On November 17, 2011, the federal government introduced for first reading Bill C-25 An Act relating to pooled registered pension plans and making related amendments to other Acts.
When passed, the legislation will implement the federal portion of the Pooled Registered Pension Plan (PRPP) framework. Provinces will need to introduce their own enabling legislation in order to make the framework available to employees where the employment relationship is governed by provincial law. Tax rules for PRPPs are being developed by the federal government and are expected to be released in draft for comment in the near future. The tax rules would apply to both federally and provincially regulated PRPPs.
The PRPP framework is being introduced in an effort to address concerns that many Canadians may be undersaving for retirement. The objective is to provide a new, low-cost defined contribution pension option to employers, employees and the self-employed. The intent is to largely harmonize the design of such plans from province to province to further facilitate low administration costs. It is expected that the features of PRPPs will remove barriers that may have prevented some employers from offering pension plans to their employees.
Bill C-25 prescribes that PRPPs must be registered and must be administered by corporations licensed by the Superintendent of Financial Institutions (Canada) to so act. An employer who offers a PRPP is not liable for the acts and omissions of the administrator.
Somewhat controversially, section 25 of Bill C-25 prescribes that an administrator “must provide the pooled registered pension plan to its members at a low cost.” Section 27 of Bill C-25 goes on to provide that an employer must not offer to its federally-regulated employees a plan whose purpose is retirement savings other than a PRPP and certain other prescribed vehicles such as a registered pension plan, a prescribed profit sharing plan, a registered retirement savings plan, a retirement compensation arrangement or a retiring allowance.