A group RRSP has seven real disadvantages for a Canadian employer with 20 to 1,000 or more people. Every dollar you contribute is taxable income to the employee the day it lands. Your contributions never vest, so a new hire can leave next month with the match. Employees can usually withdraw, so the money leaks. Contributions use up the employee's own RRSP room. Fees are paid by members inside the funds, where nobody looks. The plan carries governance expectations under CAPSA Guideline No. 3. And it is not a pension, which can look thin next to a defined-benefit offer. None of these is a reason to skip a group RRSP. Each one has a known plan-design answer, and this post walks through them in order.
1. Your match is a taxable benefit the moment you pay it
When an employer contributes to an employee's group RRSP, the Canada Revenue Agency treats the contribution as a taxable benefit. It is reported on the T4, CPP is withheld, and whether EI is withheld depends on whether the employee can take the money out while still employed. The employee gets an RRSP deduction for the same amount, so for most people the income tax washes out in the year. Payroll does not wash out: CPP applies, and in Ontario the contribution is also remuneration for Employer Health Tax.
The design answer is a deferred profit sharing plan, a DPSP, running beside the group RRSP and carrying the employer's share. Employer DPSP contributions are not a taxable benefit to the employee, and Ontario excludes them from EHT remuneration. The trade-off is membership: anyone who holds 10 per cent or more of the company, and anyone related to them, cannot be a DPSP member, so the owner's own match usually stays in the group RRSP. The match-as-taxable-benefit page shows the payroll arithmetic, and the DPSP page covers the plan itself.
2. Nothing vests
A group RRSP account belongs to the employee from the first deposit. There is no way to make your matching contributions vest over time; the money is theirs the day it goes in. If someone leaves after four months, the match leaves with them, which turns a retention tool into a signing bonus. A DPSP can require up to 24 consecutive months of membership before the employer's contributions vest, and that is the only registered way short of a pension plan to attach a waiting period to the employer's share. Employers who want the match to reward people who stay put it in the DPSP; employers who want it to land immediately and visibly keep it in the group RRSP.
3. Employees can withdraw, so the money leaks
An RRSP is not locked in. An employee can withdraw from a group RRSP, and the withdrawal is taxed as income in the year it comes out, which is a bad deal for the employee and a leak for the plan's purpose. Plans built for retirement often restrict withdrawals of the employer's contributions while the employee is still employed. That is a plan-design choice, not a rule, and it has a payroll consequence: the CRA's EI treatment of your contributions turns on whether the employee can withdraw them before leaving. Decide the withdrawal rule when the plan is set up. Changing it later means re-papering the plan and re-explaining it to members.
4. It uses the employee's RRSP room
Every dollar contributed to a group RRSP, yours or the employee's, counts against that employee's RRSP deduction limit. For 2026 the RRSP dollar limit is $33,810. Most employees never reach the ceiling, but people with a personal RRSP, a spousal plan or a generous match can, and when they do, the excess is a problem for them, not for you. A DPSP has its own limit, $17,695 for 2026, and a DPSP contribution reduces the employee's RRSP room for the following year through the pension adjustment, so the two plans share one envelope rather than adding a second one. Say this plainly at enrolment. Employees find their own number on their CRA notice of assessment, and they should confirm anything close to the line with their accountant.
5. Members pay the fees, and nobody watches them
In most group RRSPs the investment management fee is paid by members inside each fund. It never appears as a line on the employer's invoice, so it rarely gets reviewed. Over a working life the gap between a competitive fee and an uncompetitive one comes out of employees' balances, not the company's budget, which is exactly why it goes unnoticed. CAPSA Guideline No. 3 says sponsors are expected to review member-borne fees periodically for reasonability and competitiveness, by going to market or benchmarking. Our group retirement fees post covers what the numbers look like. The short version: a plan nobody has benchmarked in three years is usually paying for that silence.
