At the end of last year, the Federal Government introduced the
Pooled Registered Pension Plans Act (the "PRPP
Act"), for the establishment and administration of Pooled
Registered Pension Plans (PRPPs) and proposed amendments to the
Income Tax Act to accommodate the creation of PRPPs. The
PRPP Act and the proposed tax amendments are not yet in effect.
The "What" and "Why" of PRPPs
PRPPs are a proposed new voluntary retirement vehicle that will
allow unrelated employers to participate in a plan that pools their
assets and is administered by a third party administrator who
assumes most of the duties of administering the PRPP. The PRPP Act
will apply to federally regulated employers, the self-employed and
employers in the Yukon, the Northwest Territories or Nunavut.
PRPPs are intended to expand the retirement system by providing
employers, employees and the self-employed with the option of
participating in a "large-scale and low-cost" defined
contribution-type pension plan. The attraction from an
employer's standpoint is the ability to provide a benefit to
employees without incurring the cost or risks of administering the
plan. However, the employer may still have risks with these
vehicles, for example, in its selection of the PRPP provider.
Eligible Administrators and Employer Obligations
Eligible administrators of PRPPs are anticipated to be financial
services institutions such as banks and insurance companies,
although this will be clarified in forthcoming regulations.
Administrators will be licensed and regulated by the federal
Superintendent of Financial Institutions, and will be required to
register the terms of each PRPP on offer.
Employer obligations will include selecting a PRPP provider,
pension adjustment and tax reporting, enrolment of employees,
management of opt-out elections and deducting and remitting
employee and employer contributions, if any.
Implication of the Proposed Tax Rules
The draft tax rules are similar to those governing RRSPs, in
that contributions by the employer or the employee to a PRPP will
be allowed up to the employee's RRSP room for that year. Unlike
the rules applying to RRSPs, however, under the proposed rules
employers will be able to contribute directly to a PRPP without
that amount being included in the employee's income and without
generating payroll taxes. Also, employees will be able to draw
annual income directly from the PRPP rather than being required to
roll the money over into a LIF or RRIF. Other salient aspects of
the proposed legislation are the provisions for transfers between
plans (i.e., RRSP to PRPP) and cashing- out of PRPPs.
We will continue to keep you apprised of developments in the
proposed PRPP laws, as well as any new provincial enabling
legislation regarding PRPPs.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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