DIY Retirement Plan for small business

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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Beek
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DIY Retirement Plan for small business

Post by Beek »

I work for a small business that currently offers no retirement plan. A few of my coworkers and I are more or less couch potato investors, but we each manage our own self-directed RRSPs or mutual fund RRSPs. Given that we're all of the same mindset, we would like to pool our funds to save costs and make it easier to diversify our investments. How can we pool our tax-deferred investments?

One of our ideas was to form an investment club that was completely independent of the company, but I don't know what we have to do to be able to hold investment club units inside an RRSP.

We also considered forming some type of defined contribution pension plan managed by the company, but my concern was that the overhead costs of that would eliminate the benefits of pooling our funds. Also at least one person would prefer not to do tax deferral.

There are about 5 of us who are talking about this. Our company is has about 15 employees, and I bet at least another 5 employees would participate if we implemented something.

I apologize if my question is kind of vague, but is there any ideas on how we can accomplish our goals? Thanks!
brucecohen
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Re: DIY Retirement Plan for small business

Post by brucecohen »

Beek wrote: One of our ideas was to form an investment club that was completely independent of the company, but I don't know what we have to do to be able to hold investment club units inside an RRSP.
I don't see any reason why you couldn't form an investment club. Legally, the members would be the RRSPs, not you. BUT I don't believe the club route would reduce your fees. Try asking the brokerage run by the folks behind the Canadian Shareowners Association.
We also considered forming some type of defined contribution pension plan managed by the company, but my concern was that the overhead costs of that would eliminate the benefits of pooling our funds.
That's probably true. Also, the employer would be required to contribute at least 1% of pay.

If you each contribute less than $2,500 consider joining the Saskatchewan Pension Plan, which was mentioned this morning by Benefits & Pension Monitor, a pension industry news service:
Canadians Could Opt For SPP

If Canadian governments take too long to take action on the PRPP, and if the SPP Saskatchewan Pension Plan is changed as proposed, Canadians might be attracted by the prospect of having their retirement savings professionally managed at a low cost in the SPP without having to make investment choices, says a Mercer Communiqué. It says a little known fact is that anyone in Canada with RRSP contribution room can join. Membership in the SPP is not limited to Saskatchewan residents. Proposals have been made to amend the SPP to increase the maximum annual contribution from $600 to $2,500, commencing with 2010, and to better fit with the RRSP rules. The SPP is a voluntary, Defined Contribution pension plan available to individuals with earned income, as defined by the RRSP contribution rules. Like an RRSP the SPP is a capital accumulation plan that provides a money purchase benefit. Employer contributions are not permitted. Like the CPP, a board manages the investment of plan assets. Since one of the pension reform proposals is the establishment of pension plans that would benefit from economies of scale with access for individuals who have no employer pension plan, with little fanfare and little effort, in only four pages of amendments, the federal government has created a candidate to fill this role: a government-sponsored DC pension plan that fits within the existing RRSP rules.
Here's the Mercer Communique cited in the article.
MaxFax
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Re: DIY Retirement Plan for small business

Post by MaxFax »

I would beware of instigating a company wide initiative when not everyone agrees with you. I second the opinion that your driving motive of reduced costs will not materialize. The bookkeeping involved for investment clubs where the $$ are pooled is usually the reason why those clubs quickly change into ones without $$, just discussion.

Couch Potatoes don't really have any costs to start with. They also have all the diversification anyone would need. So where is the upside? I see only downsides. You lose all kinds of decision making and incur organizational costs.
Beek
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Re: DIY Retirement Plan for small business

Post by Beek »

Thanks Bruce & Max.

Just an example of where I hoped to save costs: at the amount of money I currently have in my RRSP, the best way to get exposure to real return bonds would be to buy XRB. The commission and MER is too much for something that would only be 5-10% of my portfolio, so I'm just not buying it until I the numbers are larger. But if I were able to pool that purchase with others, not only would I be sharing the commission cost, we could have enough that we'd be able to buy the bond directly. Currency conversion is another case where pooling would help a lot. But the impression I'm getting is that it probably isn't worthwhile if that's the primary goal.

The Saskatchewan Pension Plan option is very interesting. I'll have to read up on its asset allocation and see how well it meshes with my desired AA. It may also be a great default option for employees want to save but don't want to spend time educating themselves and managing it themselves.
brucecohen
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Re: DIY Retirement Plan for small business

Post by brucecohen »

Beek wrote: Just an example of where I hoped to save costs: at the amount of money I currently have in my RRSP, the best way to get exposure to real return bonds would be to buy XRB. The commission and MER is too much for something that would only be 5-10% of my portfolio, so I'm just not buying it until I the numbers are larger. But if I were able to pool that purchase with others, not only would I be sharing the commission cost, we could have enough that we'd be able to buy the bond directly.
As I think about it, I doubt that you and others could pool RRSP money to buy an RRB or any other security. That's because each RRSP would own a fractional share not of the RRB but of the pool. And the pool would not be a "qualified investment" under the Income Tax Act. My guess is that investment clubs deal only with unregistered money but I'd encourage you to pursue this with Canadian Shareowner since the last time I looked -- years ago -- promoting the formation of investment clubs was a big part of their mandate.

Here's an idea to consider/pursue: IIRC TDW counts assets held by all family members in determining one's eligibility for their President's Club. Minimum assets required are $100,000, I think but am not sure. Ask John See and his counterparts at the other discount brokers if they'd extend the same courtesy to a group of people related by employment instead of family. That would reduce your commission per transaction to just under $10.
Currency conversion is another case where pooling would help a lot.
I doubt it. You'd have to do an extremely large transaction to beat the rates at discount brokers.
The Saskatchewan Pension Plan option is very interesting. I'll have to read up on its asset allocation and see how well it meshes with my desired AA.
Here's their website. They offer only a balanced fund and a MMF.
H.S.
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Re: DIY Retirement Plan for small business

Post by H.S. »

If you're managing your own portfolio, why not look into ETFs? There are more and more ETFs available in Canada, and the costs would be minimal compared to regular mutual funds/bond funds. Brokerage fees are not very high, depending on what you use (I like Questrade). Also, you can currency hedge many of them, so if you're concerned about currency fluctuations, then that would be something you might be interested in.
"A bank is a place that will lend you money if you can prove that you don't need it."
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