What are group benefits plans?
Group benefits plans are a way for employers to provide more than just a salary or wages to compensate their employees. Benefits can include health insurance for items not covered by government health insurance as well as life, critical illness, accident and disability insurance. Employers pay into the plan on behalf of enrolled employees, who can then claim reimbursement when they have insurable expenses. In some plans, employees also contribute to the plan. Group RRSPs, another type of group benefit, are registered retirement savings plans set up and administered by employers to encourage employees to save automatically through payroll deductions. Some employers contribute to the RRSP along with the employees.
Why should employers offer group benefits?
Providing your employees with benefits, including a group RRSP, can help you attract – and retain – top talent. As well, offering benefits usually means you can pay employees slightly less than you would if you did not offer benefits. Benefits are more tax-efficient than cash pay for employees, and the cost of group benefits is lower than what individual insurance for the same number of people would cost because the risk is spread among more people. Employees who have access to benefits are generally healthier than those without benefits and have better morale, and that’s good for the business’s bottom line.
What features should you include?
Employers can choose from among many benefits for group plans: dental, vision, prescription and extended health coverage, and many types of insurance. If you offer a group RRSP, you can offer a range of investment options – usually those offered by the bank, mutual fund company or insurance company administering the plan. It is often a good idea to start with a basic benefits plan and add new benefits as needed.
Health spending accounts
If your business is small and your employees are very different from one another in terms of age, health and family situations, consider a health spending account. This type of coverage is an alternative to the typical health benefits plan. The account limits the amount of coverage employees can use to a specific dollar figure and so gives the business control over benefits spending, but at the same time it allows employees much more range and flexibility in what care and services they apply their coverage to. In addition, more dependents can be covered than under a standard benefits plan. Employees who don’t use some of their spending allotment can carry the unused amount forward for a year. Coverage is a tax-free benefit for employees.
With a health spending account, employers can offer different levels of coverage to different groups of employees – for example, longer-serving staff could be awarded more coverage than newer hires, or executive compensation packages could include more than lower-skilled workers receive. The cost of a health spending account is tax deductible for the employer.
Group RRSPs
If you offer a group RRSP, you can elect to make contributions to your employees’ plans, and those contributions are also tax-deductible for the employee – you can match employee contributions up to a certain limit. If an employee leaves your company, the employer portion of the contributions can be transferred to the employee’s own RRSP or to their new employer’s plan. The employee can also withdraw the funds (though income tax will be payable).
Employers may also elect to create a Deferred Profit Sharing Plan in which to place the employer contributions. That way, if employees leave the employer before the contributions have vested (which often occurs only after a certain period, up to two years), the employer can keep the employer contribution.
How to choose a group benefit plan supplier
Select a benefits supplier that offers the ability to customize your plan to suit your workforce. Ask about likely cost increases over the years – some benefits providers offer a low price up front but increase your rates sharply based on the typical surge in claims that occurs when the plan comes into effect – but that typically also subsides soon after.
If you want to offer a group RRSP, look into the range of investment options available to subscribers. Select an investment firm that has the widest possible range of options or that allows subscribers to self-direct their RRSPs.
Do your research before launching any group benefits plan. Talk to several providers, survey your employees to find out what they want and discuss it with your business and financial advisors to ensure you select a plan that will work for your business and your employees.
