On December 4, 2013, Bill No. 39, the Voluntary Retirement Savings Plans Act (the “Act”) was assented to. The Act will come into force as of January 1, 2014.1 It should be noted however that the time limit applicable to the obligations prescribed by the Act shall be December 31, 2016, at the earliest.2
This Act provides for the implementation of a low3 cost plan called the Voluntary Retirement Savings Plan (“VRSP”). The objective of the legislation is to promote retirement savings among Quebecers, as nearly half of Quebec workers do not have access to a pension plan with their employer.
To meet this objective, the Act requires any employer employing at least five “eligible” employees subscribe to a VRSP and automatically enroll those employees in the plan. The implementation of a VRSP for less than five employees is possible, although discretionary.
The Act does not require the employer to contribute to, or pay management fees for, the VRSP. However, the employer may contribute voluntarily and provide for an employer contribution to the plan that it decides to implement.
Significantly, the Act specifically provides that the employer is not liable for the acts and omissions of the VRSP administrator.
VRSPs must be registered with the Régie des rentes du Québec and are to be administered by insurers, investment fund managers or trust companies, who must hold an authorization granted for that purpose by the Autorité des marchés financiers4 (the “Authorized Administrators”). The Commission des normes du travail will be responsible for supervising compliance with the Act in respect of certain employee rights (mandatory subscription, prior notice of subscription and contents thereof, registration) as described below.5
TIMELINES FOR COMING INTO FORCE
In order to provide subject employers with sufficient time to comply with the Act, and although the Act is not explicit on this point, the government indicated in its press release announcing the adoption of the Act that various timelines would apply depending on the number of “eligible” employees of an enterprise:
- December 31, 2016, for employers employing 20 employees or more as at June 30, 2016
- December 31, 2017, for employers employing between 10 and 19 employees as at June 30, 2017
- On a later date to be established by government, for employers employing from five to nine employees. Such date may not be earlier than January 1, 2018
The Act defines an “eligible” employee as follows:
- An employee6 within the meaning of An Act Respecting Labour Standards;
- Of 18 years of age or more;
- Who is credited with at least one year of uninterrupted service;7 and
- Who does not have a registered retirement savings plan or a tax free savings account in the enterprise in which the employee works and for which payroll deductions may be made or a registered pension plan within the meaning of the Income Tax Act to which the employer is party.
MAIN OBLIGATIONS OF THE EMPLOYER
Once the VRSP is in place, an employer will be required to deduct the contributions of members from their wages every pay cycle. Initially, the employer will be required to provide its employees with 30 day prior notice of its intention to subscribe to a VRSP.8 Thereafter, the employer will have 30 days9 to enroll all eligible employees and any other employees (hence, not “eligible”) who so request in the plan.
In the event that an employee refuses to become a member of the VRSP or renounces his or her membership, the employer shall nevertheless be required to offer the employee, by way of timely reminders, the right to resume contributions to the VRSP. Such reminder must be made during the month of December of the year following the date the employee opted out of the VRSP or discontinued contributions to the plan.10
Should the number of employees of the enterprise fall under five, the employer shall nevertheless have to maintain the VRSP in place, unless all eligible employees opt out of, or discontinue contributions to, the VRSP.11
Finally, any employer subject to the provisions of the Act who fails to comply with the obligations provided thereunder will be guilty of an offence and liable for a fine of C$600 to C$1,200.12
MAIN RIGHTS OF AN EMPLOYEE
It should be kept in mind that self employed workers and workers whose employer has not subscribed to a VRSP may also become members to the extent that they are authorized to contribute to a registered retirement savings plan pursuant to tax rules. In order to do so however, such workers will have to enter into a contract directly with an Authorized Administrator. An employee is entitled to refuse to become a member of a VRSP, to discontinue his or her membership at any time and to determine his or her own rate of contribution.
However, in order to minimize the administrative impact for the employer, the legislation provides that any employee who is a member of the plan provided by the employer may not change his or her rate of contribution more than twice per 12 month period without the employer’s authorization.
Furthermore, although it is the employee’s responsibility to determine his or her rate of contribution, it is mandated that a default rate of contribution will be set by regulation if the employee fails to determine his or her rate of contribution within 60 days13 following receipt of notice from the plan’s administrator. This regulation has yet to be adopted, but based on the legislation’s direction, it appears that the rate will be approximately two percent. The regulation will also likely provide for a progressive increase of the employee rate of contribution from year to year.
Finally, even though the employer contributions, to the extent the employer opts to participate, will be locked in, an employee may withdraw his or her own contribution at any time,14 subject to tax rules.
A FEW TAX CONSIDERATIONS
From a tax point of view, VRSPs are similar to traditional RRSPs. They are subject to the maximum deductible in the same manner as an individual’s RRSP. Similarly to a traditional RRSP, contributions to a VRSP may be deducted from income, thus resulting in tax savings, and the amounts accrued will not be taxable until withdrawn.