GRSP Options - Stay or move elsewhere?

2980 Views 3 Replies 3 Participants Last post by Ben, Sep 28, 2009

Ben

Discussion Starter · Sep 28, 2009

Defined contribution GRSP's (group retirement savings plans) seem to be a common thing these days, as defined benefit plans wither away. Many of you will have experienced the situation I describe below, and I'd like to know how you handle it.

I participate in a GRSP at work, where I contribute a certain percentage and the employer contributes a certain percentage. The GRSP is managed by one investment firm. I have no choice of where my new contributions (deductions from payroll) can be directed - they have to go to this account.

The investment firm offers index funds with MER's <1% - not terrible. But there are index funds with lower MER's to be had at other institutions.

In the earliest days of my fledgling career, the account balance was very low, so the MER mattered little. As time goes on, the balance grows, and the effect of that inefficiency becomes more real.

1. Would you stick with the "default" firm indefinitely?
2. At what point might it be worthwhile to move the bulk of the existing funds at the "default" firm over to a firm with more competitive MER's?
3. How often would you move new contributions building in the "default" funds over to the preferred funds?
4. These are no-load index RRSP's. What are the tax or fee implications in moving funds from one firm to another?

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CanadianCapitalist

· #2 · Sep 28, 2009

Ben said:
Defined contribution GRSP's (group retirement savings plans) seem to be a common thing these days, as defined benefit plans wither away. Many of you will have experienced the situation I describe below, and I'd like to know how you handle it.

I participate in a GRSP at work, where I contribute a certain percentage and the employer contributes a certain percentage. The GRSP is managed by one investment firm. I have no choice of where my new contributions (deductions from payroll) can be directed - they have to go to this account.

The investment firm offers index funds with MER's <1% - not terrible. But there are index funds with lower MER's to be had at other institutions.

In the earliest days of my fledgling career, the account balance was very low, so the MER mattered little. As time goes on, the balance grows, and the effect of that inefficiency becomes more real.

1. Would you stick with the "default" firm indefinitely?
2. At what point might it be worthwhile to move the bulk of the existing funds at the "default" firm over to a firm with more competitive MER's?
3. How often would you move new contributions building in the "default" funds over to the preferred funds?
4. These are no-load index RRSP's. What are the tax or fee implications in moving funds from one firm to another?

I'm assuming you are allowed to transfer the RRSP from your employer to your own broker. Not all plans allow this. The GRSP I participate through work prohibits transfer of the contribution and the match as long as the employee stays with the company.

If I was allowed to transfer my group RSP, I'd probably do it once every year depending on the transfer fees. The typical transfer fee is $125 to $150. Your personal broker might be willing to refund the transfer fee as long as you transfer an account of certain size: say $15,000.

Note that you may have to sell the fund within the Group RSP and transfer proceeds in cash as many GRSP funds are not the same as retail mutual funds.

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leslie

· #3 · Sep 28, 2009

Your payroll clerk will be able to tell you the rules of your own plan. That is the place to start. They will have rules for withdrawals. There may be w/d fees.

Since the fees are less than 1% I personally would not worry about all this. As long as the transfer is done correctly (between plans - not being touched by you personally) there are no tax issues.

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Ben

Discussion Starter · #4 · Sep 28, 2009

Thanks! I may have missed the elephant in the room - am I allowed to do this at all? Don't know, will check.

Assuming I can't transfer funds as a current employee (seems more likely than not, the more I can think about it), my best scenario may be to contribute the minimum required to receive the full company match through the GRSP program, and direct any addional lump sum amounts to the preferred new investment account.

I'll have to first investigate fully the fees involved in the new account/funds, as my GRSP may have some other cost efficiencies that negate the MER difference.

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