Tuesday, June 23, 2009

RRSP Manager Change

A couple of months ago, my employer announced that it was switching manager for our group RRSP. Our former plan manager (Fidelity) is pulling out of Canada for the management of group plans. A few weeks ago, we got more details regarding the new manager (Sun Life) and the plan features, including the products that will be available.

Here's a summary of the changes, and how they impact me.
  1. Employer's Contribution: Currently, my employer provides a 50% match to the contribution we make under the group plan, up to 4% if the employee contributes 8% of their salary.
    This won't change, except for a little detail. Previously, the employee's contribution would be in increments of 1%, and the employer's contribution would match in increments of 0.5%. Now, the employer's contribution will be in increments of 1% (rounded down).
    This doesn't impact me, since I contribute 8% to fully take advantage of the employer's contribution.
  2. Products Available: With Fidelity, we had a limited list of mutual funds available, none of which were index funds. The funds' total expense ratios were reduced because of the group plan, but were still between 0.75% (money market fund) to 1.25% (foreign stock funds).
    With Sunlife, the range of funds offered is a little bit broader and includes some index funds from Barclays Global Investors (BGI). The total expense ratios for the index funds are from 0.36% (bond index fund) to 0.56% (EAFE index fund).
    Good news for me, since it will allow me to move towards an index strategy in this part of my RRSP.
  3. Fees: With Fidelity, there was no additional fees -- everything was included in the expense ratios of the funds. Transferring money out of the plan to another (possible only for the employee's contribution) was also free. So I was doing this once or twice a year, transferring money from my group plan towards my self-directed RRSP at my discount broker.
    With Sun Life, there will be heavy fees and penalties -- 100$ for each transfer and the employer's contributions will be suspended for 1 year.
    This has a big impact on me, since I will no longer be able to transfer money from my group RRSP towards my self-directed RRSP.
    To reduce the impact of the additional fees, I decided to transfer most of the money from my contributions towards my self-directed RRSP. Since the transfer was processed before the switch to Sun Life, there will be no fee. And transfers before the switch does not trigger the suspension of the employer's contributions.

So the news were mixed for me. On one hand, the new fees and penalties on transfers threw a wrench in my usual way of handling my different accounts. On the other hand, the availability of index funds made it easier and less expensive to implement an index strategy.

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