RRSP Employer Matching: Should You Always Take It?

Almost every other financial decision you make involves a forecast. This one does not. If your employer matches half of what you put into a group RRSP, the return on that money is 50% the moment it lands, before a single investment has been chosen. A dollar-for-dollar match is 100%.

Nothing else on offer to a Canadian household comes close. Paying off a 20% credit card is an excellent guaranteed return and it is still less than a full match. So the honest answer to the question in the title is: yes, contribute at least to the match, in almost every case. The interesting part is the fine print and the three situations where the answer changes.

What the match is actually worth

Take a $75,000 salary with a common structure: the employer matches 50% of your contributions up to 6% of pay.

Roughly $3,150 out of pocket produced $6,750 in the account. Declining the match is choosing to be paid less, and it is a decision that compounds: over twenty years, that $2,250 a year of employer money is the difference between a comfortable retirement number and an uncomfortable one. Run it through the compound interest calculator to see the shape of it.

Four things to check in the plan documents

1. Vesting

In a straight group RRSP, employer contributions are yours immediately, because the account is legally yours. Many employers instead route their share into a Deferred Profit Sharing Plan, which can impose a vesting period of up to two years. Leave before you vest and the employer's contributions go back to them. This does not change whether you should contribute; it changes the cost of resigning in month eighteen.

2. Fees

Group plans usually buy institutional versions of funds, and the management fees are typically far below the retail versions of the same strategy. That gap compounds as hard as the match does. It is also the main thing to check before deciding to keep the money in the plan after you leave the employer.

3. The pension adjustment

Employer contributions to a DPSP, and any registered pension, generate a pension adjustment that reduces your personal RRSP contribution room for the following year. Your total tax-sheltered space is not growing as fast as the account balance suggests. Check your CRA notice of assessment for the real number before making a large personal RRSP contribution on top.

4. What happens when you leave

Ask whether you can transfer the balance to a personal RRSP on departure, and whether there are fees or a waiting period. Group plans are usually portable, but the answer is worth having in writing before you need it.

The three cases where it is not automatic

You are carrying debt at very high rates

A payday loan at triple-digit rates outruns any match. A credit card at 20% does not outrun a 100% match and probably does not outrun a 50% one either. The sensible order for most people is: contribute exactly to the match ceiling, then attack the debt with everything else, then come back. The debt payoff calculator will tell you what the debt is genuinely costing you per month.

Your income is low this year

An RRSP deduction is worth your marginal rate. At $40,000 that is a much smaller number than at $120,000, and the withdrawal in retirement may be taxed at a similar rate or affect income-tested benefits such as the Guaranteed Income Supplement. Note carefully: this is an argument about where your own extra savings go, not about the match. Take the match, then consider putting additional savings in a TFSA instead until your income rises.

You cannot make rent

If contributing means missing a payment or funding groceries on credit, the match is not free. Build a small buffer first with the emergency fund calculator, then contribute to the match ceiling as soon as the buffer holds.

Outside those three, the case against the match tends to be an argument about RRSPs generally, and it misses that the match is not an RRSP feature. It is compensation that happens to be paid into an RRSP.

Contributing above the match

Money beyond the match ceiling gets no employer contribution, so it competes on its own merits against a TFSA and against your personal RRSP at a discount brokerage. Two things usually decide it: whether the group plan's fees beat what you would pay yourself, and whether your marginal rate today is higher than the rate you expect in retirement. If the plan's fund lineup is narrow or expensive, contribute to the match and invest the rest where you control the cost.

Frequently asked questions

Is employer RRSP matching taxable income?

Employer contributions to a group RRSP are treated as taxable employment income, and then offset by the RRSP deduction for the same amount, so the net effect on your tax is normally nil. DPSP contributions are not employment income but do generate a pension adjustment.

What percentage should I contribute?

At minimum, the exact percentage that earns the full match. Contributing less leaves employer money unclaimed; contributing more is a separate decision about fees and your marginal rate.

Does the employer match count against my RRSP contribution room?

Group RRSP contributions, including the employer's share, use your RRSP room. DPSP contributions do not use room directly but create a pension adjustment that reduces next year's room.

Should I take the match if I plan to leave the job soon?

Check the vesting schedule first. In a straight group RRSP the employer's contributions are yours immediately. In a DPSP they may not be until you have been there up to two years.

Can I move a group RRSP to my own brokerage?

Usually yes after you leave, and sometimes while employed. Compare the group plan's institutional fees with what you would pay on your own before moving it; the group version is often cheaper.

Sources

• CRA: Registered Retirement Savings Plan
• CRA: Deferred Profit Sharing Plans
• CRA: Pension adjustment
• FCAC: Employer pension plans and group savings