Archived - Regulatory Impact Analysis Statement
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(This statement is not part of the Regulations.)
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 Pooled Registered Pension Plans Regulations ("the Regulations") is to address provisions of the Act respecting:
- general requirements with respect to providing information;
- the circumstances in which members may withdraw funds from their PRPP account;
- the circumstances in which members 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 first tranche of the Pooled Registered Pension Plans 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 first tranche of the Regulations, combined with the second tranche, 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 Regulations 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 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 Regulations 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 Regulations 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.
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 Regulations provide that the retirement savings plans of a "prescribed kind" include locked-in registered retirement savings plans, life income funds, restricted life income funds, and restricted locked-in savings plans. The Regulations also provide that, alternatively, funds may be used to purchase an immediate, or a deferred, life annuity. The Regulations place restrictions on the transfer of a member's funds to the prescribed retirement savings plans to ensure that money saved inside a PRPP be available to provide members, former members, and their survivors with income in retirement. In particular, it will 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 Regulations 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 conditions on retirement savings plans and annuities are consistent with the conditions that apply to funds transferred from pension plans subject to the Pension Benefits Standards Act, 1985. In addition, the Regulations provide that, in order to permit a member to purchase an annuity from the funds in their PRPP account, no benefit under an annuity 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 Regulations set this age at 55. The Regulations 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 amendments. The maximum payment for members between 55 and 90 years of age depends 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 is 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, applies. 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 Regulations provide that the plan member must consent orally, in writing or electronically (e.g., email, secure website). The Regulations require that prior to a plan member consenting, the administrator must inform the plan member of when the consent takes effect. The Regulations 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 Regulations 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 Regulations 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 Regulations 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 Regulations 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 Regulations 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 Regulations 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 Regulations 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.
Repeal and Reintroduction of the Pooled Registered Pension Plan Regulations
Given the need for a large number of editorial changes to the first tranche of the Regulations published in the Canada Gazette, Part II on October 24, 2012, they have been repealed and reintroduced with the necessary housekeeping edits. A repeal and reintroduction was the most efficient way to address the volume of the changes required. The nature of these change are strictly editorial and non-substantive.
The Regulations 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, the Regulations, and the amendments.
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 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.
As a final phase of consultation, the Regulations were published in the Canada Gazette, Part I, on October 27, 2012, for a 15-day comment period. The Department of Finance received ten written submissions from: the Province of British Columbia, financial institutions, industry associations, professional associations, and consulting firms. These comments were largely technical in nature. Some comments highlighted the potential burden of the requirements outlined in the proposed Regulations to provide paper-based written notices. In response to these comments, a change was made to streamline notice requirements. This was achieved by removing the default requirement for administrators to provide members with a written paper based document outlining the provisions of the plan. Instead, this notice must be provided on a website and, upon request, to plan members in a written paper-based format. Comments from British Columbia suggested that the beneficiary and spouse/common law partner of a plan member be included in the annual statement. Changes were made so that annual statements will now be required to indicate the name of the beneficiary and the name of the spouse/common law partner.
Further technical changes included: eliminating the requirement for contributions to be expressed as a percentage of a member's income annual statements because administrators will not necessarily have up-to-date records of each member's income, extending the breach of contract notice to 60 days, moving certain provisions related to termination or death notices out of the remittances section and under the general requirements section, adding a definition of the term 'actuary', eliminating the requirement to include the expected date that contributions will begin in the notice to employees prior to a employer entering into a PRPP contract as it was determined that a reliable date would not be available before entering the contract and updating the reference to the Canadian Institute of Actuaries Standards of Practice guidance on commuted values of deferred life annuities as the existing reference was out of date.
Lastly, an additional provision to clarify permitted withdrawal exceptions under tax rules has been added. This amendment provides that the locking-in rules will not apply to funds withdrawn from a member's PRPP account where:
- the member has not been resident in Canada for at least two years and is no longer employed by an employer that is participating in a PRPP; or
- a refund of contributions is required for the member to eliminate or reduce a tax (imposed under the Income Tax Act) on overcontributions to PRPPs and registered retirement savings plans, or to avoid the revocation of the plan's registration under the Income Tax Act.
The Income Tax Act states that certain tax-related withdrawals are permitted notwithstanding the PRPP Act, but this locking-in exception is added to the Regulations for greater clarity.
The 'One-for-One' Rule does not apply to the Regulations, as entry into the framework is voluntary.
Small business lens
The small business lens does not apply to the Regulations, as employers' participation in PRPPs is voluntary.
The Regulations 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 Regulations apply current industry standards for disclosure of PRPP information to members. To ensure that members' funds are available for retirement, the Act and Regulations 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 Regulations 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 Regulations permit electronic communications as long as members agree to it. For purposes of providing clarity and transparency in the administration of PRPPs, the Regulations 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 Regulations 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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