In the midst of the recent “Great Recession,” there was much handwringing about the state of Canada’s retirement and pension system. Should the Canada Pension Plan (CPP) be revamped? Should a supplementary CPP be introduced? Should a private-sector solution be pursued?
It was the last of these three routes that the federal government chose to pursue. An agreement among the federal and provincial ministers of finance was announced mid-2012, though some of the provinces’ support was and continues to be lukewarm at best.
A year and a half has now passed since the federal government enacted legislation in December 2012 enabling the creation of pooled registered pensions plans (PRPPs), including amendments to the Income Tax Act (Canada). While this covers federal employees and the territories, the rest of the administrative implementation lies in provincial hands.
Key features of PRPPs
PRPPs are a new type of defined contribution pension plan that can be offered to employers and to self-employed persons. Contributions into such plans share the individual member’s RRSP contribution room and deduction limit, with plan assets entitled to the same tax-sheltered accumulation.
PRPP administrators
Before they can register and offer a PRPP, organizations wishing to act as PRPP administrators must obtain a licence from the Office of the Superintendent of Financial Institutions. This federal regulator will coordinate with provincial counterparts once the provinces pass their respective PRPP legislation.
Employer obligations
The federal Pooled Registered Pension Plans Act does not require an employer to offer a PRPP, and if an employer chooses to do so, employer contributions are voluntary. A participating employer’s main obligations are:
- evaluating and selecting a licensed PRPP administrator;
- enrolling employees and providing notice of enrolment; and
- deducting and remitting member contributions (and employer contributions, if any).
Auto-enrolment
Employees will be automatically enrolled into a PRPP contracted by their employer, but may opt out. Alternatively, an employee could remain a member, but set the contribution rate at 0%.
Investment options
A plan may either provide that the PRPP administrator be responsible for investment decisions, or that the member may choose among an array of options. The investment options must have varying degrees of risk and return, but there can be no more than six investment options. A default investment option must be made available that is either a balanced fund or a portfolio of investments that takes into account a member’s age; for example, a target-date fund that automatically adjusts its asset mix as a “target” retirement date approaches.
Low-cost plan
The benchmark for the cost of the plan is that it be at or below the cost of defined contribution plans available to groups of 500 or more members. “Costs” means all fees, levies and other charges that reduce a plan member’s return on investment other than those that are triggered by the actions of the member.
Quebec’s Voluntary Retirement Savings Plan (VRSP)
Out of the gate, even ahead of its federal counterpart, the Quebec government proposed its VRSP in its 2012 Budget in the spring of that year. The province now has both legislation and regulations in place. Rules for VRSPs differ from the federal ones in some respects. In particular, it is mandatory for employers of certain sizes to participate. Commencement dates are:
- December 30, 2016 for employers with 20 or more eligible employees on June 30, 2016
- December 31, 2017 for employers with 10 to 19 eligible employees on June 30, 2017
- For employers with five to nine eligible employees, a date will be set no later than January 1, 2018
Other territories and provinces
As the territories fall under federal jurisdiction for these purposes, PRPPs may now be established in Yukon, Northwest Territories and Nunavut.
Two provinces have passed PRPP legislation: Saskatchewan and Alberta. After an initial bill died on the order paper when British Columbia went to the polls in 2013, the B.C. government retabled legislation earlier this year that is working its way forward.
While not outright refusing to join the PRPP party, the Ontario government has publicly stated its preference for first considering revisions to the CPP. In a similar vein, Prince Edward Island has offered a proposal for CPP reform, supported at least for discussion by Ontario and some of the other holdouts.
Given the expectation – and indeed the requirement – of low cost, this fractured support looms large. While there is no legal impediment to proceeding without 100% provincial participation, the practicality is that the lack of overwhelming support for PRPPs may limit their effectiveness.