As anticipated, since the federal Pooled Registered Pension Plans Act came into force December 14, 2012, several provinces have followed suit and tabled legislation to implement the new kind of portable deferred income plan, which is designed to provide retirement income to workers and self-employed persons who do not have access to an employer-sponsored retirement pension plan.
Although the proposed provincial laws are similar in spirit because they are subject to the requirements set out in the federal Act, some provinces like Quebec have added their own distinct requirements.
All these provincial retirement plans provide a simple, effective and low-cost way of improving pension coverage for employees of small and medium-sized businesses and the self-employed.
On May 8, 2013, the Quebec government tabled Bill 39, Voluntary Retirement Savings Plans Act. If the Bill is enacted, the plan will be mandatory for employers with five or more employees with one year of service. Employers will have two years to implement and offer a Voluntary Retirement Savings Plan (VRSP) to their employees. Employers with fewer than five employees have the option of providing a VRSP, but are not required to do so. This means that, effective January 1, 2014, employers with five eligible employees or more who have one year of uninterrupted service with their employer, and do not have a registered retirement savings plan or a tax-free savings account for which payroll deductions could be made, or a registered pension plan, must automatically enrol those employees in a plan. Once enrolled, an employee may opt out in writing from the plan within 60 days of enrolment. Once an employer is required to comply with this obligation, it must continue to offer the VRSP as long as there are employees enrolled in the plan, even if the number of employees drops below the exemption threshold.
On April 18, 2013, the Alberta government tabled legislation to make Pooled Registered Pension Plans available to Albertans. Under Bill 18: Pooled Registered Pension Plans Act, employer enrolment is optional. If an employer offers a PRPP to its workers, the employees will be automatically enrolled but will be able to opt out. Employers that currently offer group RRSPs may switch to a PRPP to reduce administration costs and limit their fiduciary duty. Bill 18 received third reading on May 7, 2013 and is now waiting for royal assent to become law.
On April 8, 2013, the Saskatchewan government introduced legislation to create pooled registered pension plans (PRPPs) as a retirement savings option in the province for those employees who currently do not have access to group pension plans. Under Bill 92, An Act respecting Pooled Registered Pension Plans and making consequential amendments to certain Acts, employer enrolment is optional. However, if an employer offers a PRPP to its workers, the employees will be automatically enrolled but will be able to opt out.
On February 28, 2013, the British Columbia government tabled Bill 16, the Pooled Registered Pension Plans Act, which would have allowed provincially regulated employees and self-employed persons in BC to implement PRPPs. As in Alberta, the Bill would have made employer participation in a PRPP optional, and once an employer provided a PRPP, employees would have been automatically enrolled with the right to opt out. However, this Bill died on the order paper when parliament was prorogued to make way for the May 14, 2013 provincial election.
A private member's Bill (Bill 50, Pooled Registered Pension Plans Act, 2013) was tabled in legislature on April 10, 2013, to require the Ontario Minister of Finance to introduce a Bill to allow for pooled registered pension plans. The Bill received second reading on April 25, 2013, and was sent to committee for review. However, in the meantime, the Ontario government has stated that it will consult with interested parties to determine how PRPPs should be implemented before introducing its own legislation.
The other provinces and territories have not yet made known their intentions regarding the implementation of a PRPP in their jurisdictions.
Another commonality to all these plans is that employers will not be obligated to make matching contributions. Workers that don't have access to a PRPP because their employer has decided not to implement one will be able to deal directly with a PRPP administrator to open an account, similar to opening an RRSP.
Employers must automatically deduct contributions from the employee's salary based on the rates determined by the applicable legislation.
Employers are not liable for investment decisions or results, benefit guarantees or the administrative burden and costs. Responsibility is limited to establishing the plan (in Quebec, if they employ five or more employees), enrolling employees and deducting and remitting contributions.
PRPPs are to be administered by insurers, trust companies or investment fund managers who must hold an authorization granted for that purpose by legislation or regulation. These plan providers will market their plans to employers. These corporations must hold a license from the Superintendent of Pensions and, in the case of Quebec, the Autorité des marchés financiers. The plans must be registered with the Canada Revenue Agency and, in Quebec, with the Régie des rentes du Québec.
In Quebec, la Commission des normes du travail will ensure that all participating employers that are required to offer these plans to their employees do so in a timely manner.
PRPPs will likely be available across the country by 2015. It is important to realize legislation does not establish pooled plans; rather, it provides a legal framework that allows for their creation. It is up to providers to create and market their plans.
Certainly it seems like a great idea to help Canadians participate in a registered pension plan when their employer doesn’t offer one or they are self-employed, and PRPPs should make the process and administration easy. This might just be the type of lazy investing that Canadians need to add some security to their retirement. It will be very interesting to see the uptake of these plans, both by employers (where they are optional) and individuals. Will employees appreciate them? Will they notice?
But I wonder whether these easy and liability-free plans will discourage employers from offering full-fledged RRSPs to their employees, and indeed, whether they might encourage employers that already offer RRSPs to wind them up and replace them with PRPPs. Employees might not be too impressed, but employers are looking at all their cost-cutting options these days.
Self-employed individuals and other workers who are earning enough that they can afford to put something away for the future will find PRPPs more worthwhile than those who live paycheque-to-paycheque, and mandatory enrolment probably won’t do anything to fix that.
What do you think? Will PRPPs help Canadians save for their future? Or will they be a bust?