10 key decisions for business owners
Key decision 4 - Attracting and retaining top talent in your business
The loss of a key employee can be very expensive to an organization, so give some thought to how you can motivate key employees and keep them focused on the company’s priorities.
Employer-sponsored savings plans
Employees are increasingly conscious of the necessity to provide for their retirement. Employer-sponsored savings plans are one of the most important aspects of retirement planning and can help you ensure that your employees enjoy a financially secure retirement. Here are some of the more common types of retirement plans offered by employers:
Group Registered Retirement Savings Plans (Group RRSPs)
Group RRSPs are one way you can encourage your employees to save for retirement throughout their careers. They could be an option even for a small business owner. These plans operate like regular Registered Retirement Savings Plans (RRSPs) and can be more cost-effective and easier to administer than pension plans.
Registered Pension Plans (RPPs)
RPPs are employer-sponsored pension plans. In general, employer and employee contributions are tax-deductible and the income earned within the plan grows tax-deferred. Funds accumulating within the plan for individual members are generally locked-in by provincial or federal legislation.
There are two kinds of RPPs: Defined Contribution (DC) and Defined Benefit (DB) Pension Plans. Employees in DC pension plans choose the investments within their individual plans and the retirement benefit is based on the value of the investments in the plan when the employee retires. This can be a less costly option than a DB plan for you as an employer and is easier to administer. In contrast, DB plans guarantee a specific benefit to the employee at retirement, calculated using a formula based on earnings and years of service.
Enhanced retirement benefits
- Supplemental Executive Retirement Plans (SERPs).Limits on registered plan contributions and benefits can leave your higher-income employees with retirement benefits that are inadequate to maintain their standard of living. A SERP may help to bridge the gap between the maximum pension available under the company’s RPP and what a higher-income employee would otherwise have received. It can also be a way to help you retain your valuable employees and encourage their long-term loyalty.
One of the most common forms of a SERP is the Retirement Compensation Agreement (RCA). An RCA is a non-registered pension arrangement that can help you provide supplemental pension benefits for key employees and can be utilized whether your company has an RPP or not.
- Individual Pension Plans (IPPs). An IPP is a registered DB plan sponsored by an employer for one individual and potentially that individual’s spouse if the spouse also works for the company. It is an RRSP alternative that enables your company to make larger annual contributions compared to an RSP that are tax deductible to your company. IPP contributions increase with the age of the plan holder. If investment earnings in the plan are lower than expected, you may be able to make additional contributions. IPP assets may offer creditor protection and typically suit business owners, incorporated professionals or key employees who are age 40 or older and earn an annual salary of at least $100,000.
Learn from experience
While financial compensation often attracts your key employees, non-financial benefits often help you retain them. Sufficient tools and time to do the job are essential to employee satisfaction while training and career development helps to keep them motivated. Aim to foster a social environment and a sense of team and demonstrate your commitment by ensuring that work/life balance can be achieved.
This article is supplied by Scott Donovan, an Investment Advisor with RBC Dominion Securities Inc. Member-Canadian Investor Protection Fund. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article.