February 2012 returns

Markets continued relatively strong in February and as a result, SPP posted a return of 1.6% to the balanced fund (BF) and 0.007% to the short-term fund (STF).   The year to date return in the BF is 3.8% and in the STF is 0.043%.

As illustrated in the monthly asset class return values below, equities continued strong returns in February primarily due to positive economic data from the U.S.  The Canadian bond market declined 0.40 per cent in February. Yields were rising for bonds of all terms, but more notably for short and mid-term bonds. However, long term bonds fell the most in the month due to their higher sensitivity to interest rate movements. Provincial bonds fell as investors acknowledged the difficult waters many provincial governments will have to navigate in the coming years.

Market index returns for the month of February 2012 were:

Index YTD return (%)
S&P/TSX Composite (Canadian equities) 1.67
S&P 500 (C$) (US equities) 2.46
MSCI EAFE (C$)
(Non-north American equities)
3.85
DEX Universe Bond (Canadian bonds) -0.40

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!