Canada: Pensions @ Gowlings: August 24, 2012 - Volume 8, Number 4

Last Updated: August 29 2012
Edited by Daniel R. Hayhurst

Pooled Registered Pension Plan Regulations

As reported in previous editions of Pensions@Gowlings the federal government introduced legislation in late 2011 to implement the federal portion of the Pooled Registered Pension Plan ("PRPP") framework.  The federal government continued that process on August 10, 2012 when it announced the August 11, 2012 pre-publication of proposed PRPP regulations (the "PRPP Regulations") in the Canada Gazette for a 30 day public comment period, prior to final consideration by the Government.  

The PRPP Regulations address provisions of the Pooled Registered Pension Plans Act including:

  • Licensing conditions for PRPP administrators

Licensing applications must include a five year business plan that includes reasons why the applicant believes its PRPPs will be sustainable and a description of how the applicant intends to meet the low cost requirement.

  • Management and investment of member accounts

The rules related to permitted investments are similar to those under Schedule III to the Pension Benefits Standards Regulations, 1985 ("Schedule III"):

10% limit - imposed at the level of a member's account, on investments in (or loans to) any one person, associated persons or affiliated corporations.  There are some exceptions, including segregated, mutual or pooled funds that themselves meet the investment restrictions under the PRPP Regulations. 

30% limit - imposed at the level of a PRPP, on investing in securities of a corporation to which are attached votes that may be cast to elect directors of the corporation.   There is an exception to this rule for investments in real estate, resource or investment corporations that comply with the rules applicable to such corporations under Schedule III.

Related Party – prohibition on direct or indirect loans to, investments in or transactions with a "related party" as defined in the PRPP Regulations.   There are exceptions that permit a PRPP administrator to engage the services of a related party for the operation or administration of the PRPP and invest in securities of a related party (e.g. through a fund that replicates the composition of a widely recognized index of a broad class of securities traded at a marketplace).

  • Investment options

The rules related to investment choices require that a PRPP have a default option which applies if a member does not make an investment choice within 60 days of receiving a notice of plan membership. A default option must be either a balanced fund or "a portfolio of investments that takes into account a member's age".  A PRPP administrator must not offer more than 6 investment options (including a default option).  

  • Criteria for assessing the low-cost criteria for PRPPs

The criteria for determining whether a PRPP is being offered to members at low cost are:

(a) that costs are "at or below those incurred by members of defined contribution plans that provide investment options to groups of 500 or more members"; and

(b) the costs are the same for all members of the PRPP.

  • Conditions under which a PRPP member can set contribution rate to 0%

A member may elect a contribution rate of 0% if 12 months have elapsed since the member's contributions to the PRPP began.  A member may elect a 0% rate for a period of 3 to 60 months and there is no limit on the number of times the rate may be set at 0%.

  • Information to be disclosed to employers, plan members and the regulator

The PRPP Regulations prescribe information to which participating members and employers are entitled with respect to a PRPP.  Such information includes a description of each investment option including its name, type of investment, investment objective, asset allocation, top 10 holdings by market value, costs, the degree of risk associated with the investment option and its performance history.

 A second package of regulations is to be published "at the earliest opportunity" to address the transfer of funds from a member's account, the manner and frequency of remittances, the form and content of notices, locking-in rules, variable payments, electronic communications, and other technical rules related to the implementation of the framework.

CAPSA Defined Contribution Pension Plans Guideline

On July 13, 2012 the Canadian Association of Pension Supervisory Authorities (CAPSA) published a draft Defined Contribution Pension Plans Guideline for review and comment. CAPSA states that the publication is part of its review of the regulation of defined contribution (DC) pension plans which is intended to identify areas where clearer distinctions between DC and defined benefit plans may be appropriate, and to consider alternative approaches to regulating DC plans based on such distinctions. The draft guideline also is intended to supplement existing CAPSA guidelines related to DC pension plans. The comment period expires on November 1, 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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