May 3, 2016
VRSP Deadline Approaches
To encourage workers to save for retirement, the Quebec government has introduced the Voluntary Retirement Savings Plan (VRSP). It will give workers who do not have access to an employer-sponsored RRSP, TFSA, or Pension Plan, an opportunity to invest in their own retirement in an economical way.
All employers without an alternative retirement savings plan and who have five or more workers in Quebec must set up a VRSP and automatically enroll all eligible employees. Employees who are over age 18 and have worked for the company for at least 12 months are eligible for enrollment.
The auto-enrollment and payroll deduction features of a VRSP makes it very easy for employees to participate. The plan is operated by approved administrators (financial and investment companies) and provides some investment choice and low management fees. Contributions are tax deductible so payroll deductions mean that employees can enjoy immediate tax savings.
Although employees are automatically enrolled, they can opt out of the plan by notifying their employer within 60 days of the enrollment notification date. If they choose to remain in the plan, they can select their own contribution rate or accept the default rate:
- 2% gross salary to the end of 2017
- 3% in 2018
- 4% in 2019
Employees can change their options up to twice a year unless the plan allows more frequent changes.
Contributions are tax deductible (like an RRSP) and grow tax sheltered until they are withdrawn. Contributions may be made up to the employee’s RRSP contribution limit.
Employee contributions may be withdrawn at any time or may be transferred to an RRSP and be used for the First Time Home Buyers Plan or the Lifelong Learning Plan.
Employer contributions are optional and not subject to payroll taxes. They are locked in until retirement (age 55). Terminated employees may transfer employer contributions but only to an approved locked-in retirement vehicle.
Employers with workers in Quebec who do not offer an RRSP, TFSA, or a Registered Pension Plan must have a VRSP in place according to the following schedule:
- 20+ employees on June 30, 2016 à VRSP in place by December 31, 2016
- 10-19 employees on June 30, 2017 à VRSP in place by December 31, 2017
- 5-9 employees à VRSP in place after January 1, 2018 (date to be determined by the government.)
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