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TFSAs? Part of a CAP pension program - yeah or nay?

Employers may offer a TFSA in a CAP without think through the unintended consequences

Tax Free Savings accounts were introduced in Canada in 2009 and are available to Canadian residents who are at least 18 years old. TFSA are extremely popular. According to CRA in 2021 15 million Canadians invested $298 billion in TFSAs. TFSA are flexible: a specified amount can be contributed annually, there are no income requirements for contributions, and withdrawals can be made at any time and are tax free. Given the popularity and flexibility of TFSA, many employers have decided to include them as part of their pension programs.

Before considering adding a TFSA as part of a CAP however, there are two things to consider: potential legal and risk management issues, and Employee Relations considerations.

Legal and Risk Perspective

The objective in having a TFSA is often different than saving for retirement. A TFSA enables you save for major future expenditures such as a home, wedding, education, vacation, a recreational home, etc.

The shorter time frame when saving for something, other than retirement, requires different strategies and investments. In the least case, an TFSA investor has to be aware and understand the differences between short and long-term investing and investments. Investments options available in a CAP usually focus on long-term saving and may not be appropriate for a shorter-term investment horizon.

The CAP sponsor has a fiduciary responsibility to the members and must always act in their best interests. Therefore, a CAP sponsor should understand the reason CAP members are using the TFSA and provide the appropriate level of education, information, communications, and investment options appropriate for short term investing. The sponsor also has a non-going fiduciary responsibility to the members as long as they are in the CAP i.e., terminated employees, retirees and spouses. A TFSA increases a sponsor’s role and responsibilities and becomes more onerous and costly. Most sponsors are not aware of this!

The more CAP accounts available the greater the potential legal risk! The fewer the types of accounts available in a CAP the less potential legal risk and cost for the employer.

Rather tan offering a CAP some employers avoid potential legal and financial risks, administrative costs, and having to comply with legislation and the CAPSA Guidelines, by simply making contributions directly to a RRSP or a TFSA an employee must set up with an independently with a financial institution or other third-party service provider. The employer could also provide an annual incentive for the employees to use an advisor.

Human Resource Perspective

Competitive pressure to attract and keep employees, is often the reason employers offer pension programs, such as defined benefit (DB) or defined contribution (DC), or RRSPs, 401ks (US) etc., as part of their employee remuneration and benefit packages.

In today’s employment market, attracting and keeping employees can be difficult. Many potential employees want more than just a good work environment. They expect benefits that are comparable or better than what they’re receiving in their current role. This includes many things like health, life and disability insurance, retirement plans, paid time-off, childcare, etc. Another key factor is that employees are more likely to change employers now than in the past.

In the USA for example, in January 2020 the median employee tenure in a job for men was 4.3 years, unchanged from the median in January 2018. For women, median tenure was 3.9 years in January 2020, which was little different from the median of 4.0 years in January 2018. Only 29 % of male workers 27% of women had 10 years or more of tenure with their current employer.

Canadian companies have an average employee turnover rate of 21 per cent, according to a Mercer study. A high turnover rate can cause problems within an organization, from lack of stability, low morale and engagement, and the cost of frequently having to recruit and hire new people.

Based on the current turnover trends, employees probably prefer the flexibility and portability CAPs, 401ks etc. given that DB plans are harder to understand and usually less generous when an employee leaves a DB plan. In most cases employees already have other retirement saving accounts tax assisted saving accounts they have selected which they are comfortable with.

While having a TFSA account as part of a CAP pension program may seem like a good idea it probably does not represent a significant benefit for employees and, it represents an additional level of potential legal and financial risks for the employer.

Benefit programs are important in attracting and keeping employees as well as the type of pension program offered. The pension benefit can take many forms and does not have to be complicated.


A KISS approach is probably effective when it comes to pensions. Offering DB plans or tax assisted savings programs like a DC, RRSP or TFSA are not necessarily in the best interests of either the employer or employee: there are other ways to attract employees and help them save for retirement. CAPs also represent a significant time and resource commitment on the part of both the employer and employee.

Adding a TFSA to the mix does not necessarily improve a benefits package and can make pension administration and governance ore awkward and expensive.

G. Wahl, managing Director, The PensionAccountant

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