The tax-free savings account (TFSA) is expected to be a hit when it comes into effect in 2009, but it seems individual Canadians won’t be alone in taking advantage of the new savings vehicle; many employers have indicated they will be offering group TFSAs, according to a survey.
A poll of more than 250 employers conducted by Hewitt Associates found that 43% of respondents said they were likely or highly likely to introduce a TFSA to their group benefits plan, while another 45% were unsure but had not ruled it out. The TFSA allows for contributions of up to $5,000 a year, with no tax paid on capital gains or investment income upon withdrawal of the funds. Lauded as a versatile savings vehicle and expected to be popular with a broad number of Canadians, TFSAs will be available through Canadian banks and financial institutions.
So if average Canadians will have access to TFSAs on their own, why would employers offer them as part of a benefits plan? According to the poll, 40% of employers say they want to add another vehicle for tax-favoured retirement savings, while 36% are interested in providing greater flexibility for employees. Eleven percent believe adding a TFSA will assist with attracting and retaining employees, while the same percentage think that doing so will help them to maintain a competitive benefits program.
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The key question employers will need to consider before introducing a group TFSA is whether they want to encourage savings for retirement, or just general savings, explains Mazen Shakeel, a senior retirement consultant with Hewitt. He says most employers are likely to lean towards retirement savings accounts as opposed to general accounts where employees can freely deposit or withdraw money. “I think you’ll have many companies introducing a TFSA as primarily a retirement vehicle with some sort of restrictions to discourage the in and outs on a daily basis.”
Shakeel says the introduction of the TFSA provides a perfect opportunity for employers to review their retirement plans as well as their overall benefits programs. “If introduced and communicated effectively, a TFSA can provide a real benefit to employees and possibly a competitive advantage for employers.”
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