RRSP matching is one of the many types of benefits employers offer to their employees in Canada. Like most benefits, RRSP matching is not offered because companies act in a philanthropic or socially responsible way, but rather because it is a cost effective way to retain employees as compared to simply paying them more. Some benefits have a much higher perceived value than they actually cost to those who provide them. Look at health and dental benefits. Most of us don’t spend more than $300 per year on dental care, but the peace of mind given by knowing that you are covered feels so much more valuable than that!

RRSP matching actually makes financial sense both for employers and for employees. Let’s take a look at some numbers and assume that you are 30 years old, plan to retire at 60 and your plan earns an average annual return of 8%. If you only contribute $100 per month and there are no matching contributions from your employer, your account balance at retirement will be $146,815. If your employer contributes $50 on top of your contribution (50% is a typical matching rate), your balance at retirement will reach $220,222. This way your employer spends only $50 a month or $18,000 in thirty years, which translates into approximately $12,000 after tax, but you get an extra $73,407 at retirement. This is a valuable benefit for an employee, and it cost close to nothing to the company.

If you own a business, setting up a group RRSP for your employees is a very smart thing to do. It is very easy to set up and manage, because most of the work will be done by your advisor and the fund company. Your group can be as small as two people and your costs can be as low as $50 per month per employee. The effect of this measure, however, on the retention of your staff will be much greater than if you simply add $50 per month to their salaries.

Another benefit of employer sponsored registered savings plans for employees is the fact that their own contributions can de made from the pre-tax income. This way, you essentially get your refund immediately, rather than next year when you submit your tax return.

Also, employer matching uses such a negative human quality as greed to encourage savings. An employee who wouldn’t make RRSP contributions otherwise is likely to decide to do it just to take advantage of the matching, which will lead to a more comfortable retirement. Employer RRSP matching is one of the very few arrangements which benefit everybody – companies, employees, the overall economy through additional investment and the government by reducing the burden on the social programs.

Nikolay Sisan is a Certified Financial Planner and freelance writer in Vancouver.