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Federal Portion Of Canadian PRPP Legislation Enters Into Force

by Mike Godfrey,, Washington

19 December 2012

The final tranche of federal regulatory changes required to implement a new Canadian pension vehicle has entered into force, along with the necessary tax rules.

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. Automatic enrolment will take place where an employer offers a PRPP. It is hoped that, once operational, PRPPs will allow many small business owners and their employees to have access to such a plan for the first time.

The regulatory proposals were pre-published in October for a public comment period, prior to final approval by the government. They form the final package of regulations needed to complete the federal PRPP framework.

According to Ted Menzies, Minister of State (Finance), their passage "marks a significant milestone for Canada’s retirement income system." Federal Budget legislation, containing the tax rules for PRPPs, also received Royal Assent last week. The tax rules will apply to both federally and provincially regulated PRPPs.

The schemes will become available once the provincial governments have passed their respective legislation. Menzies hopes that the federal government's "efforts can serve as a model for provinces to implement their respective sides of the framework."

The federal regulatory regime lays down rules for the following:

  • Licensing conditions for potential plan administrators that provide an additional level of protection to individuals and employers seeking to join a 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 flexibility to plan administrators to offer members investment options of varying degrees of risk and expected return;
  • Limits on 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;
  • The withdrawal of funds from a member’s PRPP account;
  • Variable payments from the funds in a member’s PRPP account;
  • Transfer options available to members and the conditions on the vehicles to which a member’s funds may be transferred;
  • Electronic means to satisfy requirements under the Act for communications with plan members; and
  • Other technical rules related to the implementation of the framework.

“I would like to extend my sincerest thanks to the provincial-territorial officials who collaborated in the extensive review process, and who helped make the development of the federal PRPP framework possible. I also extend my thanks to Canadians from across the country, including all the associations representing small businesses, employees, pension funds and financial institutions, who also took part in our consultations and helped ensure a sound regulatory framework for PRPPs,” Menzies concluded.

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

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