To address concerns about pension coverage in Canada, the federal government introduced the concept of the pooled registered pension plan (PRPP) in late 2011 through Bill C-25, the Pooled Registered Pension Plan Act (PRPP Act). The PRPP is intended to provide a “low cost” and accessible retirement savings vehicle for Canadians who do not currently participate in an employer sponsored pension plan.
On December 14, 2012, the federal PRPP regime came into force with the passage of the second and final set of regulations to the PRPP Act. While PRPPs are not yet available in any jurisdiction other than the federal jurisdiction, as I discuss below, a number of provinces have either drafted legislation introducing PRPPs or have indicated that they are considering introducing legislation to implement them.
Characteristics of a PRPP
A PRPP functions as a defined contribution (DC) pension plan. The main difference between a PRPP and a DC pension plan is that a PRPP will be administered by a financial institution, rather than the employer. This plan design feature is intended to reduce the cost and administrative burden on employers. PRPPs are also intended to shift the fiduciary liability of the employer to the financial institution offering the PRPP.
Important characteristics of the federal PRPP design include the following:
- An administrator must provide a PRPP to members at “low cost” (i.e., below those incurred by members of a DC plan that provide investment options to 500 or more members, with costs being the same for all members of the PRPP);
- The administrator of the PRPP will owe fiduciary duties to the plan members and will assume responsibility for the majority of the functions of an employer under a DC plan (e.g., maintaining records, choosing investment options and retaining investment managers, ensuring investments comply with the PRPP Act, etc.);
- Employer participation is voluntary and the duties imposed on employers who participate will be limited (e.g., selecting a plan, enrolling employees, entering into a contract with the administrator of the PRPP, collecting and remitting contributions, etc.);
- Employers are not required, but are permitted, to make contributions to a PRPP on behalf of employees and are permitted to deduct members’ contributions by way of payroll deductions; and
- Member contribution rates are to be set by the administrator, however, members may elect to set their contribution rates at zero.
Status of PRPPs in Canada
Currently, only the federal PRPP regime is in force, meaning that the majority of Canadian employees are not yet eligible to participate in a PRPP. Consequently, action by the provinces will be required in order for the PRPP model to be made more broadly available.
Quebec was the first province to take steps to introduce the concept of the PRPP. On June 12, 2012, Quebec introduced Bill 80, An act respecting voluntary retirement savings plans (VRSPs) for first reading. VRSPs were to be offered to employees in Quebec effective January 1, 2013, and were to be substantially similar to PRPPs, with the exception that they were to be mandatory for certain employers. While the VRSP legislation died as a result of the election in Quebec in September 2012, the Quebec government has indicated that it intends to introduce a similar bill in the near future.
British Columbia was the second province to introduce the PRPP concept, however, Bill 16, Pooled Registered Pension Plans Act, died on the order paper when B.C. also called an election.
Saskatchewan recently introduced Bill 91, An Act to Amend the Saskatchewan Pension Plan Act and Bill 92, An Act respecting Pooled Registered Pension Plans and making consequential amendments to certain Acts, for first reading on April 8, 2013. In addition, Alberta introduced Bill 18, Pooled Registered Pension Plans Act, for first reading on April 18, 2013. In both provinces, the PRPP design is substantively similar to the federal PRPP regime.
As Alberta and British Columbia have stated an aim to harmonize their pension regimes, we can speculate that the successful implementation of PRPPs in Alberta may also result in British Columbia re-introducing legislation to implement PRPPs.
Finally, in Ontario’s recent 2013 Budget, the Ontario government committed to consult with interested parties to determine how PRPPs should be implemented, with the aim of ultimately introducing PRPP legislation. (See our prior blog post for further discussion.)
While no province has yet incorporated PRPPs into their pension regime to date, the recent resurgence of the PRPP concept is encouraging for supporters of the PRPP.