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Group RRSP with High MERs

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  • Jul 25th, 2016 11:01 am
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Newbie
Aug 9, 2015
76 posts
39 upvotes
Parksville, BC

Group RRSP with High MERs

My employer is launching a group RRSP program with 2% matching. This is great... BUT... The company they are going with has very high MERs compared to what I'm paying in my personal RRSP (TD e-series). I still think I am going to contribute to get the matching but I feel a little sick about paying 2.67% MER for a mutual fund... The MER is higher than the matching!

Should I still take advantage of the matching if the MERs are more than the match?
I will then be contributing to one RRSP with great MERs and one with horrible MERs...
Or would I be better off continuing with just TD e-series?
"There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning. " - Warren Buffett
22 replies
Sr. Member
May 22, 2004
749 posts
502 upvotes
Montreal
Are there any funds inside the group RRSP that would have a lower MER? Usually the bond funds aren't too bad (1% or less). One option would be to hold your bonds in there, benefit from the match, and rebalance your e-series portfolio around the group RRSP. You may also want to look into how long you need to leave the money in the group RRSP and how much it costs to transfer it out.
Deal Addict
User avatar
Aug 1, 2007
1498 posts
266 upvotes
I assume you're saying they match 50-100% of your contribution up to 2% of salary? May as well take advantage for an easy 50-100% gain... a lot of those plans still have index funds available, though at higher MERs. Or maybe a target date fund could be reasonable.

Like said above, may just make sense to buy money market funds just to get the match.
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
TheClone13 wrote: My employer is launching a group RRSP program with 2% matching. This is great... BUT... The company they are going with has very high MERs compared to what I'm paying in my personal RRSP (TD e-series). I still think I am going to contribute to get the matching but I feel a little sick about paying 2.67% MER for a mutual fund... The MER is higher than the matching!

Should I still take advantage of the matching if the MERs are more than the match?
I will then be contributing to one RRSP with great MERs and one with horrible MERs...
Or would I be better off continuing with just TD e-series?
MER is higher than the match? The match is based on your gross, the MER is applied to the fund, the bases are completely different.

You earn $50,000, the company contributes $1000, the fee is $27, you still net $973 with near-zero opportunity cost (of course the MER also applies on your contribution of $1000, the total fee is $54). Unless you can better the return of $946 on a $1000 deposit, consuming $2000 RSP room, you're ahead.
Deal Fanatic
Apr 11, 2012
5865 posts
3138 upvotes
Winnipeg
Kasakato wrote: MER is higher than the match? The match is based on your gross, the MER is applied to the fund, the bases are completely different.

You earn $50,000, the company contributes $1000, the fee is $27, you still net $973 with near-zero opportunity cost (of course the MER also applies on your contribution of $1000, the total fee is $54). Unless you can better the return of $946 on a $1000 deposit, consuming $2000 RSP room, you're ahead.
This make more sense.
Just 2% match is only 20$
Penalty Box
Oct 26, 2007
897 posts
97 upvotes
Toronto
Wpegger wrote: This make more sense.
Just 2% match is only 20$
Huh?

You make $50,000
You get deducted $1,000 over the year.
Company matches $1,000

Where did u get $20?

Am I calculating with a broken calculator?
Deal Fanatic
Feb 15, 2006
9183 posts
3861 upvotes
Toronto
Yap, the 2% matching is on a different base than the MER.

When the company matches part of your contribute, it's basically free money they are giving you. Take it while you can. Many companies don't have pension plan or don't match anything.
Member
Jan 10, 2016
328 posts
52 upvotes
Markham, ON
Most people will tell you to take it. But I wouldn't, because they have some rules about being vested or something.
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
ValueInvestor wrote: Most people will tell you to take it. But I wouldn't, because they have some rules about being vested or something.
Unless you're planning on leaving soon, why does it matter?
Member
Jan 10, 2016
328 posts
52 upvotes
Markham, ON
Kasakato wrote: Unless you're planning on leaving soon, why does it matter?
Well, a friend of mine has these plans and the vested period is 10 years. So the employer's portion isn't yours until you completed 10 years of service.

So if you decided to leave on year 9, you will only be able to take your own money. As a result if that, you are taking the high MER at its fullest.
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
ValueInvestor wrote: Well, a friend of mine has these plans and the vested period is 10 years. So the employer's portion isn't yours until you completed 10 years of service.

So if you decided to leave on year 9, you will only be able to take your own money. As a result if that, you are taking the high MER at its fullest.
Jurisdiction and company?
Banned
User avatar
Jun 5, 2012
1418 posts
498 upvotes
ValueInvestor wrote: Well, a friend of mine has these plans and the vested period is 10 years. So the employer's portion isn't yours until you completed 10 years of service.

