I’m a big believer in the efficacy of investing in low-cost index funds, and a lot of the funds I’ve seen on offer in group RRSP plans leave something to be desired. At the same time, that doesn’t necessarily mean you should fully neglect your group RRSP. Let’s explore some of the different ways you might approach investing in a group RRSP plan that has high fee fund offerings.

What are high fees?

First of all, what do I mean by high fees? Honestly, I’d start to weigh my options at anything over .3% or so. This might seem extreme, but in my opinion there just isn’t really a good reason to pay fees higher than that.

As an example, this is the US equity index offered in a group RRSP plan. It’s a re-branded version of a Blackrock ETF.

The MER is .905%, which isn’t terrible (by Canadian standards) but isn’t great. A similar fund directly from BlackRock directly (or from Vanguard) has a .03% expense ratio, meaning the fees through our group RRSP provider are effectively 30x higher!

What are our options?

So what would I do in this situation? The key question is whether or not there is an employer match.

1. If there ISN’T an employer match, I would just ignore my group RRSP and (assuming it made sense for my tax situation) I’d open a personal (or spousal) RRSP at a brokerage that I like and invest in low-cost index funds there. And because it’s an RRSP, you don’t need to worry about PFICs if you’re a US citizen.
2. If there IS an employer match, then I’d recommend contributing to the group RRSP up to that match. In other words, if the match is 6%, contribute 6%. Then, with your remaining RRSP room, open a personal RRSP (or a spousal one). Even with the higher fees, the free money of the employer match is too good to pass up.
3. Once you no longer work at that employer, if you have a group RRSP with high fees, you can transfer the funds to a personal RRSP and invest everything in lower-cost alternatives. This would not be a taxable event.

Those are just a couple of things to think about when you see high-fee offerings in your group RRSP. If you have other suggestions or questions, please share them in the comments below!