Focus on Finance: Why don’t they take the free money?

By Scott Anderson

(Feb. 2017) – A recent report from Great West Life indicated that only 60% of employees are participating in their voluntary group retirement plans. In many cases, they are forfeiting the employer contribution.

What are the main reasons members are not participating and how can employers encourage more participation?

Don’t have the funds

According to the Financial Post, The Canadian Payroll Association survey found that more than half of employees – 51% – would find it difficult to meet their financial obligations if their pay cheques were delayed by a single week. That was up from an average of 49% over the past three years.

Although it is difficult for these employees to put money aside, it is still possible. At source, savings can reduce the after-tax cost of payroll deductions by reducing taxes at source. The net amount contributed is not as painful as if you contributed at your local financial institution.

Encouraging raises and bonuses to be deposited into group RRSP accounts can decrease the pain of reducing your paycheck. Bonuses can go into group RRSPs with no tax deducted from the bonus, whereas, if you take your bonus in cash it is at your highest marginal rate.

Unsure about investments

Many employees are uneducated in financial markets and feel unsure about investing. If an employee is unsure about what investment decisions to make in many cases they will make no decision at all.

The opportunity to learn about investment options at enrollment can improve the enrollment by members. Many of the pension providers (insurance and mutual fund companies) have a call-in number for help over the phone or online help. Many consultants offer face to face or group education sessions for new members. In my experience the two top questions from members is am I in the right investment and am I saving enough. If these questions can be answered for new employees at enrollment time it is likely there will be more members joining the plan.

Mandatory Enrollment

Implementing mandatory enrollment can be helpful. Some companies are making their retirement plan a condition of employment as they do with their group benefits plan. It is a paternalistic way of getting employees to save but it has been successful for some businesses. Some employers are reluctant to implement mandatory enrollment due to the perception that employer contributions should be matched or matched at a higher ratio if there is mandatory enrollment.

Continued training and education

On-going education can also help the enrollment numbers increase in a group plan. Continuing to explain that employer contributions are “Free Money” is very powerful and eventually will sink in. Showing the benefits of a little extra savings becoming a large amount of money over your work life is also very powerful.

Although there are barriers for many average Canadians to join their group retirement plans there are some successful ways for companies to encourage these employees to switch from a here and now attitude to a long term saving view.

 Scott Anderson is VP, Retirement Plans for HUB International Phoenix Insurance Brokers and can be reached at

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