FAQ: Employer-sponsored plan

Small business owners can increase recruitment and retention success in a competitive labour market by strengthening their employee benefits package. Saskatchewan Pension Plan (SPP) is a smart, simple way to offer pension benefits to employees (full-time, part-time, casual or temporary).

Furthermore, there are tax advantages for employers who make contributions on behalf of employees. Having a pension plan shows you are committed to helping employees save money for retirement. As a true pension plan, money invested in SPP remains locked-in until retirement.

Here are some FAQ about adopting the SPP as your company’s retirement savings vehicle.

Q. How much will it cost me if I add the SPP to my employee benefits program?

A. SPP offers all the benefits of an employer-sponsored pension plan – but you bear no cost for plan administration.

Contributions can be made:

(a) By the employer as an employee benefit;

(b) By the employee through a payroll deduction;

(c) Or cost-shared by the employer and employee.

There are no sales commissions when members contribute or retire and there is no cost to set up your business plan.

Q. I’m very busy. Is SPP complicated to administer?

A. Administration is simple. SPP assists with the initial paperwork and implementation of the Plan. Employers can then receive monthly, quarterly or year-end reports that serve as the reminder for their next contribution. All employees between the ages of 18 and 71 may participate in the Plan, including full-time, part-time, casual and temporary staff.

After the intial set up SPP handles the distribution of receipts and statements to the employees.  The employer has no liability for the investment decisions or future pension obligation to their employees.  Investment instructions are provided by the employees and SPP directs and monitors the investment managers.

Q. Do I have to contribute every month?

A. You can tailor the plan to your company’s size and budget. Contributions to the Plan can be made monthly or any time of year. There is no minimum contribution, and no obligation to contribute every year. The maximum is $2,500 per year.

Q. Do all my employees have to participate?

A. Unlike plans that require a minimum enrolment before the benefits can be offered, SPP has no minimum. Even if only one employee is interested, you can start an SPP Business Plan – and you can just as easily add members to the Plan at any time.

Q. How is SPP treated for tax purposes?

A. SPP allows your business to put pre-tax dollars into investments for your employees. The employer contributions are deductible as a salary expense and employees may deduct the total contribution within RRSP limits.

Q. What happens if an employee leaves my company?

A. Should an employee leave your company for any reason, they simply take their SPP Plan with them, without any additional paperwork or sign-off for the employer. As Plan members, they can contribute to the Plan regardless of where they live or who employs them.

Q. Is there a waiting period until my employees can participate?

A. Many other pension plans require that an employee work at a company for a certain length of time before they are eligible to contribute. With SPP there is no waiting period; employees may begin participating at the employer’s discretion. Contributions belong to the employee as soon as they are invested.

Q. How do I tell my employees about SPP?

A. SPP will help employers with this.  Please contact SPP and arrange for someone to speak to your employees.  There are tools available on our website, including a wealth calculator, as well as opportunities to learn more about SPP on our blog (savewithspp.com), Facebook and LinkedIn.

Q. What do I have to do to get started?

A. Each employee will need to fill out a membership application, which is available online, and provide a copy of a proof of age document such as a passport or driver’s license.

Employees are then listed on the “Employer contribution statement” which is also available online.  Mail all the paperwork into SPP and we will set up the accounts for each of your employees and an employer number for you.

Contributions for your employees can be submitted by cheque, automatic payment or credit card.  Contribution amounts are flexible and voluntary and employers are free to use SPP as an incentive or bonus.

For example,  the employer may decide to match an employee $500 per year or may choose to offer SPP as a place for employees to deposit any bonus money. SPP is flexible and can be customized to fit your business!

Pension Plan vs. RRSP

By Sheryl Smolkin

Although you require RRSP contribution room to make contributions to the Saskatchewan Pension Plan (SPP), there are some fundamental differences between this pension plan and an RRSP.

One key distinction is that funds you contribute to the SPP are locked-in until you choose to retire from the plan between ages 55 to 71. This means that the money you need to supplement government benefits and other savings will be there when you need it for retirement.