So if you decided to leave on year 9, you will only be able to take your own money. As a result if that, you are taking the high MER at its fullest.
9+ years seems a long time to get vested?! are you sure it's not like 2 years or something??

The bank rep would justify the high MER as if high returns justify the MERs, it would be worth the high MER being in that fund.
Member
Jan 10, 2016
328 posts
52 upvotes
Markham, ON
Kasakato wrote: Jurisdiction and company?
If memory serves me well, I believe this is around 8 years ago. He was with Ontario college pension fund. He was proud of the fact he gets every other Friday off, and some other great benefits. But didn't mention how bad the returns were for the College College teachers. He doesn't do the investing though, he does payroll and bookkeeping for the fund. He told me that he will quit after 10 years mainly because he wanted the employer portion of the match.
Deal Fanatic
Jul 1, 2007
8569 posts
1763 upvotes
orakle22 wrote: Are there any funds inside the group RRSP that would have a lower MER? Usually the bond funds aren't too bad (1% or less). One option would be to hold your bonds in there, benefit from the match, and rebalance your e-series portfolio around the group RRSP. You may also want to look into how long you need to leave the money in the group RRSP and how much it costs to transfer it out.
Buying a BOND fund instead of an EQUITY fund because the fee is lower.... that's the ultimate fee-sensitivity boondoggle.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Sr. Member
May 22, 2004
749 posts
502 upvotes
Montreal
Thalo wrote: Buying a BOND fund instead of an EQUITY fund because the fee is lower.... that's the ultimate fee-sensitivity boondoggle.
Read the post again.
Deal Fanatic
Jul 1, 2007
8569 posts
1763 upvotes
orakle22 wrote: Read the post again.
If it's an overall high cost GRSP then it doesn't matter if you're in equity or bond funds with them. The bond funds (likely at around 1.5%) are equally overpriced as equity funds at 2.5%+. They're apples and oranges.

Best bet is to see what their transfer policy is, how much they charge, if they're okay with transferring portions of the plan out from time to time.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Sr. Member
May 22, 2004
749 posts
502 upvotes
Montreal
Thalo wrote: Best best is to see what their transfer policy is, how much they charge, if they're okay with transferring portions of the plan out from time to time.
I completely agree, but if the cost of transferring out is too high (or for example the employer contributions can't be transferred out), it seems like a reasonable compromise to contribute only enough to maximize the match, use lower cost bond funds inside the plan, and balance with low cost equity funds in OP's existing e-series accounts.

My basis of comparison is index ETFs, so all of this stuff is overpriced no matter what. The equity funds at 2.5%+ are just more so.
Deal Fanatic
Jul 1, 2007
8569 posts
1763 upvotes
orakle22 wrote: I completely agree, but if the cost of transferring out is too high (or for example the employer contributions can't be transferred out), it seems like a reasonable compromise to contribute only enough to maximize the match, use lower cost bond funds inside the plan, and balance with low cost equity funds in OP's existing e-series accounts.

My basis of comparison is index ETFs, so all of this stuff is overpriced no matter what. The equity funds at 2.5%+ are just more so.
It's just that costs are inherently different managing equity funds versus bond funds. Most bond funds practically are like indexes; there's not a whole lot in terms of active management to be done there. So a bond fund at 1.75% compared to an index bond ETF at .25% is also incredibly overpriced, in an asset class that potentially might not even yield much more than 2% before fees.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
ValueInvestor wrote: If memory serves me well, I believe this is around 8 years ago. He was with Ontario college pension fund. He was proud of the fact he gets every other Friday off, and some other great benefits. But didn't mention how bad the returns were for the College College teachers. He doesn't do the investing though, he does payroll and bookkeeping for the fund. He told me that he will quit after 10 years mainly because he wanted the employer portion of the match.
You're confused. The pension will vest immediately since it's post reform more than a decade ago. The CAAT is a DB plan, not the DC discussed here. You're example is from the 80s and is complete irreverent here.
Deal Addict
Jan 20, 2016
2028 posts
1013 upvotes
Houston, TX
Kasakato wrote: You're confused. The pension will vest immediately since it's post reform more than a decade ago. The CAAT is a DB plan, not the DC discussed here. You're example is from the 80s and is complete irreverent here.
+1,

Have been in 4 different matching plans, DC and simple RESP match. In all cases you could transfer out or cash out whole rrsp (both yours and employers) any time.
On OP case, I'd either find out how to transfer or pickup the fund with lowest difference from normal one (sometimes balanced or target date have lower "premium" than index ones in this plans...)

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