6. It comes with governance you did not ask for
A group RRSP is a capital accumulation plan, and CAPSA Guideline No. 3 applies to it. The guideline is guidance, not legislation, and it uses "expected to" rather than "required to". Sponsors are expected to have a governance framework appropriate for the plan's size and complexity, a member education strategy, records, and periodic reviews of fees, service providers and investment options. Small employers hear that as a compliance burden. In practice it is a calendar: one documented review a year, with a named person responsible. Your provider and your advisor do the mechanical work. The responsibility for making sure the review happens stays with the sponsor, and no advisor can guarantee compliance on your behalf.
7. It is not a pension
A group RRSP promises no income. The member carries the investment risk, the balance goes up and down in plain view, and there is no guarantee of any kind at retirement. When you are hiring against a defined-benefit employer, which in Ottawa means the federal public service and in most cities means the hospital, the school board or the municipality, a group RRSP can look thin on paper. The answer is not to pretend it is a pension. It is to make the money visible and the match real, which is the case our Ottawa hiring post makes in detail. For context, about 2.5 million Canadians hold a group RRSP or DPSP with no registered pension plan behind it, so a candidate comparing offers is far more likely to be weighing one group RRSP against another than against a pension.
What this means for a 20 to 1,000 person employer
A group RRSP is still the simplest registered retirement plan a private company can run, and for most employers in this range it is the right base. The disadvantages above are the reasons the plan gets designed rather than skipped: route the employer's share through a DPSP where the owners' membership allows, set the withdrawal rule at the start, benchmark fees on a fixed cycle, and keep a one-page governance calendar. If the plan already exists and nobody has touched it in a while, start with the fee review. Our existing plan review is where that begins, and the plan types comparison sets the group RRSP beside the alternatives.
Questions employers ask
Is a group RRSP worth it for a small company? Usually, yes. For an employer with 20 or more people it is the lowest-administration registered plan available, it needs no minimum employer contribution by law, and the match you choose is the main cost. The disadvantages above are design questions, not reasons to go without.
Is the employer match taxable to employees? Yes. Employer contributions to a group RRSP are a taxable benefit reported on the T4, with CPP withheld; the employee deducts the same amount as an RRSP contribution. Employer contributions to a DPSP are not a taxable benefit. The match-as-taxable-benefit page works through an example.
Can employees withdraw from a group RRSP? Yes, unless the plan text restricts withdrawals of the employer's contributions while they are employed, which many retirement-purpose plans do. Withdrawals are taxed as income in the year they are made. Employee contributions are the employee's to move or withdraw.
Group RRSP or DPSP? Most employers in this range run both: the group RRSP for employee contributions and the owners' match, the DPSP for the employer's contributions to everyone else, with vesting of up to 24 months. The DPSP page explains who can and cannot be a member.
Does CAPSA apply to a group RRSP? Yes. A group RRSP is a capital accumulation plan and CAPSA Guideline No. 3 applies. It is guidance, not legislation; sponsors are expected to follow it, and the practical content is a governance framework, member education, records and periodic reviews.
What does a group RRSP cost the employer? The match you decide to pay, plus the payroll taxes on it, plus a small amount of administration time. Members pay the fund fees inside their accounts, which is why the fee review matters. The cost for a 50 employee company page gives a worked example.
Tax rules change and apply differently to each company. Confirm your own plan's treatment with your accountant.
Sources: Canada Revenue Agency, "MP, DB, RRSP, DPSP, ALDA, TFSA limits, YMPE and the YAMPE" (2026 limits) and "Making withdrawals" (page dated 2026-01-29) and "Reporting a pension adjustment" (deferred profit sharing plans); CRA employers' guidance on RRSP contributions as a taxable benefit; Income Tax Act s.6(1)(a)(i) and s.147(2); Ontario Employer Health Tax remuneration guidance; CAPSA Guideline No. 3 (2024); OSFI Office of the Chief Actuary, coverage of RPPs and other savings plans (2023 data, published 2026).