In contrast, your RRSP accumulated contributions can be withdrawn at any time, subject to payment of income tax on withdrawals in the year of receipt. In addition, there are several programs that allow you to borrow and then repay RRSP funds including the Home Buyer’s Plan (15 year repayment), and the Life Long Learning Plan (10 year repayment).

However, by withdrawing RRSP funds or borrowing from your RRSP, you reduce long term growth potential in your account. The tax-free savings account (TFSA) may be better suited as an emergency fund or to save for shorter-term goals, as contribution room is not lost when withdrawals are made, and funds can be replaced in the next year.

The SPP also gives you flexible options for using your money when you retire from the plan. You may choose an annuity from SPP and be assured of receiving a pension for the rest of your life; transfer the funds to a locked-in account or prescribed RRIF with a financial institution; or choose a combination of the annuity and transfer options.

If you choose to allocate all or part of your SPP savings to an annuity option, funds stay invested with SPP; there is no transfer fee; and, the SPP assumes the investment risk and the obligation to pay a pension for your lifetime. RRSP accounts must be transferred to a life income fund before an annuity purchase can be made from an insurance company.

Saving in the SPP or a registered retirement savings plan should not be an either/or proposition. The SPP is an ideal basic building block for your retirement savings. And if you have more contribution room, you can still save and invest additional money in an individual or group RRSP.

Also read:

Pensions & RRSPs

Retirement Planning: 10 common mistakes

Griffiths: 6 reasons to avoid RRSP loans

Planning your pension

Want to save tax? Look to Saskatchewan

Talking to Mark Stockford

Mark Stockford podcast

Hi,

My name is Sheryl Smolkin. I’m a pension and benefits lawyer and journalist. Today I’m continuing our series of interviews with the people behind the scene at the Saskatchewan Pension Plan.

I’m pleased to be talking to Mark Stockford. Mark is an independent insurance broker with 4 employees. He offers his staff the Saskatchewan Pension Plan as part of their employee benefits package.

Welcome Mark.

Hi Sheryl, thanks for having me.

Q. How long has your group been part of the Saskatchewan Pension Plan?

A. I believe we first started in March 2003.

Q. Why did you decide to get involved with SPP?

A. Well, we wanted to provide our employees with an RRSP program allowing them the opportunity to accumulate retirement funds at a faster rate. We match their contributions and hopefully it improves employee retention.

Q. So why did you select SPP as opposed to a Group RRSP from a financial institution.

A. I believe in supporting the local and provincial economy and this is a local, provincially operated pension plan.

Q. How many of your employees are enrolled?

A. We have all our employees involved. When they are first hired there is a six month waiting period and then we offer it to them. To date, everyone who has had the chance has jumped at it.

Q. You mentioned that you match contributions. Tell me a little more about that.

A. It’s an employee benefit I want to offer to my employees, so on a monthly basis we have money taken out of our account and 50% is charged back to the employee via payroll deduction.

Q. You said you contributed $50/month when the contribution limit was $600/year but you are in the process of upping that?

A. Yes. We have been advised by SPP that they can now accept annual deposits up to I believe $2,500, so to make it easy we’ve gone to $200/month. We are paying $100 of that, so each employee will have the benefit of $2,500/year.

Q. Some employers may find the amount of paperwork they have to fill out to administer a pension plan overwhelming. Does this apply to the SPP?

A. Actually it’s very simple. Originally when we signed up for it was a one page application each employee filled out, and Kindersley insurance supplied a monthly withdrawal authorization form to SPP along with a void cheque.

Since then it’s just been a matter of us sending emails to the SPP contact regarding any changes. SPP supplies the statements and income tax receipts for each employee. All I have to do is provide the information on the T4s for the employees. SPP makes it very easy for me, as the employer.

Q. What feedback have you had from employees regarding the opportunity to participate in SPP at work?

A. They’ve been very happy with it. Any time we’ve offered it to employees there has been no question that they have all wanted to participate. We don’t make it compulsory. It’s something they can do if they want.

It seems to be a good RRSP option. The returns in the past have been good. It’s been a little bit slower in the last few years with the economy but it’s been good.

