Archived - Backgrounder: Key Features of Pooled Registered Pension Plans
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This backgrounder provides a summary of the key features of the federal Pooled Registered Pension Plan (PRPP) framework as set out in the Pooled Registered Pension Plans Act (the Act).
The Act establishes a regulatory framework for PRPPs, which will be a new type of low-cost pension plan accessible to employees and the self-employed.
PRPPs across Canada will improve the range of retirement savings options to Canadians by:
- Providing a new accessible, straightforward and administratively low-cost retirement savings option for employers to offer their employees;
- Allowing individuals who currently may not participate in a pension plan, such as the self-employed and employees of companies that do not offer a pension plan, to make use of this new type of pension plan;
- Enabling more people to benefit from the lower investment management costs that result from membership in a large, pooled pension plan;
- Allowing for accumulated PRPP savings to move with PRPP members from job to job; and,
- Ensuring that funds are invested in the best interest of plan members.
This Act applies to employees of an employer that participates in a PRPP within the legislative authority of the federal government, including interprovincial transportation, banking and telecommunication. It also applies to persons employed in the Yukon, the Northwest Territories or Nunavut, including the self-employed.
A high level of legislative and regulatory harmonization across the federal and provincial governments will be instrumental in increasing the scale of these plans, enhancing coverage across Canada and achieving low costs. The Government will work closely with provinces as they move forward in implementing PRPPs in their respective jurisdictions.
Administration of PRPPs
Eligible administrators would include corporations that can assume a fiduciary duty, such as regulated financial institutions and public pension plans. In order to offer a PRPP, administrators would need to obtain a license from the Superintendent of Financial Institutions.
Duty of the Administrator
In order to protect the interests of plan members, the administrator will have a fiduciary duty to plan members. The Act requires that the administrator of a PRPP administer the plan and its assets as a trustee for the members.
PRPPs will be administered by third-party administrators that will take on most of the responsibilities that employers bear in existing pension plans. Administrators will generally be responsible for performing the management and operational functions of a PRPP, such as receiving contributions from members and employers and investing the assets of the plan.
Administrators will also be responsible for providing members with certain information related to the plan on a regular, periodic basis. For example, administrators will be required to provide members with a written explanation of plan provisions, as well as the value of the accumulated contributions made under the plan since the member joined the plan.
Investments and Costs of Investments
The Act requires the administrator to offer the PRPP at a low cost to plan members. Administrators may offer a variety of investment options to plan members, enabling members to choose the option that is most appropriate for their particular investment needs and objectives. If investment options are provided, they must represent 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.
Each administrator will offer a default investment option. The default option must be appropriate for large pools of contributors potentially diverse in risk profile. If a plan member does not choose an investment option, the member will be automatically enrolled in the default option. The regulations will further prescribe the characteristics of the default option.
Role of the Employer
Employer participation in a PRPP is voluntary. Employers who choose to participate in a PRPP will be responsible for selecting a particular plan for their employees and enrolling their employees in the plan. Employees will be automatically enrolled in the plan chosen by a participating employer, but will have the option to opt out of the PRPP within 60 days.
Employers may choose to make contributions to the plan, and will be required to collect and remit contributions from the employee. A contract between an employer and the administrator will provide for the amounts in respect of employee contributions and employer contributions, if any, that must be remitted to the administrator, the frequency of those remittances and the consequences if they fail to comply with the provisions of the contract respecting those remittances.
Self-employed individuals and employees of an employer in the Yukon, the Northwest Territories or Nunavut that does not offer a PRPP will be responsible for tasks such as making the choice to enroll and remitting contributions to the administrator.
Employers will not be liable for any acts or omissions of the administrator.
The administrator will be responsible for setting members’ contribution rates and any increases to those rates. After deciding not to opt-out of the PRPP, each employee will retain the option to set his or her contribution rate to 0% at any time.
The Act includes locking-in provisions that are intended to ensure that funds are available for retirement income purposes. Funds in the members’ accounts are generally not permitted to be withdrawn. Subject to the regulations accompanying the Act, plan members may be permitted to withdraw funds from their accounts under certain circumstances (e.g., disability). Members who cease to be a member in a PRPP will be permitted to transfer the funds in their accounts in accordance with the portability options set out in the Act.
Plan members will be given the right of portability of funds subject to certain conditions. A member will be permitted to transfer the funds in his or her account to another PRPP or another pension plan, subject to the terms and conditions of that other plan. A member will also be able to transfer the funds to permitted retirement savings plans, or use the funds to purchase an immediate or deferred life annuity.
Since PRPPs will be offered to multiple employers, PRPPs are likely to have members from more than one jurisdiction and be potentially subject to the rules of more than one jurisdiction. Through agreement, a jurisdiction could delegate responsibilities such as licensing as well as oversight of other plan matters (i.e. registration, ongoing monitoring and compliance with disclosure requirements) to another jurisdiction. In addition to delegating oversight responsibilities, jurisdictions could agree to apply all or part of the pension standards legislation of another jurisdiction in order to simplify both supervision and compliance. The Act also gives the ability to the Minister of Finance to enter into bilateral or multilateral agreements with designated provinces with the purpose to either delegate federal supervisory authority of PRPPs to a province, or receive provincial supervisory authority of PRPPs.
It is the goal of the Government that all jurisdictions will adopt a highly harmonized framework and will agree to distribute supervisory responsibilities in a way that avoids duplication and costs while protecting employees’ interests.