The Establishment of a New Retirement Savings Regime : The Introduction of Voluntary Retirement Savings Plans Act

The Voluntary Retirement Savings Plans Act was introduced by the Ministry of Employment and Social Solidarity on May 9, 2013.

The Bill provides that any employer having an establishment in Quebec employing 5 or more eligible employees on December 31 of a given year and that does not already provide a retirement plan to its employees will be required to subscribe to a VRSP and automatically enrol eligible employees to the plan. Eligible employees are those credited with at least 1 year of uninterrupted service as of December 31, and that do not already benefit from a RRSP or a TFSA for which payroll deductions are applied by the employer or from a registered pension plan. Workers will be allowed to participate in a VRSP of their choice if his employer does not offer such a regime (employers with less than 5 eligible employees). We can already assure you that employers have no obligation to contribute to the plan.

The Bill intends to solve the savings insufficiency experienced by a large number of workers. Indeed, about 50% of workers do not have access to a pension plan set up by their employer.

By instituting Voluntary Retirement Savings Plans (VRSP), the government seeks to provide a low-cost and flexible retirement plan for 2 million workers, including the self-employed, who are not covered by any retirement plan. Members can decide on their contribution rate and choose investment options, failing which, the default contribution rate provided for by regulations and the default investment option provided by the administrator of the plan will apply. Contribution from employees or from their employers may be deducted from taxable income and will not be taxed as long as they are not withdrawn. Employer’s contributions are locked-in and transferable to another retirement plan in case of termination of employment. Employee’s contributions are not locked-in and must be reimbursed or transferred upon the employees request to the administrator of the plan.

Duties of the employer under the Bill

Notification obligations. The Bill requires that a written notice be sent to each employee when an employer intends to subscribe to a VRSP, or when he wishes to continue under another VRSP. The employer must also notify the administrator of the plan when an employee ceases to work or when the employee discontinues his contributions to the plan. An employer that does not meet its obligations is subject to a fine of $600 to $1,200 (double in case of subsequent conviction).

Enrolment of employees. Employers must automatically enrol each eligible employee and any non-eligible employee that wishes to be part of the plan. When an employee opts out of the plan or voluntarily stops making contributions, the employer must offer the employee the option to resume enrolment in the plan or resume contributions to the plan. An employer that does not meet its obligation is subject to a fine of $600 to $1,200 (double in case of subsequent conviction).

Supervision by the Labour Standards Commission. The Labour Standards Commission supervises the mandatory subscription of employers to VRSP, and the obligation relating to notification and enrolment.

Contribution obligations. For each pay period, employers must deduct employees’ contributions from their salaries and remit those amounts to the plan, at the latest, on the last day of the month that follows the day on which they are collected. If the employer fails to do so, he must pay interest on the contributions due. Moreover, the failure to remit contributions can lead up to a fine of $800 to $10,000 (double in case of subsequent conviction).

Each VRSP must be registered with the Régie des rentes du Québec and will be administered by either insurers, trust companies or investment funds duly registered with the Autorité des marchés financiers (Securities Exchange Commission). It is important to stress that while administrators are subject to various obligations under the Bill itself, section 46 of the Bill provides that employers cannot be held accountable for the acts and omissions of the administrator of the VRSP to which they subscribe.

By assigning the administration of the plans to third parties, the Bill seeks to impose less administrative burdens on the shoulders of employers (especially small businesses). Nevertheless, the Bill creates various duties for employers who are subscribed to a VRSP (even those who were not required to do so), and their non-observance can lead to penalties in some cases.

Coming into force

The Act will come into force on January 1, 2014. Employers who have five eligible employees or more on December 31, 2013 will have two years from the coming into force to comply with the requirements of the Act.