employer investment plans

Only some employers offer workplace investment plans - but they're worth checking out.

make sure to review  terms and conditions


 Here are some things to think about:


  • Is program voluntary or not?  If it is, it’s better to ask questions, think it through and then decide (than just jump into it or decline)


  • How is the money invested and how have the funds performed over time?

        -- What kind of funds is the money invested in - actively managed mutual funds, index mutual funds, or something else?

        -- How does the asset mix, whether you choose it or it's imposed on you, impact your asset mix outside of this program?


  • What is the cost? Add up all fee components - look for both management fees and sales commissions (watch out for deferred sales commissions on mutual funds)


  • Does the program fall under the TSFA or RRSP rules?

        -- If so, the contributions will show up in your tax slips and will use up your contribution room, just like in your personal tax-shelter accounts

        -- If you have both kinds, you'll have to monitor this closely to avoid over-contributions and penalties


          Click on the button to read up about these registered accounts.

Differences between defined benefit and defined contribution pension plans:

Defined benefit: 

  • You and your employer make regular contributions while you work
  • The employer pools the money and hires a money manager to invest it
  • When you retire, the employer pays you a pension
  • The size of the pension depends on how many years you worked and contributed to the plan, and what your salary has been (average or in the last few years before your retired)
  • You'll pay income tax each year as you receive your pension
  • If for some reason there's not enough money in the pool to pay the pensions the employer committed to pay, they must cover the shortfall from company earnings
  • The risk is that 50 years later, when you're retired, your employer runs into financial difficulties and may not be able to honour the pension obligation


Defined contribution: 

  • You and your employer make regular contributions while you work
  • The money is deposited to your personal account within the plan, and invested in a one or more funds available within the plan - likely mutual funds or similar investments
  • When you retire, the money in your account is yours to fund your retirement - you can withdraw it in a way that makes sense for your lifestyle, considering taxation - because you'll pay tax when you withdraw
  • How much money is in your account depends on how big the contributions were and how the funds have performed
  • The risk is that the funds were managed poorly and/or the contributions were too small, and the funds in your account are not sufficient to fund your lifestyle in retirement
  • Unlike with defined benefit plans, your employer is not responsible for this shortfall

How it works


​Workplace investment opportunities are valuable because in most plans the employer matches employee contributions. 

  • The employer's contribution is like a bit of extra salary you earn - but only when you're saving a portion of your earnings.
  • Some employers also cover a portion of the management and administration cost of the plan.
  • There are several kinds of plans, for example employee savings, co-investment, share ownership, or a defined contribution group retirement savings plans.
  • Some employers may match your student or mortgage debt payments and contribute on your behalf to the group savings plan.


Workplace investments are designed to be easy.

  • ​They often use mutual funds - either packaged into baskets that represent commonly used asset mixes, or offered as a menu of funds (often actively managed) for you to choose from to create your own asset mix
  • The funds can be purchased online, usually through a fund-provider's webpage that is dedicated to your employer.


​Effort:

  • Sign up for the plan and choose your investments (you may or may not get online guidance)
  • ​Your contributions are usually automatically deducted from your paycheque
  • Rebalancing, distribution reinvestment, and incremental investments are done for you
  • What's left to do for you is monitor your account and the performance of your fund (or funds)

​Cost:

  • Varies. Even if you discover that the fees for the funds on offer are higher than of other alternatives, or that investment performance is not necessarily any better than alternatives, keep in mind that the matching employer contributions more than compensate such shortcomings. That was our logic behind a very low ​ranking on the cost of this alternative

​​​Minimum size:

  • No minimum initial investment required.  You'll be motivated to save at a rate that maximizes the employer's contribution​

​​​What happens with the plan when you change jobs? What do you need to do?

        -- Can you keep the savings you've already invested in the plan, or do you transfer them out?

        -- If you weren't in the plan long enough, you may have to return your employer's contributions (but you keep your own)

        -- Retirement plans will be locked-in until you retire, but you may need to transfer the investments and manage them on your own


  • How and when can you withdraw the money from the plan?

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Does your employer offer a defined benefit pension??


Statistics Canada says that about 70% of employed Canadians aged 25-54 have no employer pension.  If your employer offers it, you'll be entitled to a pension only if you work at that employer until retirement age.  Read the information you've been provided and ask some questions


  • What are the terms and conditions?


  • What happens to the benefits you've already earned when you change jobs and move to a different employer?​