Archived - Regulatory Impact Analysis Statement
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(This statement is not part of the 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 the accounts of participating employees and self-employed persons (i.e. members) 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. As with existing federally-regulated registered pension plans, the Superintendent of Financial Institutions will 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 Regulations Amending the Pooled Registered Pension Plans Regulations (“the proposed Regulations”) is to address provisions of the Act respecting:
- general requirements with respect to providing information;
- the circumstances in which a member may withdraw funds from their PRPP account;
- the circumstances in which a member may receive variable payments from the funds in their account;
- the transfer options available to members and the conditions on the vehicles to which a member’s funds may be transferred;
- the use of electronic means to satisfy requirements under the Act for communications with plan members; and
- other technical rules related to the implementation of the framework.
The Pooled Registered Pension Plans Regulations (the Regulations) were published in the Canada Gazette, Part II on October 24, 2012 and address provisions of the Act respecting: licensing, permitted investments, investment choices, permitted inducements, low cost, 0% contribution rate and rights to information. The Regulations, combined with the proposed amendments, would address all necessary provisions in order for PRPPs to be available to employees in sectors that are within the legislative authority of the federal government as well as persons employed in the Yukon, Northwest Territories and Nunavut.
Under the Act, notices have to be provided to employees, employers, administrators, and the Superintendant. These include a 30-day advance notice to the employees before an employer enters into a contract with an administrator to provide a PRPP. In addition, it requires notice be provided to the employees when they are automatically enrolled by their employer in a PRPP. Moreover, the Act provides that once employees are enrolled in a PRPP, they have the right to terminate their membership within 60 days of receiving notice that they have been enrolled.
To increase transparency, the proposed amendments would elaborate on the notice requirements provided by the Act. This includes content which is to be contained in the notice provided to employees before an employer enters into a contract with an administrator to offer a PRPP (e.g., expected effective date of the contract and the expected date that the contributions will begin) and the content of the notice to be provided to employees when they are automatically enrolled into a PRPP (e.g., the default contribution rate and a description of investment options that they can choose). The amendments would also provide that, when a member chooses to terminate his or her participation in a PRPP within the 60 days opt-out period, they must notify their employer in writing.
In order to ensure that members’ funds are available for retirement, the Act stipulates that members are not permitted to withdraw the funds in their accounts, or use the funds or any interest, or otherwise have a right to those funds. The Act stipulates an exception to this rule in the event of divorce or separation, or when members elect to transfer their funds or receive variable payments, as outlined below. In addition, the Act provides that the administrator may permit members to withdraw funds from their PRPP in case of disability or a small balance. The proposed amendments would define “disability” as a mental or physical condition that a physician has certified as being likely to shorten considerably the life expectancy of a member. The proposed amendments also would provide that members who have not been Canadian residents for at least two years and are no longer employed by an employer that is participating in a PRPP, would not be subject to the locking-in rules, and would be permitted to withdraw the funds in their account.
Transfer of funds and purchase of life annuities
The Act provides members with the right to transfer funds from their PRPP account in certain circumstances. These circumstances include: when the member is no longer employed by an employer who is participating in a plan (i.e., when a member retires or switches employers); and when the plan is terminated. Individuals who are not employees in a class of employees (i.e., self employed persons) have the right to transfer funds from their PRPP account at any time. The Act also provides the survivor of a member with the right to transfer funds from the former member’s account.
The Act provides the transfer options available to a member or survivor when they have the right to transfer funds from their PRPP account. The transfer options include the following: the transfer of funds to another PRPP or another pension plan if that plan permits; the transfer of funds to a retirement savings plan of the “prescribed kind”; and/or, the use of funds to purchase an immediate or deferred life annuity of the “prescribed kind.” The proposed amendments would provide that the retirement savings plans of a “prescribed kind” would include locked-in registered retirement savings plans, life income funds, restricted life income funds, and restricted locked-in savings plans. The proposed amendments also would provide that, alternatively, funds may be used to purchase an immediate, or a deferred, life annuity.
- The proposed amendments would place restrictions on the transfer of a member’s funds to the prescribed retirement savings plans to ensure that money saved inside a PRPP would be available to provide members, former members, and their survivors with income in retirement. In particular, it would not be possible to withdraw funds from these vehicles in lump-sum prior to retirement, except under exceptional circumstances (i.e., disability or severe financial hardship, small balance, or one-time unlocking privilege from a restricted life income fund for individuals 55 years of age and over). The proposed amendments would provide that funds transferred from a PRPP to a retirement savings plan or used to purchase an annuity could not be transferred or used as a security for any transaction except due to divorce or separation. In order to avoid administrative burden from multiple types of locking-in rules, the proposed conditions on retirement savings plans and annuities would be consistent with the conditions that apply to funds transferred from pension plans subject to the Pension Benefits Standards Act, 1985. In addition, the proposed amendments would provide that, in order to permit a member to purchase an annuity from the funds in their PRPP account, no benefit under an annuity could be surrendered or commuted during the lifetime of the annuitant, or the spouse or common-law partner of the annuitant, except in the case of an unexpired period of a guaranteed annuity where the annuitant is deceased.
