In November 2011, the federal government introduced Bill C-25, the Pooled Registered Pension Plans Act (the “PRPP Act”). It was passed by the House of Commons on June 12, 2012 and given Royal Assent on June 28, 2012.
The government’s intent in introducing PRPPs is to improve the retirement savings system by creating a framework for the establishment and administration of an accessible and low-cost retirement savings option, particularly for the self-employed and employees of small and medium sized businesses who currently do not participate in a registered pension plan.
Sole practitioners will be able to take advantage of PRPPs and small-office practitioners will be able to offer PRPPs to their staff and associates. Members of the PRPPs will have access to low fee investments. In addition, small-office practitioners, who sponsor PRPPs for their employees, will not have the fiduciary liability that pension plan sponsors normally have. All of these elements are meant to encourage more people to save for retirement through PRPPs.
However, the regulations to the PRPP Act are still being drafted, and much of the mechanics of this proposal will be clarified once the regulations become available. These plans (which will be similar to a Group RRSP) will be administered (subject to conditions to be prescribed by regulations) by corporations (most likely insurers, etc.), who must hold a licence issued by OSFI (the Office of the Superintendent of Financial Institutions). The administrator will also need to register the plans with the Superintendent. The PRPP Act requires these plans to be offered to its members at a “low cost”, a term that will be further defined in the regulations.
On June 12, 2012, the Quebec National Assembly introduced Bill 80, The Voluntary Retirement Savings Plans Act, which introduces a regime similar in principle to the federal PRPPs. The Quebec VRSPs would be available to all individuals, including self-employed workers and workers whose employer has not subscribed to such a plan. In addition, employers with five or more employees will be required to register their employees in a VRSP, provided they do not already have a group-RRSP or a registered pension plan and subject to certain employment conditions. Employees will, however, be able to opt-out. These new plans will be registered with the RĂ©gie des rentes (Quebec’s pension regulator), and administered by insurers, trust companies or investment fund managers who will need to hold a special licence issued by the AutoritĂ© des marches financiers (Quebec’s securities regulator). The proposed Quebec legislation was expected to come into force on January 1, 2013, subject to certain transitional provisions, but is now in limbo since the recent provincial election.
It will be interesting to see if other provinces introduce similar schemes.
Of note: In 2011 and 2012, the CBA National Pensions and Benefits Law Section has prepared various submissions to the Parliamentary Committees studying Bill C-25 and its regulations in order to express its concerns with the concept of PRPPs and to make recommendations regarding the proposed PRPP Act and its Regulations. The CBA Section has also prepared submissions regarding the proposed amendments to the Income Tax Act and its regulations that are required to accommodate the PRPPs. It also prepared a submission to the Quebec government regarding Bill 80. (See the submissions on the National Pensions and Benefits Law Section - Submissions webpage.)
Mitch Frazer is a Partner and chair of the Pension and Employment Group at Torys LLP in Toronto and current Chair of the CBA National Pensions and Benefits Law Section.
Tina Hobday is a Partner at Langlois Kronström Desjardins LLP in Montreal and current Co-Chair of the CBA National Pensions and Benefits Law Section’s Advocacy and Government Relations Committee.