolio rebalancing, the use of low-cost, index-tracking Exchange Traded Funds (ETFs) and Link’s own robo-advisor algorithm that matches an investment portfolio to an employee’s investment goals, risk tolerance and timeline.

“Pension plans are no longer the exclusive territory of the giant corporations or the public sector,” says Mr. McClennon. “With no administrative burden, total fee transparency and investments tailored to the individual, the Link Pension Plan can be transformational for a small or midsize business—and help create a true employer of choice.”

Read more: A little something extra on that paycheque? No thanks, we prefer a pension plan..

Read more: Multiple employers, multiple benefits: Why MEPPs are better equipped to ease pension plan concerns.

Read more: Simplifying, optimizing and standardizing: How technology is empowering DC Multi-Employer Pension Plans.

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