In addition to a member’s rights respecting the transfer of funds from their account, the Act provides that administrators may, (but are not obliged to) provide members who reach the “prescribed age,” with the option to receive variable payments. A “variable payment” option offers members payments directly from funds in their plan as opposed to having funds transferred out to a retirement fund (e.g., a life income fund) or be used to purchase an annuity. The proposed amendments set this age at 55. The proposed amendments would provide that members who are at least 55 years of age, and who elect to receive variable payments, may choose the amount they will receive. This amount must be within a minimum determined by the Income Tax Act, and a maximum prescribed by the proposed amendments. The maximum payment for members between 55 and 90 years of age would depend on the member’s balance, age of the individual, and the yield on Government of Canada marketable bonds for the first 15 years in which a member receives variable payments, and 6% thereafter. After 90 years of age, there would be no maximum on the variable payment amount. The payment amount would be calculated using a formula which is consistent with the formula used for calculating payment amounts for life income funds under the Pension Benefits Standards Regulations, 1985. If a member who opts to receive variable payments does not choose a payment amount for a year, the minimum amount, as determined under the Income Tax Act, would apply. Administrators that offer variable payments must notify members of their right to receive variable payments between 6 to 18 months before they reach 55 years of age.
The Act provides that plan administrators may use electronic means to satisfy requirements under the Act for communications with plan members subject to the individual plan member’s consent. The proposed amendments would provide that the plan member must consent orally, in writing or electronically (e.g., email, secure website). The proposed amendments would require that prior to a plan member consenting, the administrator must inform the plan member of when the consent takes effect. The proposed amendments would also require that the plan member may revoke their consent at any time, and that the plan member is responsible for informing the administrator of any changes to the designated information system (e.g., online account on a secure network), including any changes made to the contact information. Revocation of consent must be done orally, in writing, or electronically. In addition, the proposed amendments provide that in circumstances where an electronic document is provided on a generally accessible information system (e.g., secure or unsecure network), the member shall be given notice of its availability and location. The proposed amendments would provide that an electronic document is considered to have been provided to a plan member when it enters into, or is made available on, the information system designated by the plan member. If the administrator has reason to believe that addressee plan member has not received an electronic document (e.g., failure of email delivery notification), the administrator must mail the plan member a paper copy of the document.
Termination and winding-up
The Act provides details on the termination and winding-up of a PRPP. Specifically, the Act provides that, in the event of termination and wind-up, a termination report is required to ensure that OSFI has the necessary information to act in its role as the primary regulator of federally-regulated private pension plans. The proposed amendments would provide that the termination report must be prepared by an actuary, accountant or other professional advisor.
Other technical rules related to the implementation of the framework
The proposed amendments would include the process for the provision of notices of objections and appeals in the event the Superintendent of Financial Institutions elects to revoke the registration and cancel the certificate of registration of a plan. The amendments would provide that, in the event of a notice of objection, the administrator must send two signed copies to the Superintendent of Financial Institutions of the notice of objection, by registered mail. In addition, the amendments would require that, in the event of a notice of appeal, the notice of appeal shall be in the form referred to in section 337 of the Federal Court Rules, e.g., include the name of the court to which the appeal is taken, the name of the parties, etc. In addition, the proposed amendments would provide that the employer must remit employee contributions to the administrator at least monthly, and the employer must remit its own contributions no later than 30 days after which the amount is required to be paid under the PRPP.
The proposed amendments have benefitted from review and collaborative discussions with provincial and 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 consultations on the introduction of the PRPP framework, as well as written comments and dialogue throughout the development of the proposed amendments. 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.
The ‘One-for-One’ Rule does not apply to the proposed amendments, as entry into the framework is voluntary.
Small business lens
The small business lens does not apply to the proposed Regulations, as employers’ participation in PRPPs is voluntary.
The proposed amendments are required to prescribe details for the application of various provisions of the Act necessary for the implementation and administration of PRPPs. In order to facilitate transparency and comparability across PRPPs, the proposed amendments apply current industry standards for disclosure of PRPP information to members. To ensure that members’ funds are available for retirement, the Act and proposed amendments would require that members’ funds are locked-in until retirement except under very limited circumstances. Similar to restrictions placed on life income funds under the Pension Benefits Standards Act, 1985, the proposed amendments place restrictions on the amount an individual can receive from their account in the form of variable payments to ensure that funds are available throughout retirement. To facilitate the exchange of information between administrators and members, the proposed amendments permit electronic communications as long as members agree to it. For purposes of providing clarity and transparency in the administration of PRPPs, the proposed amendments provide details on the form and content of notices that must be provided by administrators in certain circumstances under the Act.
Implementation, enforcement and service standards
The proposed amendments would 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 licences 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 agreements 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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