Q. Have you disucced your participation with other employers, and what kind of a reaction do you get from them?

A. I’ve spoken to some people in town. Some seem interested. Some are already doing it. Of course, there are others who don’t see the benefits. But I feel the benefits to my operation are great. The employees like working here. They see the benefit and its one more reason not to leave Kindersley insurance.

Mark, thanks so much for taking the time to talk to me today. I’m sure other employers and their employees will be very interested in the reasons why you offer the Saskatchewan Pension Plan to your employees.

You are welcome, Sheryl.

Get to know SPP

Get to know SPP by entering our contest on this blog.

All you have to do is answer one simple question about SPP and your name is entered for a chance to win one of the following books:

The Wealthy Barber Returns by David Chilton

Retirement’s Harsh New Realities by Gordon Pape

Count on Yourself by Alison Griffiths

The Worried Boomer by Derek Foster

Or a $20 gift card.

There are 3 separate contests (March, April and May) each with a different question. Answer the question and enter for your chance to win by clicking here!

You can even get additional chances to win by telling a friend about the contest.

Please check out the contest today!

What Derek Foster, “The idiot millionaire” says about Sask Pension Plan….

Derek Foster Book Titles

Derek Foster retired at the age of 34 despite spending his 20s backpacking across Europe, Australia, and New Zealand – and living a number of years in Asia.  He has written six books including “The Idiot Millionaire” and most recently, “The Worried Boomer.”

On February 13, 2012 he was interviewed by Patricia Lovett-Reid Senior Vice President with TD Waterhouse Canada Inc. for Business News Network. When asked for one tip that is not out there in mainstream personal finance, here’s what he said:

“Join a pension plan. Why doesn’t everybody join a pension plan? There is a pension plan available called the SPP run out of Saskatchewan and anybody in Canada can join it. It’s a no-brainer as far as I’m concerned. Have a few eggs in that basket here, a few over here, a few over there….

…The reality is that a lot of people don’t belong to a pension plan and they are going to have to create some sort of income stream in retirement. There’s talk of OAS changing, who knows what will happen to CPP? The SPP is another stream of income. If you put all these baskets together, eventually you have enough to live fairly comfortably.”

Shouldn’t YOU join SPP?

BNN interview

You Tube video: Meet Derek Foster

This man admits he’s an idiot millionaire

Separating retirement myths from reality

By Sheryl Smolkin

In the first two months of every year, oceans of words are written trying to help people understand why retirement savings is important and how best to grow their money.

However, a recent TD Poll reveals Saskatchewan and Manitoba residents still have a variety of misconceptions about their retirement finances, from when they should start saving to the amount they will need.

Here are four retirement savings myths that continue to proliferate in spite of ongoing efforts by financial institutions, governments and the media to enhance the financial literacy of Canadians.

Myth 1: You should focus on eliminating debt before saving for your retirement.

The majority of survey participants (63%) in Manitoba and Saskatchewan think they should focus on eliminating debt before saving for retirement, and 59% feel they should never retire with any debt.

If you have a mortgage, you have debt. With most mortgages amortized over 25 years, if you wait to start saving until your mortgage is paid off, you will never accumulate enough to retire. It’s important to pay down as much debt as possible before retiring, but it’s also essential to strike a balance between reducing debt and saving for retirement.

Myth 2: In an economic downturn it’s safer to sell your investments and only put your money in guaranteed investments.

Those in Manitoba and Saskatchewan are the least likely to believe that putting money only in guaranteed investments is the safest strategy durng an economic downturn (32% vs. 42% nationally).

Consumer prices rose 2.3% in the 12 months to December 2011, following a 2.9% increase in November. GICs may be safe, but at best they are currently earning about 1.5 per cent – much less than inflation.

An advisor can help you determine the right asset allocation for your portfolio, which will optimize potential returns without exposure to inappropriate levels of risk.

Once you have a plan, stick with it. Trying to time the market doesn’t work, even for the experts. If you sell everything and move to fixed income investments when markets are down, you will not participate in the gains when the inevitable recovery occurs.

Myth 3: The older you get, the less money you spend/need for day-to-day expenses.

With more than half of Manitoba and Saskatchewan residents believing this to be true, they are the most likely in the country to feel that your expenses will decrease as you age (55% vs. 46% nationally).

