CPP and Employee Retirement – What Every Employer Should Consider | Daniel Wolfson, B.Sc. CHS
On June 20, 2016, the federal and provincial finance ministers excluding Manitoba and Quebec reached an agreement for the expansion of the Canada Pension Plan (CPP). While the details are clearly outlined in an article by the Globe and Mail titled ‘A New Premium on Retirement’, the high-level take-aways are that employees and employers contributions to CPP will gradually increase from 4.95% to 5.95% of salaries from 2019-2025.
The maximum annual income covered will also be raised from $54,900 to $82,700, and the annual payout target will rise from 25% to 33%. This translates to a maximum annual payout of $13,110 under the current plan to $19,900 under the new expanded CPP. A tax deduction will also be offered to worker contributions.
Many believe that the topic came to a head when Ontario decided to supplement the CPP with its own Ontario Retirement Pension Plan (ORPP), which has now been disbanded in light of the new reform. Regardless, this whole initiative can serve as a reminder that retirement is a big deal for employees.
When you’re thinking through your benefits plan strategy, have you considered the various ways in which you can help employees effectively plan for retirement? If not, maybe it’s time. Not only will this help you stand out in a competitive search to recruit top talent, but existing employees will become less stressed about their financial future, be more engaged at work, and generally feel more appreciated for their efforts. Below are three considerations for any organization to make regarding retirement planning for employees.
1. Take this Opportunity to Talk to Your Employees
Many employees are unaware of how CPP works and how they might be affected by this reform. A simple gesture by employers can be to communicate the CPP changes to employees and explain how deductions and salaries will be impacted. This will alleviate any potential surprises when as premium deductions increase in the coming years. While the government should make their own communications plans to the general public, looking out for your employees’ best interest goes a long way in keeping them positively engaged and showing them you care. A slight word of caution is to draw the line at CPP basics and salary repercussions because employers should be weary of providing financial advice to employees. A Benefits Canada article titled ‘Beware the legal risks of providing financial advice to staff’ explains more.
2. Offering Perks of Employee Financial Well-Being
Planning for retirement, aside from CPP contributions, or meeting other big financial goals such as lowering debt, saving for children’s education, buying a house or affording a dream vacation is not always so straightforward for employees. However, as mentioned in the above article, offering financial advice to employees is not advised due to liability risks.
Instead, when reviewing new perks or looking for ways to stand out as a top employer to attract grade-a talent, consider offering your employees the services of a qualified financial planner. It’s a rare but growing trend in the benefits world which employees value. In fact, the same Benefits Canada article sites a survey published by Secondsight in 2014 which found that 73 per cent of employees felt more positively about their employer when they received financial education in the workplace.
3. Consider Your Own Group Retirement Savings Plan
While the CPP offers employees one source of income at retirement, many top employers go the extra mile to keep and recruit talent by setting up their own group retirement savings plan. In a previous article titled ‘Complementing Benefits with A Group Retirement Savings Plan’, we discussed a few group retirement savings plan (RRSP) options, and explained how adding your own retirement savings plan could become a significant differentiator for incentivizing prospective and long-standing employees. It also reflects very well on your reputation as a leading and employee-centric company.
Employers can generally expect to pay anywhere from 2-4% of payroll for a group retirement program, which is matched by the employee. The perks for employers are three-fold:
1. More engaged and appreciative workforce
2. More productive employees who feel more confident in their long-term financial security
3. Ability to link contributions to the company’s overall performance and better align employees to the company’s strategic goals
Strategizing about Retirement Perks with BenefitDeck
While the CPP changes will take years to be put into effect, it can serve as good reminder to better understand and consider the retirement goals of your employees. If you have any questions about the recent CPP reform and how it will affect your organization or employees, or are interested in adding retirement benefits to your list of employee perks, contact our team at BenefitDeck (we’re partnered with PaymentEvolution). We’re always here to answer your questions, or provide a second opinion concerning your employee benefits.
Daniel Wolfson- BenefitDeck