Following up on the consultation paper it released last December, the federal government introduced Bill C-25: the Pooled Registered Pension Plans Act (Bill C-25) yesterday. Bill C-25 sets out a legal framework for the establishment and administration of pooled registered pension plans (PRPP).
What is a PRPP?
A PRPP is a new type of pension plan, which is being proposed by the federal government to address the current “gap” in Canada’s retirement system. The stated intent of the PRPP is take advantage of economies of scale by providing employers, employees and the self-employed with the option of participating in a “large-scale and low-cost” defined contribution pension plan, and thereby enabling Canadians to save more for their retirement.
Under Bill C-25 employers would not be responsible for the administration of a PRPP. Rather, PRPPs would be administered by an “administrator”, being a holder of a licence issued under Bill C-25 or an entity so designated by the Superintendent of Financial Institutions. While an employer must enter into a contract with an administrator to provide a PRPP to a class or classes of its employees, Bill C-25 clearly states that employers are not liable for the acts or omissions of the administrator.
Who Can Participate in a PRPP?
While the PRPP was originally touted as a cross-Canada solution, the federal government indicated in its press release that “provincial enabling legislation” and changes to tax legislation would still need to be introduced.
Further, Bill C-25 makes it clear that (subject to limited exceptions) it only applies to members of PRPPs who work for federal undertakings or businesses in “included employment”. The Bill does, however, allow the federal government to broaden the scope of PRPPs to other Canadian jurisdictions by entering into bilateral and multilateral agreements with the provinces. Such agreements are stated to have the force of law and to prevail over any provision of Bill C-25 and its regulations to the extent of any inconsistency or conflict.
What is the Process for Establishing/Administering a PRPP?
Bill C-25 is a “stand alone” Act, in that it sets out a detailed regime specifically for the establishment and administration of PRPPs. A number of the provisions in Bill C-25 address issues that are also found in other pension standards legislation, including:
- Registration/Plan Amendments: Similar to other federal pension plans, a PRPP must be registered and plan amendments must be filed with the Superintendent, however, the Bill makes it clear that PRPPs are not registered pension plans under the federal Pension Benefits Standards Act (PBSA) or RRSPs under the Income Tax Act (the ITA).
- Minimum Standards: There are minimum standards provisions, including provisions relating to membership, contributions, variable payments, standard of care, locking-in, pre-retirement death benefits, rights to information, termination/wind-up and marriage breakdown.
- Member Investments: The Bill contains a limited form of “safe harbour” provision, which is similar to the one found for registered defined contribution pension plans in the PBSA. It specifies that if members are permitted to make investment choices, they must be offered “investment options of varying degrees of risk and expected return that would allow a reasonable and prudent person to create a portfolio of investments that is appropriate for retirement savings” as well as a default investment option should they fail to make an election. If an administrator meets these requirements (and any further requirements to be prescribed) it will be “deemed to comply”.
- Contributions: Employers need not contribute at all to a PRPP and members may, after notifying the administrator, set their contribution rates at 0%.
- Enforcement and Offences: Directions of the Superintendent against the administrator, employer or other persons may be enforced through a process as if they were an order of the Federal Court. Contravention of Bill C-25 may lead to prosecution and penalties, however, there is an express due diligence defence.
Other provisions in Bill C-25 address issues specific to PRPPs, for example:
- Administrator/Employer Relationship: As noted above, there is a clear distinction between the plan administrator and the employer. In addition, Bill C-25 sets out a number of requirements regarding the contract to be entered into by the employer and the administrator of the PRPP, including a requirement that the administrator notify the Superintendent should the employer fail to comply with the contract.
- Limitation of Liability: While Bill C-25 expressly states that employers are not liable for the acts and omissions of the plan administrator, it is clear that the employer can be held liable for its own statutory contraventions or breaches of contract. Although Bill C-25 does not expressly impose a standard of care on the employer’s conduct, many employers were looking for express acknowledgement that they are not in any way acting as fiduciaries in connection with the establishment and operation of the PRPP.
- Low Cost Plan: Administrators must provide the PRPP at a “low cost” to members.
- Plan Termination: Only the Superintendent or administrator may terminate a PRPP. The Superintendent may also revoke the registration of a PRPP, where an administrator fails to comply with the Superintendent’s directions.
It is clear that there are still a number of hurdles to overcome before PRPPs become a reality in Canada.
In the meantime it should be remembered that not everyone is pleased with the PRPP model. Supporters praise it as a cheaper, more widely available and effective means for accessing the defined contribution pension system; filling a gap not addressed by RRSPs and “traditional” employer-sponsored retirement savings arrangements. Detractors point to concerns over the actual take up among private sector employers and question whether the “gap” may be more effectively addressed through expansion of the CPP/QPP.
Bill C-25 largely only applies to federal workers, and the provinces would still have to pass their own enabling legislation. Such legislation will be required to deal with a number of important issues, including the extent to which PRPPs will provide for auto-enrolment, subject to opt out. Further, amendments to the ITA would also be required – the federal government has indicated that such amendments are “under development”. In addition, regulations under Bill C-25 must be passed to deal with licensing and a host of other issues.
Assuming that these steps are taken by the federal and provincial governments, it will be interesting to see the level of interest in PRPPs and whether they will in fact become a preferred alternative to today’s capital accumulation plans.