Following up on the consultation paper it released last December, the federal government introduced Bill C-25: the Pooled Registered Pension Plans Act (Bill C-25) yesterday. Bill C-25 sets out a legal framework for the establishment and administration of pooled registered pension plans (PRPP).
What is a PRPP?
A PRPP is a new type of pension plan, which is being proposed by the federal government to address the current “gap” in Canada’s retirement system. The stated intent of the PRPP is take advantage of economies of scale by providing employers, employees and the self-employed with the option of participating in a “large-scale and low-cost” defined contribution pension plan, and thereby enabling Canadians to save more for their retirement.
Under Bill C-25 employers would not be responsible for the administration of a PRPP. Rather, PRPPs would be administered by an “administrator”, being a holder of a licence issued under Bill C-25 or an entity so designated by the Superintendent of Financial Institutions. While an employer must enter into a contract with an administrator to provide a PRPP to a class or classes of its employees, Bill C-25 clearly states that employers are not liable for the acts or omissions of the administrator.
Who Can Participate in a PRPP?
While the PRPP was originally touted as a cross-Canada solution, the federal government indicated in its press release that “provincial enabling legislation” and changes to tax legislation would still need to be introduced.
Further, Bill C-25 makes it clear that (subject to limited exceptions) it only applies to members of PRPPs who work for federal undertakings or businesses in “included employment”. The Bill does, however, allow the federal government to broaden the scope of PRPPs to other Canadian jurisdictions by entering into bilateral and multilateral agreements with the provinces. Such agreements are stated to have the force of law and to prevail over any provision of Bill C-25 and its regulations to the extent of any inconsistency or conflict.
What is the Process for Establishing/Administering a PRPP?
Bill C-25 is a “stand alone” Act, in that it sets out a detailed regime specifically for the establishment and administration of PRPPs. A number of the provisions in Bill C-25 address issues that are also found in other pension standards legislation, including:
- Registration/Plan Amendments: Similar to other federal pension plans, a PRPP must be registered and plan amendments must be filed with the Superintendent, however, the Bill makes it clear that PRPPs are not registered pension plans under the federal Pension Benefits Standards Act (PBSA) or RRSPs under the Income Tax Act (the ITA).
- Minimum Standards: There are minimum standards provisions, including provisions relating to membership, contributions, variable payments, standard of care, locking-in, pre-retirement death benefits, rights to information, termination/wind-up and marriage breakdown.
- Member Investments: The Bill contains a limited form of “safe harbour” provision, which is similar to the one found for registered defined contribution pension plans in the PBSA. It specifies that if members are permitted to make investment choices, they must be offered “investment options of varying degrees of risk and expected return that would allow a reasonable and prudent person to create a portfolio of investments that is appropriate for retirement savings” as well as a default investment option should they fail to make an election. If an administrator meets these requirements (and any further requirements to be prescribed) it will be “deemed to comply”.
- Contributions: Employers need not contribute at all to a PRPP and members may, after notifying the administrator, set their contribution rates at 0%.
- Enforcement and Offences: Directions of the Superintendent against the administrator, employer or other persons may be enforced through a process as if they were an order of the Federal Court. Contravention of Bill C-25 may lead to prosecution and penalties, however, there is an express due diligence defence