But if you plan to travel, continue membership in pricey clubs and eat in expensive restaurants, your cost of living in retirement could be more rather than less.

Also, don’t forget to take into account everyday expenses such as dental and health care, or unforeseen expenses such as accidents or home repair.

Work with an advisor to estimate what your expenses will be in retirement, and to ensure that you are saving enough now to pay for these future expenses when you no longer have a pay cheque.

Myth 4: You don’t need to have money in the stock market to grow your retirement nest egg.

Sixty-four percent of people in Manitoba and Saskatchewan do not believe that investing in the stock market is required to establish a financially-secure retirement.

When it comes to retirement savings, it’s important to establish a good balance and have a variety of investments and savings products, including equities, bonds, and savings vehicles such as SPP, RRSPs or TFSAs.

Your portfolio should also contain a mix of conservative and more aggressive investments, depending on the number of years you have until retirement and your comfort level, which will help you maximize your retirement savings.

Saving money is as easy or as hard as you make it. As fellow moneyville blogger Krystal Yee recently wrote in RRSP baby steps: The $12.50 solution, you don’t have to start by saving hundreds of dollars from every pay cheque. Find a number that works for you – even if it’s only $25 bi-weekly – and have it automatically deducted from your bank account as soon as you get paid.

Also read:

How worried should you be about retirement?

Do you really need an RRSP?

Sheryl Smolkin is a Toronto lawyer, writer and editor. She can be contacted through her website or you can follow her on Twitter @SherylSmolkin.

Is topping up 2011 SPP contributions on your “to do” list?

To-do

If you are like most of us, maximizing contributions to the Saskatchewan Pension Plan and other retirement savings plans is at the top of your “to do” list every February.

Because 2012 is a leap year, you have until Wednesday February 29th to increase your 2011 SPP contributions to the annual maximum of $2,500.  SPP must receive your contribution on or before the deadline.

If you want to make sure you get your money to us in time, consider contributing:

  • In person or by telebanking at your financial institution.
  • By phone using your credit card; or
  • Online from the SPP website.

And don’t forget that throughout the year you can also make monthly contributions by pre-authorized chequing from your bank account or contribute by mail.

If you make regular monthly contributions, you’ll hardly notice it, and at this time next year you will already have “contribute to SPP” crossed off your “To Do” list

How to save tax dollars

By Sheryl Smolkin

We all know we ought to maximize Saskatchewan Pension Plan and other retirement savings plan contributions so we can retire comfortably sooner rather than later.

But the fact that your SPP contribution is deducted directly from your income for tax purposes and lowers the total income taxes you pay not only makes saving easier – it makes you feel like you’re getting a break!

You must have available RRSP room to make an SPP contribution. SPP contributions should be reported on Schedule 7 of your income tax form and claimed on line 208. Both your application and your contribution must be received by SPP before a tax receipt will be issued. SPP contributions will also be taken into account in determining RRSP over-contributions.

Spousal contributions are also permitted and if you have available RRSP room, you may contribute and receive a tax deduction for both your personal account and your spouse’s account.

Reduce taxes at source

Although you may look forward to getting money back after you file your income tax return in April, let’s face it — where possible, the best strategy is to avoid paying unnecessary taxes in the first place.

If you contribute to SPP by payroll deductions your employer can reduce the income tax you pay at source. But if you make regular monthly contributions which have not been automatically deducted by your employer, a letter of authority from a tax services officer must be provided in order to reduce income taxes deducted.

To get this letter you have to complete a Form T1213 Request to Reduce Tax Deductions at Source and provide documentation showing you are making regular SPP contributions to support the request for a tax deduction at source. It may take four to eight weeks for the Canada Revenue Agency to process the request.

Tax treatment of benefits

When your spouse has been named as beneficiary, death benefits from your account can be transferred directly to his/her SPP account or to an RRSP, RRIF, or guaranteed life annuity. Tax-deferred transfer options are also available if the beneficiary is a financially dependent child or grandchild.

All annuity payments from SPP are taxable in the year received and are eligible for the $2,000 pension income credit and for pension income splitting. Each year you will receive a T4A for the benefits that you have received in that year. Withholding tax is determined using a schedule prescribed by Canada Revenue Agency (CRA).

