On May 4, 2016, the Nova Scotia Pooled Registered Pension Plans Act ("PRPP Act") was proclaimed in force, and finalized Pooled Registered Pension Plan Regulations were released. While there were no major changes from the previously released draft regulations, the proposed rules were clarified with respect to licensed administrators, payments and options available after separation of spouses and required terms for life annuity contracts purchased with PRPP funds. As Pooled Registered Pension Plans (“PRPPs”) will soon be available to Nova Scotia employers, we count down some of the key milestones and features.
What is a PRPP?
10. PRPPs are defined contribution plans – Employers and employees get to decide how much to contribute with no specified promise or goal of a certain monthly benefit at retirement.
9. Pooling to reduce costs –The legislation allows multiple employers to "pool" their employees’ contributions under a single plan, which makes administration feasible for smaller employers while helping to keep costs low. Licensed administrators must provide the plan for “low cost” (i.e. at or below those for defined contribution plans with 500 or more members).
8. Participation is voluntary – Employers are not required to set up a PRPP. An employer may do so by entering into a contract with an administrator that sets the amounts and frequency of employer and employee contributions. Employer contributions are voluntary and may be set at zero. Employees may also set their contribution rate to zero once 12 months have elapsed after starting their contributions to the PRPP. Employees also have the one-time option to withdraw entirely by notifying the employer within 60 days of being told of their membership in the plan.
7. Plans are set up by licensed third party administrators – Administrative duties are carried out by licensed third party administrators (so far, insurance companies) rather than employers. The licensing and registration requirements are: (a) corporations must be federally licensed administrators; and (b) PRPPs must be registered federally.
PRPPs across Canada
6. Nova Scotia follows the Federal model – The model was first developed by the Federal government under the Federal Pooled Registered Pension Plans Act (“Federal Act”). The Nova Scotia PRPP Act originally passed in October, 2014 adopted the Federal framework, and draft regulations were released in September, 2015. As a result, the Federal Act will apply in Nova Scotia, subject to minor exceptions in matters such as the definition of spouse and transfer options. Other provinces such as British Columbia, Saskatchewan and Ontario have taken a similar approach by adopting the Federal Act.
5. Not all Provinces have followed suit – Nova Scotia is the first and so far the only Atlantic Canadian province to adopt PRPPs. Other provinces have adopted them but with different approaches. For example, enrollment in Quebec VRSPs (that province’s PRPP’s) is mandatory for certain employers. Alberta generally followed the Federal model but with its own legislation rather than adopting the Federal Act.
4. Multilateral agreement – An agreement is being finalized to streamline administration and supervision of PRPPs, particularly those that operate in multiple jurisdictions. Any province that has passed PRPP legislation, including Nova Scotia, may join the agreement. The agreement would mean that federally licensed administrators are exempt from having to be licensed in the provinces that are part of the agreement. All licensing would be handled by the Federal Office of the Superintendent of Financial Institutions (OSFI).
PRPPs in Nova Scotia
3. Portability – As previously reported, one of the differences in Nova Scotia is that funds in PRPPs can be transferred to retirement savings arrangements that are prescribed under the Pension Benefits Act. Funds in a PRPP may be transferred to a locked-in vehicle, such as a locked-in retirement account.
2. Spouses – Also, the PRPP Act follows the definition of spouse under the Nova Scotia Pension Benefits Act, which allows a member to have more than one spouse. The regulations require transfer of a spouse’s “proportionate share” of funds out of a PRPP account upon separation. They may be transferred to the spouse’s PRPP account, pension plan or prescribed retirement savings arrangement, or to purchase a life annuity.
1. PRPPs coming soon – After the multilateral agreement is finalized and PRPPs and administrators will be licensed in Nova Scotia, businesses with employees in the province will be able to offer this new retirement savings option. The Province expects this to be completed in the Spring. Assuming Nova Scotia joins the agreement, the first step to making PRPPs available will be administrators obtaining a federal license and registration. A list of federally registered plans and licensed administrators is online. Those companies will soon begin offering PRPPs in Nova Scotia.
Employers can consider whether they wish to offer a PRPP to their employees. In doing so, employers will need to decide:
- Which employees will be eligible;
- Amount and frequency of contributions;
- Which administrator to use.
Employers should keep in mind that PRPPs are not risk-free. Even with a third party administrator, employers have important responsibilities in PRPPs including working with and monitoring the administrator, selection of investment options and communications with employees. Those responsibilities do not mean that employers should avoid PRPPs but should be considered when employers look at this retirement savings option. For some more information on issues to be aware of, see the PRPP Checklist.