Background

Bill C-25, an Act relating to Pooled Registered Pension Plans (PRPP) (Bill C25) passed first reading in the federal House of Commons on December 1, 2011.

Bill C-25 is based on the federal government's "Framework for Pooled Registered Pension Plans", released in December 2010 following extensive consultation with the provinces and various industry stakeholders. Its stated purpose was to increase pension coverage among the 60 per cent of Canadian employees and self-employed individuals who do not participate in an employer-registered pension plan. The PRPP design is based on the perceived needs of both groups. The government PRPPs is promoting PRPPs as the most " accessible, straightforward and administratively low-cost retirement option".

Key features

The PRPP retirement savings concept that is similar to a Registered Retirement Savings Plan (RRSP) or registered defined contribution pension plan (DC Plan). Key features include:

  • Employers may, but are not required to provide a PRPP to employees;
  • Employers who provide a PRPP are required to select the Plan Administrator, choose investment options and set employee contribution rates;
  • Employers who provide a PRPP may, but are not required to make contributions to the PRPP;
  • Employers are require to automatically enroll employees in its PRPP (parti0time employees after 24 months continuous service);
  • Within 60 days of enrollment, employees may opt out or remain in the PRPP but are permitted to set contribution level at 0%;
  • Plan Administrators, described as a "certified financial institutions" without further definition, provide and administer PRPPs, rather than employers and act in a fiduciary capacity in relation to PRPP members;
  • Plan Administrator are responsible for most administrative responsibilities undertaken by the employer administering a registered a pension plan; and
  • Third party administration is expected to lower administrative costs and complexity for employers - pooling of different PRPP funds is expected to result in lower investment costs.

Application of Bill C-25

Bill C-25 applies only to federally regulated industries and employees. Before Bill C-25 becomes law, federal regulations must be drafted and enacted. The federal government expects these regulations to be operational at the end of 2012 or in early 2013. In addition, draft tax regulations are needed to provide the necessary tax - deferral for PRPP contributions and earnings.

In terms of how the PRPP concept will be implemented by provincial regulators, Quebec, Manitoba and Saskatchewan already provide PRPP-type retirement savings programs. Although the provincial Finance Ministers initially supported the PRPP concept, it is not universally favoured and it remains to be seen when and whether the remaining provinces will adopt the PRPP concept. In each case, legislative and regulatory reforms to minimum pension benefit standards legislation will be necessary before PRPPs can be offered.

Considerations for employers

Key details still need to be worked out and set forth in regulations before an employer should consider whether the PRPP structure is the best alternative for its employees. In the interim, subject to the outcome of the Finance Ministers' meeting on December 18-19, 2012, employers could use this PRPP development period to test drive the PRPP concept with their employees to determine whether the concept fits its employee and organizational priorities.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2011 McMillan LLP