Common Employer Incentives
Employers often offer added optional financial incentives to their employees on top of just the traditional wage. Incentives that employers could potentially offer include: RRSP matching, Stock options and Health & Dental benefits. Reach out to your Human Resources department or manager to get more information on if your company offers any of these incentives, learn more about them, or sign up for them.
RRSP Matching – A common option for companies is to match your RRSP contributions up to a certain percent of your wage. They may match at different ratios, 50% and 100% are the most common.
Example: You are employed by a company with a 4% RRSP Matching program that matches your contributions 100%. What does this mean? If you opt in (at whatever % you want, it doesn’t have to be exactly 4%), the company will match your contributions 100%, up to 4% of your wage. So if you choose to contribute 4% of your wage, the company matches it, and you are now effectively contributing 8% of your wage into your RRSP.
RRSP matching should be taken advantage to the fullest to get maximum matching from your employer. Anything more than that is not really necessary and you are probably better off investing that money yourself to get a little more diversification than just the standard mutual funds offered by your group RRSP holder.
Stock Options – Publicly traded companies often offer incentives for their employees to buy shares in the company. They do this by either offering a price discount up-front on the share, or in a matching program similar to the RRSP matching. Participation in these programs requires a little critical thinking. Should you buy shares in the company you work for? Well that depends on a few things. Is the company outlook bright? If you don’t think it is, you should probably stay away from their stock options, unless they allow you to turn them over for a quick profit. Do you want to minimize risk? If so, you shouldn’t invest too much in buying your own company’s shares. This is because it concentrates your income and investments, and puts you at higher risk of losing both in a single event. If the company goes bankrupt, you are now out of a job and your investments have collapsed. If you don’t mind risk, or the program is too good to pass up, you might still want to participate to some degree. Maximum participation should be just enough to max out the incentive program though. When you buy shares through a plan like this, there is often a vesting period where you don’t have full ownership of that share. This is to prevent an immediate sell-off after buying to make a quick profit off the company. Dumping your company shares after this period to prevent over-investing in your company is definitely recommended.
Example: you work at a company that offers a 15% discount on their shares for up to 6% of your wage, but has a 1 year vesting period. A lot can happen in one year, this is too long of time to make a quick profit. So how do you feel about the future of the company? If you aren’t confident, stay out of the program. If there are no issues, then how do you handle risk? If risk is your mortal enemy, its probably best to stay out of the program and diversify outside of your employer. If you can handle it, max out the program and contribute the 6%, but nothing more than the program encourages. After the 1 year vesting period, sell off your shares to minimize your employer in your investment portfolio and diversify elsewhere. If your company at least performs as well as the market – this will next you an extra 15% gain in 1 year, not a bad return.
Health & Dental Benefits – Employers often offer these through a benefit plan or a generic Health Spending Account (HSA). Every benefit plan is different, and they don’t make it easy to learn about them. Your benefit provider should have someone available to help you understand the plan you have and how to get the most of it. Health and Dental benefits typically just reimburse you for expenses that are covered under your plan. Your more common expenses are likely covered, such as: prescriptions, medical bills, dental check-ups, eye exams, glasses and many more. If you have a good plan, even things you wouldn’t expect are often covered, like: massages, physiotherapy, dental braces, even laser eye surgery! I have to emphasize how different every plan is though, and the only way to know what you are covered for is to talk to your provider.