Your SPP account is also tax sheltered. You may continue contributing to your account until the end of the year in which you celebrate your 71st birthday or until you begin receiving a pension from SPP, whichever is earlier. You can continue contributing to the Plan if you are receiving SPP survivor’s benefits.

Key SPP tax benefits

  • Personal tax deduction available.
  • Spousal tax deduction available.
  • Contributions and earnings are sheltered from tax until received as income.
  • SPP annuity income is eligible for the pension income credit and for pension income splitting.

  

Also read:

RRSPs and related plans

RRSP myths are just that

Why you should never borrow for RRSPs

Deductions at tax time make RRSPs popular

Sheryl Smolkin is a Toronto lawyer, writer and editor. She blogs for the Toronto star on moneyville.ca and can be contacted through her website. You can also follow her on Twitter @SherylSmolkin.

December 2011 investment results

Volatility sums up market performance for the fourth quarter of 2011 and in fact for the entire year that was 2011. The European debt crisis and continued concerns about the economic recovery in the U.S. top the list of investor concerns. The seemingly endless rollercoaster with respect to these issues has marred investor confidence. As one writer put it, “markets moved from optimistic to pessimistic in a heartbeat.”

Canada’s economic picture remains strong but our commodity-dependent economy will feel the effect of slowed growth in the U.S. and global economies. The high levels of personal debt are cause for future concern when borrowing rates rise.

SPP’s balanced fund returned -1.0 per cent after administration costs while the short-term fund return, after administration costs, was 0.6 per cent for the year. The top ten holdings, portfolio composition and returns are summarized in the accompanying tables.

SPP portfolio
at December 31, 2011
Balanced fund return* Benchmark Short-term fund return*
Short term 1.1% 1.0% 1.1%
Bonds & mortgages 9.8% 9.8% 1.1%
Cdn. equities -9.4% -8.7% n/a
U.S. equities 1.2% 4.6% n/a
Non-North American equities -11.4% -10.0% n/a
Cdn. Real estate 13.7% 10.6% n/a
*Gross return before administration expenses
Top 10 balanced fund holdings
Canadian Equities % of Portfo-lio U.S. Equities % of Portfo-lio Non-North American Equities % of Portfo-lio
1 Toronto Dominion Bank 7.0 Pfizer 3.6 Cash 2.6
2 Canadian Natural Resources 5.4 Markel 3.0 HSBC 2.4
3 Bank of Nova Scotia 5.3 Johnson & Johnson 2.8 Novartis Ag 2.4
4 Canadian National Railway 3.9 Intel 2.7 Adidas 2.2
5 Saputo 3.8 Apple 2.6 Canon 2.2
6 Transcanada 3.3 Proctor & Gamble 2.6 Samsung Electr. 2.1
7 National Bank of Canada 3.1 3M 2.4 Tesco 2.0
8 Teck Resources 2.7 Wells Fargo 2.3 Nestle 1.9
9 CAE 2.6 Chevron 2.2 BMW 1.7
10 Toromont Industries 2.6 Merck 2.1 Royal Dutch Shell 1.6

The S&P/TSX Composite Index lost 8.7 per cent during the year.

  • Health Care and Telecommunications were the top performing sectors while Information Technology was the weakest.

U.S. equities returned 4.6 per cent in Canadian dollar (C$) with seven of the ten sectors in positive territory.

  • Utilities and Consumer Staples experienced the strongest performance
  • Financials and Materials were the weakest sectors.

The MSCI EAFE Index returned -10.0 per cent in C$ terms as the dollar appreciated against eight of the twelve currencies in the Index.

  • Only two of the twenty-two countries in the EAFE Index had positive returns in C$ with Ireland leading the way.
  • Not surprisingly, Greece had the lowest return at -61.9 per cent. Developed markets outperformed emerging markets.
The Canadian bond market returned 9.7 per cent during 2011. The Bank of Canada maintained its overnight rate at one percent during the quarter and the U.S. Federal Reserve maintained it key interest rate at a target range of 0 to 0.25 per cent.

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