Archived - Regulatory Impact Analysis Statement
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Pooled Registered Pension Plans Regulations
Issue and objectives
In December 2010, federal, provincial and territorial Finance Ministers agreed to move forward to introduce Pooled Registered Pension Plans (PRPPs) as an effective and appropriate way to help bridge existing gaps in the retirement income system.
The Pooled Registered Pension Plans Act (“the Act”), implements the federal portion of the framework for the establishment and administration of PRPPs. PRPPs will be professionally administered defined contribution pension plans targeted to employees and self-employed persons who do not have access to a workplace pension plan. In 2010, more than 5 million Canadians worked for small businesses and more than 2.5 million Canadians were self-employed. PRPPs would pool the funds in participating employees’ and self-employed persons’ (i.e. members’) accounts to achieve low costs in relation to investment management and plan administration. PRPPs are intended to have design features which will remove traditional barriers that might have kept small- and medium sized businesses from offering workplace pension plans to their employees in the past. In particular, the fiduciary obligations related to the management of the plan on behalf of plan members would be shifted from the employer to licensed administrators. In addition, responsibilities related to the professional administration of the plan would be borne by the licensed administrator.
The Act applies to PRPPs within the legislative authority of the federal government, such as PRPPs offered to employees in the telecommunications, banking and inter-provincial transportation sectors. The Act also applies to persons employed in the Yukon, the Northwest Territories and Nunavut, including the self-employed. Similar to existing federally-regulated registered pension plans, the Superintendent of Financial Institutions would be responsible for the supervision of federally-regulated PRPPs. In order for PRPPs to be available to all employers, employees and the self-employed across Canada, provincial enabling legislation must also be implemented.
The Act provides regulation making authority to the Governor in Council for PRPPs within federal jurisdiction. Regulations are required to prescribe details for the application of various provisions of the Act necessary for the implementation and administration of PRPPs.
The objective of the proposed “Pooled Registered Pension Plans Regulations (“the proposed Regulations”) are to address provisions of the Act respecting:
- the conditions that a corporation must meet in order to be eligible for a license authorizing it to be a PRPP administrator;
- permitted investments made by administrators with a member’s funds as well as the way in which funds in a member’s account must be held;
- the process by which an administrator offers a member investment options and how a member makes a choice, and details with respect to the investment options;
- details on inducements that will be permitted under the regulations;
- conditions for determining whether a PRPP is being provided to members at low cost, as required by the Act;
- conditions under which a PRPP member is allowed to set his or her contribution rate to 0%; and
- information that plan administrators must disclose to plan members, employers and to the Superintendent of Financial Institutions.
Further regulations will follow addressing 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.
Description and rationale
The Act provides that the Superintendent of Financial Institutions may issue a license to any Canadian corporation that intends to administer a PRPP and meets the conditions prescribed in the proposed Regulations when applying to be an administrator. The proposed Regulations would require the corporation to submit a five-year business plan, demonstrate that it has the financial resources and operational capacity required to administer a PRPP, demonstrate that the officers and directors are of good character, and provide any other information required by the Superintendent of Financial Institutions to assess against the criteria.
The Superintendent of Financial Institutions would levy cost-recovery fees on administrators for the licensing and ongoing supervision of PRPPs. The authority for the Superintendent of Financial Institutions to recover costs is provided for through the Office of the Superintendent of Financial Institutions Act.
The proposed Regulations would include investment rules that provide minimum safeguards to protect plan members’ interests, as well as providing administrators with the flexibility to determine how they could best fulfill their duty under the Act to prudently invest the funds in members’ accounts. The proposed Regulations would provide a quantitative limit on holdings to limit concentration risk (i.e. a maximum of 10 per cent of an individual member’s assets can be invested in any one entity or associated entities); provide a quantitative limit on control of corporations (i.e. a maximum of 30 per cent on voting rights to elect directors); and, limit administrators’ investments in related parties. The proposed Regulations would also require that funds in members’ accounts be held in a name that clearly indicates that the investments are held in trust for the plan; or in the name of a financial institution in accordance with a custodial agreement entered into on behalf of the plan (i.e. an agreement providing that members’ funds are invested on behalf of members and the ownership can be traced to members at any time).
