Pooled Registered Pension Plans (a continuing story)
As reported in a previous edition of pensions@gowlings:
- in November 2011, the federal government released draft legislation (Bill C-25) to implement the federal portion of the Pooled Registered Pension Plan (“PRPP”) framework; and
- in December 2011, the federal government released for consultation a package of draft legislative changes to the Income Tax Act and the Income Tax Regulations to accommodate PRRPs.
Québec and Ontario have recently made formal announcements with respect to PRPPs.
In its March 27, 2012 budget, Ontario indicated that while PRPPs are intended to provide a new type of simple, low-cost savings vehicle that is professionally managed and portable, Ontario has a number of concerns with the federal model as proposed in Bill C-25. These concerns include:
- whether PRPPs will simply replace one form of retirement arrangement with another, rather than expanding retirement income savings and coverage
- whether the PRPP’s fiduciary framework adequately protects plan members
- the extent to which PRPPs will be able to achieve the stated “low cost” objective
- the need to keep the cost of regulation reasonable, particularly as regards licensing requirements across all Canadian jurisdictions.
Ontario indicated that it “will work collaboratively with other provinces and the federal government to develop this model”, but that Ontario believes that the “implementation of pension innovation should be tied to CPP enhancement.”
The Ontario budget throws a curve-ball into the roll-out of the PRPP framework across Canada, at least in its present form.
In its March 20, 2012 budget, Québec announced its plans for a “voluntary retirement savings plan”, or VRSP. The VRSP is Québec’s name for a PRPP. Greater detail concerning the Québec proposals will be available when the government introduces draft legislation in the Spring. The target implementation date for VRSPs is January 1, 2013.
From an employer’s perspective, the biggest difference between the VRSP proposals and the federal PRPP proposals is that Québec intends to make the VRSP mandatory for employers who have 5 or more employees with at least one year of continuous service, where the employer does not offer “all of their employees the possibility of contributing to a retirement savings plan through payroll deductions”. Based on the announcement, it would appear that the obligation to offer a VRSP may therefore fall upon employers who provide non-contributory retirement savings plans. Employers will not be required to make contributions to a VRSP, and will have until January 1, 2015 to enrol in a VRSP. The body overseeing employer compliance with the law will be the Commission des norms du travail.
Québec has indicated that eligible administrators for a VRSP will include financial institutions and investment fund managers who hold a permit issued by the Autorité des marchés financiers.
From an administrator’s perspective, the biggest issue of concern likely will arise from the statements made in the Budget materials with respect to costs. The Québec government has indicated that the administrator ”will have to show the Régie des rentes du Québec that the management fees are comparable to those of institutional pension plans of similar size” and that this will have to be done “on a regular basis”. Given that many of the larger institutional pension plans provide most of their services “in house”, this has the potential to materially impact the industry. Also of note, the Budget materials indicate that investment options under a VRSP will be limited to a life cycle default option plus a maximum of 5 other investment options.
Other Pension Issues Addressed in Ontario Budget
In addition to PRPPs, the Ontario government addressed a number of other issues in its March 27, 2012 budget:
Jointly Sponsored Pension Plans (JSPPs) – The government wants to improve funding of JSPPs without adding to employer or taxpayer expense, beyond what has already been agreed to. The government also wants all JSPPs to move to 50/50 funding between employers and employees. Legislation will be proposed to meet these objectives and may involve reduction of future benefits or increased employee contributions.
Single-Employer Public Sector Pension Plans (SEPPs) – The government will consider a variety of tools to improve the sustainability of SEPPs including 50/50 cost sharing, temporary solvency relief, and conversion of SEPPs to JSPPs.
Improving Efficiencies in Pension Fund Management – The government will introduce a legislative framework in the fall of 2012 to facilitate the pooling of public sector pension fund assets. This would be achieved either through a new investment management entity or by building on existing large public sector pension plans. The government will appoint an adviser to lead the implementation process.
CPP Enhancement - The government reiterated its support for a “modest, phased-in and fully funded enhancement” to the Canada Pension Plan as part of an overall approach to improving the retirement savings system.
Ongoing Pension Reform – The government confirmed that regulations are being drafted that will implement many of the reforms introduced in the two pension reform packages passed by the legislature in 2010. The government intends to introduce regulations dealing with a variety of issues, including pension surplus rules, asset transfers, contribution holidays and accelerated funding of benefit improvements. The following provisions will be proclaimed in force on July 1, 2012:
- prohibition against future partial wind ups
- immediate vesting of pension benefits
- multi-employer pension plans and JSPPs can elect not to provide grow-in benefits
- grow-in benefits available to all eligible members terminated other than for cause.
Financial Hardship Unlocking – The financial hardship unlocking program will be restructured so that consent of the regulator will no longer be required.
Solvency Funding Relief – The solvency funding relief introduced in 2009 for sponsors of private-sector defined benefit pension plans will be extended. Also, regulations will be put in place in the spring of 2012 to permit employers to use irrevocable letters of credit to cover up to 15 per cent of a plan’s solvency liabilities.