March 16 2011
The federal government is holding focused consultations with key stakeholders and industry groups regarding its proposed Pooled Registered Pension Plan (PRPP) (for further details please see "Pension reform in Canada: a national report card").
The federal and provincial finance ministers agreed to a framework for the PRPP at their meetings on December 19 2010 and December 20 2010. The PRPP will be a type of defined contribution pension plan which is administered by financial institutions, and possibly others, on a large-scale pooled basis. The intent of the PRPP is to enable smaller employers and the self-employed to participate in a pension plan with fewer administrative and regulatory complexities.
The federal government is now engaged in directed discussions to refine the concept before introducing draft legislation. While the basic framework of the PRPP is sound in principle, there are many details that need to be identified and examined.
In the initial draft framework finance ministers stated that insurance companies, trust companies and banks that have trust company subsidiaries will be eligible administrators. It is possible that other entities will also be eligible to be administrators (eg, of some of the large pension plans), provided that they can assume fiduciary responsibilities.
Duties of the administrator and employer
It is intended that the financial institution that acts as the administrator of a PRPP will have fiduciary responsibilities towards the plan members. The nature and extent of those responsibilities and the responsibilities of employers need to be detailed. It would be beneficial for an employer, for example, if a safe harbour were available for this type of plan, in order to exempt it from liability if certain standard conditions are met.
The PRPP should operate as a regular pension plan, subject to regulatory supervision by the provincial or federal pension regulator that would normally have jurisdiction over a pension plan based on where the majority of plan members and the industries in which the employer is engaged are located.
With regard to investment choices, many questions require addressing, including:
One of the purposes of the PRPP is to provide a low-cost retirement savings vehicle. In keeping with the Capital Accumulation Plan (CAP) Guidelines published by the Canadian Association of Pension Supervisory Authorities in 2004, full disclosure of all fees for each investment product offered within a PRPP should be required. One question to be addressed is whether the CAP Guidelines are sufficient.
Plan participation and enrolment
The framework document stated that the PRPP will accommodate jurisdictions that choose to require employers to offer the PRPP to their employees. It is anticipated that most jurisdictions will not impose mandatory employer participation. A further question relates to employee enrolment and whether it will be voluntary or mandatory with an opt-out feature.
At present, pension legislation across Canada is far from being harmonised. Some degree of harmonisation of the rules and regulations underlying the PRPP, regardless of the jurisdiction in which an employer or employee is located, would be helpful to encourage participation in and understanding of PRPPs.
It will be interesting to see what form the final PRPP will take, both from a regulatory standpoint and from a practical standpoint in terms of the attractiveness of the vehicle for employers and employees. If the fee savings are significant and an employer's responsibilities and potential liability are reduced in comparison to existing retirement plans on the market, the PRPP may become an attractive vehicle not only for employers that do not sponsor another retirement plan, but also for employers that sponsor other plans and may consider migrating to the PRPP.
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