The Act requires that administrators must provide members with a default investment option and may offer plan members investment choices. The proposed Regulations would require that administrators may provide plan members with a maximum of six investment options (including the default option). The limit of six investment options is intended to provide enough flexibility to plan administrators to offer options of varying degrees of risk and expected return. The proposed Regulations would provide that if an administrator permits investment choice, the options must be the same for all members of a plan, and a member would have sixty days to communicate his/her choice; otherwise the default option would automatically apply. The proposed Regulations would also provide that an administrator would have to offer the same default option for all of the plans that it administers. The default option would be required to be a portfolio of investments that takes into account a member’s age (for example, a life-cycle fund where age is used as the primary factor to determine the appropriate asset mix for a member) or is a balanced fund (for example, a mix of investments that takes into account the characteristics of the group of employees as a whole).
Subject to the proposed Regulations, the Act prohibits PRPP administrators from offering, and an employer from accepting, inducements to enter into a contract to establish a PRPP. The proposed Regulations would permit the administrator to offer and the employer to accept certain inducements. In particular, the administrator would be permitted to offer a product or service on more favourable terms if it is for the equal benefit of the employees of that employer that are eligible to be members of the PRPP. In order to promote competition, the proposed Regulations would also permit the administrator to provide a payment to the employer that is no greater than the employer’s costs associated with the transfer of assets from one PRPP to another.
The Act requires that PRPPs must be provided to members at a low cost. The proposed Regulations would require that costs are to be at or below those charged to members of defined contribution plans that provide investment options to groups of 500 or more members. The costs would include all fees, levies or other charges that reduce a member’s return on investment, other than those that are triggered by the actions of the member. The costs of a PRPP provided by the administrator to self-employed members would be required to be the same as those provided to employees of an employer participating in a PRPP.
0% contribution rate
The Act provides that, subject to the regulations, a member may, after notifying the administrator, set his or her contribution rate to 0%. The proposed Regulations would provide that members could set their contribution rate to 0% at any time after twelve months from when they begin to contribute to their PRPP account. The proposed Regulations would also provide that the contribution rate could be set to 0% for between three months and five years. In addition, there would be no limit on the number of times that the contribution rate may be set to 0%. The administrator would be responsible for ensuring that the member’s contributions are set to 0%, and must provide the plan member with written confirmation of when the contribution rate will be set to 0% and when contributions will resume. In addition, at least 90 days prior to the day on which contributions are to resume, the administrator must provide the plan member with written notice of the day of resumption and the contribution rate on resumption.
Rights to information
The Act requires that PRPP members and the Superintendent of Financial Institutions must be provided with information as prescribed. In order to facilitate transparency and comparability across PRPPs, the proposed disclosure requirements would apply industry standards relating to the disclosure of mutual funds and capital accumulation plans, as appropriate. Administrators would be required to provide information on a website and on the request of a member or employer, such as, a description of each investment option, a statement of transfer options available to plan members, and a description of any fees, charges or other levies that will be triggered by the actions of the member. The proposed Regulations would also require that members be provided with a written statement annually that would include information such as the investment option in which the member is invested in, account balance information, a summary of transactions, and specific information related to the member’s investment option. The proposed Regulations would also require administrators to provide an information return to the Superintendent of Financial Institutions on an annual basis or at any other intervals that the Superintendent directs. The information return would include information such as the options offered to members, a breakdown of costs charged to members for each investment option and any fees triggered by the actions of members, total assets under the plan and the default contribution rate set by the administrator.
The proposed Regulations have benefitted from review and collaborative discussion with provincial-territorial officials. Associations representing small businesses, employees, pension funds, financial institutions and other stakeholders have also provided their views for consideration throughout the development of the PRPP framework and the proposed Regulations.
Stakeholders provided comments through public consultation with the introduction of the PRPP framework, as well as written comments and dialogue throughout the development of the proposed Regulations. The Minister of State (Finance) also met with small business owners and Chambers of Commerce across the country to answer questions and solicit feedback on PRPPs. Overall, reaction to PRPPs by various industry stakeholders and employers has been positive.
Implementation, enforcement and service standards
The proposed Regulations will apply to federally-regulated PRPPs. The Superintendent of Financial Institutions, under the direction of the Minister of Finance, is responsible for the control and supervision of the administration of the Act. The Superintendent of Financial Institutions will be responsible for issuing licenses to administrators, and has the authority to compel information, issue a direction of compliance, and terminate a PRPP as provided for in the Act. Through bilateral or multilateral agreement(s) with provinces that enact similar legislation, the federal government could authorize the Superintendent of Financial Institutions to exercise any powers of a supervisory authority of a designated province, and authorize a supervisory authority of a designated province to exercise any of the Superintendent’s powers under the Act.
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