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Canada Finalizes Initial PRPP Legislation

by Mike Godfrey,, Washington

05 November 2012

The Canadian government is pushing forward with its implementation of regulations for its new pensions vehicle, finalizing the first and publishing the final tranches of regulations.

The introduction of Pooled Registered Pension Plans (PRPPs) is intended to offer a new, low-cost, tax-efficient pension option to employers, employees and the self-employed. Under the scheme, workers will be able to "pool" their pensions through their administrators. Most of the administrative and legal burdens associated with a pension plan will be borne by a qualified third-party administrator, subject to a fiduciary standard of care.

Royal Assent was granted in July to the federal portion of the PRPP legislation, and the schemes will become available once the provincial governments have passed their respective legislation.

The first tranche of federal regulations was published in draft form in the Canada Gazette in August for a public comment period, prior to final approval by the government. Consultations were held with associations representing small businesses, employees, pension funds and financial institutions. According to Ted Menzies, Minister of State (Finance), the finalization represents an important step towards the creation of a new large-scale, low-cost pension option.

The regulations address a number of provisions of the Pooled Registered Pensions Act, as follows:

  • Licensing conditions for potential plan administrators that provide an additional level of protection to individuals and employers seeking to join a Pooled Registered Pension Plan (PRPP).
  • Investment rules that provide minimum safeguards to protect plan members’ interests, as well as flexibility to plan administrators regarding the investment and management of plan members’ funds.
  • Investment choices that provide enough flexibility to plan administrators to offer members investment options of varying degrees of risk and expected return.
  • Inducements that plan administrators will be allowed to offer and employers will be allowed to accept.
  • Low-cost criteria that provide a balance between flexibility, to ensure that competition and disclosure will drive down costs, and the provision of a transparent comparator to be used by administrators and the Superintendent of Financial Institutions to determine what constitutes low cost.
  • The rights and obligations of plan members and plan administrators with respect to setting the contribution rate to 0%.
  • Information that plan administrators must disclose to plan members, employers and the Superintendent of Financial Institutions in order to facilitate transparency and comparability across PRPPs and support informed decision making.

A second and final tranche of regulations have now been pre-published for public comment. They relate to:

  • 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.
  • Other technical rules related to the implementation of the framework.

“As soon as this last package of regulations is finalized, the federal Pooled Registered Pension Plans Act and regulations will be brought into force,” Menzies said. “PRPPs will then be available to the millions of Canadians without access to a workplace pension option as soon as provinces and territories implement their respective sides of the framework.”

TAGS: individuals | Finance | tax | investment | business | pensions | interest | employees | legislation | Canada | regulation

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